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What Is Order Management? Process, OMS Software and KPIs
Key takeaways
Order management takes a customer's order through to delivery, payment, and any return on every channel you sell on.
An order management system (OMS) is the software that coordinates that process. In many small businesses, it is part of the inventory system.
Business-to-business (B2B) and business-to-consumer (B2C) orders move differently: consumers usually pay before shipping, and trade buyers often after it, on credit terms.
The perfect order rate combines four measures by multiplying them, so small gaps in each add up.
Introduction
Three orders arrive in the same hour. A shopper buys the last unit of a product on your website. Ten minutes later, a marketplace customer orders the same unit. Then a wholesale buyer emails a purchase order for twenty more.
Only one of those orders can ship today, and someone has to decide which. Without a set process and a single record of every order, stock gets sold twice, invoices go out late, and customers phone to ask where their goods are.
That decision, and every step after it until the goods arrive and the money is in, is order management. This guide covers the process, the order management system (OMS) that runs it, and when that system is worth paying for.
What is order management?
Order management is the process of taking a customer's order and seeing it through to delivery: checking stock and payment, reserving the goods, picking, packing and shipping them, invoicing, and handling any return. It covers every order from every channel, so stock is not sold twice and customers know where their order is.
The process starts when an order is placed or, in wholesale, when a customer accepts a quote. It ends when the goods have arrived, the invoice is paid, and any return is settled. Definitions differ at the edges: some sources start earlier, at the stock check a shopper sees before ordering, and some stop at delivery.
Order management is a process, not a product. A shop taking twenty orders a week can run it well with a storefront admin and a spreadsheet. An order management system is the software layer that coordinates the same process once that stops working.
What is an order management system (OMS)?
An order management system (OMS) is software that runs the order management process. It collects orders from every sales channel in one place, checks and reserves stock, sends each order to the right warehouse, tracks it through shipping and invoicing, and keeps customers updated until delivery.
OMS is short for order management system, and what one covers varies widely by product. A small-business system may capture, reserve, and ship orders. An enterprise system may also choose fulfillment locations, promise delivery dates, and handle exchanges, orchestrating the decisions and handoffs that move each order forward.
An OMS handles sales orders, the orders customers place with you. Purchase orders you send to your own suppliers belong to purchasing. The two meet in wholesale: when a trade customer sends you their purchase order, it becomes a sales order in your system.
The OMS sits between your sales channels and your stock. Channels send orders in; the OMS decides what ships, from where, and when, then records each step so anyone can see where an order stands.
The order management process, stage by stage
Most orders pass through eight stages. Small operations merge some of them, and whether invoicing comes before or after shipping depends on who the customer is.
Stage | What happens | Typical record | Common failure |
Capture | Orders arrive from the website, marketplaces, sales reps, email, or electronic data interchange (EDI) and land in one list. | Sales order | A marketplace order sits unseen in a separate login, or an emailed order is keyed in twice. |
Validation | The order is checked for stock, price, the customer's payment or credit status, a deliverable address, and missing details. | Confirmed order, or an order on hold with a reason | A trade customer is charged the retail price, or a bad address is only found by the carrier. |
Allocation | Stock is reserved against the order, and a warehouse is chosen; the order is split if one location cannot fill it. | Stock reservation and warehouse assignment | The same unit is promised to a second channel because stock levels had not yet synced. |
Picking and packing | Staff collect each item, check it against the order, and pack it. | Picklist and package record | The wrong size or color is picked, or a large box pushes the parcel into a higher rate |
Shipping | A label is printed, the carrier collects, and tracking details go to the customer. | Shipment and tracking number | Tracking is never sent, so the customer phones to ask. |
Invoicing and payment | B2C orders are usually paid at checkout, before shipping. Many B2B orders are invoiced after shipping and paid later on agreed credit terms. | Invoice and payment record | The invoice goes out days after dispatch, and payment slips by the same amount. |
Delivery confirmation | The carrier confirms the goods arrived, and the order moves to closed or awaits payment. | Proof of delivery | A customer disputes the receipt, and there is no proof on file. |
Returns and after-sales | A return is approved, the goods are inspected, then restocked or written off, and a refund or credit is issued. | Sales return and credit note or refund | Goods go back on the shelf uninspected, or the refund is paid before anything comes back. |
Stages 4 and 5 are fulfillment, the physical handling of the goods. Order management decides what is picked, from where and when, and records the result; the floor work is covered in the guide to picking and packing, and returns are in the guide to sales returns.
