What is Order Processing, and how can I make sure it is being done right?

June 5, 2014

Order processing’ is actually a very broad term, used to refer to all of the processes followed to fulfil any order placed by a consumer for a good or service, including picking, packing, and transporting the package to a shipper for delivery. It is the heart of order fulfilment, and usually takes place in a distribution centre.

Order processing starts when an order is taken from a customer. More and more, these orders are taken online, but telephone and written orders are still a part of the process. Order processing ends when the customer actually receives the products, and accepted that the delivery is complete, accurate and satisfactory. As you might guess, the complicated parts are between those points, and can vary dramatically between different distribution centres and between different goods or services.

There are a few broad categories of order processing that we will examine

Some orders can be processed instantly – usually software, music or ebook downloading. In this case, order fulfilment is little more than processing the customer’s payment and initiating the upload to the customer.

Orders of physical goods are quite common, and require a much more complex process. The order is placed by the customer either in writing, by telephone, or through an online storefront. Occasionally, orders are made in person at a brick-and-mortar store, and sent to the distribution centre electronically or by other means.

However they arrive, orders are routed to the distribution centre. Some large companies maintain or contract several smaller, local distribution centres located near large population centres or convenient transport routes. Smaller companies rely on one or two distribution centres. Next, a ‘pick and pack’ process sees the correct products collected from the warehouse and assembled into a package for shipping.

Once the order is delivered to the customer, it is (eventually) opened and inspected. Only after the customer verifies that the goods they have ordered have been delivered correctly and in an undamaged state is order processing really considered complete. If the package is damaged, contains the wrong goods, or fails to live up to the agreement with the customer in any way, they can be returned and order processing continues until the issue has been resolved in some way, most often by delivery of replacement products or issue of a refund.

How can you achieve an efficient order process?

An efficient order process is vital to a good business plan, and many companies invest millions just in planning and creating a process. Four things are key to an effective order processing solution: efficiency, and the three factors of accuracy, speed, and customer satisfaction.

An order processing solution is efficient if it achieves its goals at a low cost. Balancing performance and cost for an efficient process is the job of the logistics manager. Accuracy is generally measured by the process’s ability to get the right product to the right customer, often within an agreed-upon time. This dovetails with speed. Many customers demand very short turn-around time between placing an order and receiving it. If you are selling same- or next-day delivery, your order processing needs to be extremely responsive. Customer satisfaction may be the most important of the four. Repeat business can make or break an online retailer, and bad customer service has lost more customers than poor quality or lack of advertising combined.

Many smaller businesses find that they cannot compete on all four levels efficiently, and seek out third party logistics partners or fulfilment houses to take over some or all of the order processing function to remain competitive.

Efficiency is the most talked about aspect of order fulfilment, as it defines whether or not the process is making or losing money. The process is often controlled or directed by a software package called a WMS, or warehouse management system. These are fairly expensive systems to implement, but give a substantial boost to the efficiency of medium to large operations, and more than pay for themselves. Because they are expensive, many smaller operations choose to outsource their order processing function to a fulfilment house who is likely to use a top of the line WMS, and take advantage of other process efficiency measures.

A very efficient order processing system has a few key elements. It should have a way to verify that incoming orders are passed on accurately, and reasonably reflect customer expectations. After all, doing exactly what you’ve been told doesn’t make money if it isn’t what the customer actually wants.

A verified order should then be fulfilled accurately. The necessary products need to be collected by the pickers quickly without error. At the packing station, the collected order must be assembled into a safe and secure package that minimises the risk of damage, is easy to ship, and is itself inexpensive. Lastly, the package should be shipped out quickly.

If any of these tasks are mishandled, the odds of making the customer unhappy increase substantially. The order may be returned, adding expense, and if not handles correctly the customer’s return business can be lost forever.

Specifically, though, the process is different for each type of product. Some of the factors that you will have to consider when designing your order fulfilment process (or deciding who to contract it out to) include:

  • The nature of your products – Fresh food requires a vastly different set up to CDs or DVDs, after all.
  • The way your customers order – do they order in bulk, or singly? Mixed lots or by type?
  • The way you package your orders – Jiffy bags? Standardised cartons and bubble wrap? They all require different procedures.
  • How much you will charge for shipping – if at all.
  • The nature and productivity of your workforce – will you use automated, manual or mixed processes?
  • Delivery windows – depending on your choice of carrier, meeting customer expectations can be difficult.
  • How much you can spend up front, and monthly – Some of the most effective solutions are very expensive.
  • The average value of your orders – low-value orders often don’t rate top-quality order processing.
  • Seasonal changes in demand – can you handle the Christmas rush?

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