When stock runs short
Allocation is where a shortage shows up, and there are four ways forward. A backorder keeps the order open and ships it once new stock arrives. A dropshipment passes the order to a supplier, who sends the goods straight to your customer. A split shipment sends what you have now and the rest later, at the cost of a second delivery. Canceling the short lines is the last resort.
Which fits depends on the customer. A wholesale buyer restocking shelves will often accept a split delivery; a consumer who paid for one parcel may rather wait or cancel. Ask first, and record the choice on the order.
Order statuses and what each one means
A status tells everyone where an order stands and whose move it is. Labels vary between systems; the meaning is what matters.
Status | What it means | Who acts next? |
Draft | Entered but not confirmed; no stock reserved | The sales rep or customer to confirm |
Confirmed | Checks passed and stock reserved | The warehouse, to pick |
Partially allocated | Some lines are reserved; the rest are waiting for stock. | The sales rep agreed to a backorder or split with the customer. |
Packed | Picked and packed, awaiting a label or collection | Whoever books the carrier |
Partially shipped | Some packages have left; the rest are still to go. | The warehouse, to ship the remainder |
Shipped | With the carrier, tracking live | The carrier; customer service watches for delays. |
Delivered | Delivery confirmed by the carrier | Accounts, to invoice or match the payment |
Invoiced or paid | Invoice raised, and either settled or due on terms | Accounts receivable, to collect |
Returned or closed | A return is in progress, or nothing is left to do | The returns team for a return; nobody for a closed order |
The sequence is not fixed: a consumer order is usually paid before it is confirmed, while a trade order is often invoiced at or after shipping. Check the two partial statuses daily. Both mean a customer is still waiting, and both are easy to forget once the first part of the order has gone.
Order management in B2B vs. B2C
A consumer order and a wholesale order pass through the same eight stages, but almost every detail inside them differs.
Factor | B2C order | B2B order |
Where it comes from | Website checkout or a marketplace | A sales rep, email, phone, EDI, or a trade portal |
Pricing | One public price, plus any promotion | A customer-specific price list, volume tiers, or a negotiated contract |
When payment happens | At checkout, before shipping | Often after shipping, on credit terms such as 30 days (illustrative) |
Order size | A few lines in small quantities | Many lines in case or pallet quantities |
Fulfillment pattern | One parcel, shipped fast | Scheduled deliveries, partial shipments, and backorders are more often accepted. |
Documents | Order confirmation, receipt, shipping notification | Quote, the buyer's purchase order, your sales order, delivery note, invoice |
The document chain is where B2B catches people out. A buyer asks for a quote, accepts it, and sends their own purchase order. You turn that into a sales order, ship against it with a delivery note, and invoice afterwards. If the quantities or prices on those documents disagree, the invoice gets disputed and payment waits.
Many small businesses take both kinds of order at once, so one process and one stock record need to handle both, rather than a wholesale spreadsheet nobody reconciles with the web shop.
Order management vs. order processing vs. order fulfillment
Order processing prepares an order. Order fulfillment moves the goods. Order management coordinates the entire lifecycle.
Processing is about a single order: entering it, checking it, and getting it ready to ship. Fulfillment is the physical work of storing, picking, packing, and shipping the goods. Management spans every order and channel, from capture and allocation through to invoicing, returns, and the reporting that shows where orders get stuck.
Fulfillment is the part most often handed to someone else. A business can pass picking, packing, and shipping to a third-party logistics (3PL) provider and still run order management itself, because it still owns the order, the stock record and the customer.
What an order management system does: core features
Products differ in how many of these functions they include. Read the last column first: it shows which ones your operation needs now.
Feature | What it does | You need it when |
Order capture across channels | Pulls orders from the web shop, marketplaces, email and EDI into one list | You sell in more than one place and re-key orders by hand. |
Stock sync and reservation | Updates available stock on every channel as orders come in, and holds units for confirmed orders | You have oversold an item, or you buffer stock on each channel to avoid it. |
Allocation rules | Decides which warehouse fills an order and when to split it | You hold stock in more than one location. |
Backorders and dropships | Keeps short orders open, or passes them to a supplier to ship | You sell items you do not always hold |
Picking, packing and shipping documents | Produces picklists, packing slips and labels from the order | Picking errors or slow dispatch are costing you |
Carrier and tracking integration | Books shipments, prints labels and sends tracking to the customer | Customers regularly ask where their order is |
Invoicing and payment integration | Connects order and payment information with accounting or payment systems | Invoices lag behind shipments, or trade customers pay on terms |
Returns | Logs the return, records inspection and restocks or writes off the goods | Returns are frequent, or refunds go out before goods come back |
Customer notifications | Sends confirmation, dispatch and delivery messages | Support time goes on status questions |
Reporting | Shows order volume, cycle time, backlog and errors by channel | You cannot see where orders get stuck |
Types of order management systems
Order management systems differ in scope, from a storefront's admin screen to a dedicated system. Most businesses meet them in this order.
Order management in an ecommerce platform's admin: Handles orders from one storefront, with basic stock and shipping. It suits a business selling through one online shop; marketplace and trade orders sit outside it.
An inventory management system (IMS) with order management: Holds stock across warehouses and takes sales orders from several channels through to shipping, invoicing and returns. Most small and mid-sized multichannel businesses start here, often with B2B and B2C orders together. Advanced routing across many locations is usually absent.
An order management module within an enterprise resource planning (ERP) system: Runs orders inside the system that also handles accounts, purchasing and planning. It fits businesses already committed to that ERP, and its order features go only as deep as the vendor's module.
A standalone order management system: Handles orders in depth and connects to separate stock, warehouse and accounting systems. It suits high-volume sellers with complex channels or fulfillment, at the cost of integrations to build and maintain.
Distributed order management (DOM) is a capability rather than another tier: it routes each order across many stock locations, such as warehouses, stores and supplier sites, by rules. It matters once stock is spread across many sites.
Any of these may run in the cloud or on-premise; choose the scope first and the deployment second.
Order management systems vs ERP, inventory and warehouse management systems
Each of these systems answers a different question about the same orders and stock. Knowing which question is causing you trouble tells you which system to look at.
System | Main question it answers | Typical owner | Example records |
Order management system | Where is each customer order, and what happens to it next? | Sales operations or customer service | Sales orders, allocations, shipments, returns |
Inventory management system | How much stock do we have, where, at what cost, and when do we reorder? | Inventory or purchasing manager | Stock levels, reorder points, transfers, stock value |
Enterprise resource planning system | How is the whole business performing? | Finance and senior management | Ledgers, purchasing, payroll, financial reports |
Where is each unit inside the building, and who moves it next? | Warehouse manager | Bin locations, putaway tasks, pick routes |
The boundaries overlap in practice. Many inventory systems include order management, because an order cannot be confirmed without knowing what stock is free. For a small or mid-sized business, that combined system is often the whole answer.
Many ERPs also include order and inventory modules, while larger businesses often connect a dedicated order system to their ERP instead. A WMS joins later, once the warehouse floor needs its own system.
Does your business need an order management system?
You do not need an order management system because you pass a revenue figure or an order count. You need one when coordinating orders by hand becomes a recurring source of errors, delays or overselling. Most businesses move through three tiers; the scales below are illustrative, not thresholds.
Spreadsheet and storefront admin. Typical with one or two channels, a few orders a day and one stock location, while one person still sees every order.
Inventory system with order management. Typical with several channels, dozens to hundreds of orders a day and one to a few warehouses. Move here when you sell on three or more channels, oversell more than occasionally, take trade orders with their own prices and terms, or hold stock in a second warehouse.
Dedicated order management system, with DOM where needed. Typical with many channels and stock locations, including stores, and high daily volume. Move here when orders regularly need routing between several locations and choosing where each one ships from slows dispatch.
If none of those signs apply, fix the process before buying software.
Order management key performance indicators (KPIs)
Eight KPIs cover most of what can go wrong. Measure them over the same period, such as a month, and record a baseline before changing anything.
KPI | Formula | What it tells you |
Order cycle time | Average of (ship date minus order date) across orders shipped in the period | How long customers wait before an order leaves |
On-time shipping rate | Orders shipped by the promised date ÷ orders shipped × 100 | Whether dispatch promises hold |
Order accuracy | Orders shipped with the right items and quantities ÷ orders shipped × 100 | How often picking and packing get it right? |
Line fill rate | Order lines shipped in full on the first shipment ÷ order lines ordered × 100 | How often stock is there when needed? |
Backorder rate | Orders with at least one line on backorder ÷ orders received × 100 | How often do you take orders you cannot fill at once |
Return rate | Units returned ÷ units shipped × 100 | How often the product, listing or fulfillment disappoints |
Cost per order | Total order handling cost (labor, packaging, shipping and systems) ÷ orders shipped | What each order costs to handle, excluding the goods |
Perfect order rate | On-time rate × complete rate × damage-free rate × correct-documentation rate, each as a decimal, × 100 | The share of orders with nothing wrong at all |
For the warehouse-side measures behind several of these, see the guide to warehouse KPIs.
Worked example: the perfect order rate
The perfect order rate is the product of its parts, not their average. Take an illustrative month in which 96% of orders ship on time, 98% ship complete, 99.5% arrive undamaged and 99% carry correct paperwork.
The perfect order rate is 0.96 × 0.98 × 0.995 × 0.99 = about 92.7%, while the average of the four rates is 98.1%. Out of 1,000 orders, about 73 had at least one thing wrong.
Four good numbers combine into a much weaker one. Multiplying assumes the four failures are unrelated, so the result is an estimate. Where your records show each order's result on all four tests, count the orders that passed every one and divide by orders shipped. That direct count is more exact; the product is the fallback when you only have the four rates.
How to choose an order management system
Six questions narrow most shortlists. Ask each vendor to show the answer on a demo with your own orders, not a slide.
Channels and integrations: Does it connect to every place you sell, plus your accounting software and carriers, without custom work?
Stock sync speed: How quickly does a sale on one channel reduce available stock on the others? Minutes of delay is enough to oversell a fast item.
Allocation rules: Can it choose a warehouse and split orders the way you would, or does every multi-location order need a person?
B2B features: Does it handle customer price lists, quotes and credit terms alongside consumer checkout?
Shipping and carrier coverage: Does it print labels and send tracking for the carriers you use in the markets you ship to?
Cost and setup time: What will it cost over three years, including setup, integrations and training, and how long until the first real order goes through it?
Where Zoho Inventory fits
Zoho Inventory is an inventory management system with order management built in, made for small and mid-sized businesses selling across several channels. It sits in the second tier above: one stock record and one order list for web, marketplace and trade orders, without a separate order system to integrate.
Mapped onto the process stages above:
Capture: sales order management; multichannel selling through Amazon, eBay, Walmart, Etsy, Shopify, WooCommerce and Zoho Commerce integrations; Zoho CRM integration.
Validation and allocation: multi-warehouse stock, reorder notifications, serial and batch tracking.
Short stock: backorders and dropshipments.
Picking, packing and shipping: picklists, packaging and shipping, package geometry, UPS, USPS, FedEx and Easyship integrations, post-shipment tracking.
Invoicing and payment: invoicing, with Stripe, PayPal and Zoho Payments integrations.
Returns: sales returns.
B2B data exchange: EDI integrations with SPS Commerce, Crossfire and Infocon Systems.
A business that needs orders routed across many stores and warehouses by rules needs a distributed order management system rather than this tier.
Frequently Asked Questions
Order management is everything a business does between receiving a customer's order and closing it: checking it, reserving stock, picking, packing and shipping, invoicing, collecting payment and handling returns. Done well, every order from every channel sits in one place, so nothing ships twice and nothing is forgotten.
An order management system (OMS) is software that coordinates customer orders from one record. It brings in orders from every channel, reserves stock, chooses where each order ships from, and tracks it to delivery and returns. How much it covers varies by product. Buying stock from suppliers belongs to purchasing.
Most orders pass through eight stages: capture, validation, allocation, picking and packing, shipping, invoicing and payment, delivery confirmation, and returns. The order of invoicing and shipping varies. Consumers usually pay at checkout, before anything ships, while many business buyers are invoiced after shipping and pay later on agreed credit terms.
Order fulfillment is the physical work of storing, picking, packing, and shipping goods. Order management is wider: taking and checking orders, choosing where they ship from, invoicing, payment, returns, and reporting. A business can hand fulfillment to a third-party logistics (3PL) provider and still manage its own orders.
An order management system (OMS) follows customer orders from capture to delivery and returns. An enterprise resource planning (ERP) system runs the wider business: accounts, purchasing, payroll, and often inventory. Some ERPs include an order module; larger businesses often connect a dedicated OMS to their ERP instead.
An inventory management system (IMS) tracks how much stock you hold, where it is, what it costs, and when to reorder. An order management system (OMS) tracks each customer order and what happens to it next. The two depend on each other, which is why many inventory systems for smaller businesses include order management.
Distributed order management (DOM) is software that decides which of many stock locations should fill each order. It weighs stock in warehouses, stores, and supplier sites, then routes or splits the order by rules. It suits retailers with stock spread across many sites; most small businesses never need it.
Most small businesses do not need a standalone order management system (OMS) at first. With one or two channels and one stock location, a storefront admin is enough. Once orders come from several channels, oversells start, or trade customers need their own terms, an inventory system with order management usually covers it.
A perfect order is one that ships on time, arrives complete and undamaged, and carries correct paperwork. The perfect order rate multiplies those four rates. For example (illustrative), 96% on time, 98% complete, 99.5% undamaged, and 99% correctly documented gives about 92.7%, much lower than any single figure.