Order management vs order fulfilment: Key differences explained

Order management and order fulfilment may seem similar if not the same, but they’re fundamentally different processes that work together to ensure customer expectations are met.

This guide clearly explains the core elements and processes of the two, how they feed into each other and their key differences.

You’ll learn about the role order management systems (OMS) and fulfilment software play and understand what to look for when choosing an OMS.

It covers the series of activities required to track a customer order and trigger fulfilment activities to ensure it’s delivered on time and to expectations. 

It involves capturing and validating the order from a sales channel, routing the order to a fulfilment centre (like a warehouse), managing customer communications and handling returns.

Typical owners — Operations, customer service

Within an eCommerce or third-party logistics provider (3PL), the operations team is responsible for setting the rules an order management system (OMS) uses to route orders for fulfilment. 

They also ensure the system has an up-to-date view of inventory as well as monitor warehouse KPIs to gauge performance and spot bottlenecks.

Meanwhile, the customer service team uses the OMS to access order details, so they can provide progress updates and answer customer questions.  

It covers the operational steps that take place within a warehouse or distribution centre. This includes the process of receiving stock, receiving fulfilment instructions for an order, picking and packing items and shipping to the customer.  

Typical owners — Warehouse, logistics, third-party logistics

If a business manages order fulfilment in-house, they coordinate the entire fulfilment process via their warehouse staff. Meanwhile, management of shipping carriers, including setting rules in the OMS for selecting the most cost-efficient carriers, falls upon the logistics team.

Some businesses may outsource the process to a 3PL, which handles everything from receiving the order to shipping it to the customer. 

Here we explain the stages an order progresses through once it’s placed by the customer until it's handed off for fulfilment:

Order capture and validation

The order is received by the order management system from a sales channel, such as a website, app, store POS system or a marketplace like Amazon. It captures what items are needed for the order, customer details and payment method.

Inventory promise/available-to-promise and allocation

The order management software checks if the ordered items are in stock, and if so, allocates the stock to the order. The system then connects to the payment gateway and funds are successfully charged.  

Order routing and orchestration

The system’s logic routes the order to the optimal fulfilment location. For instance, to be prepared and shipped via a warehouse or straight from the store.

Customer communications and exception handling

Automatic email or text notifications are sent via the order management software to the customer, notifying them of their order’s progress. If issues arise at the warehouse, the warehouse management system will notify the OMS, which then reroutes the order to another fulfilment location, if possible.

Let’s look at what happens at a warehouse or distribution centre before and after an order is received:

Stock receiving and putaway

Stock arrives at the warehouse and is inspected to ensure it’s the right quantity, type and in good condition. It’s transferred from the receiving dock and stored on a shelf, rack or bin.

Packing, quality assurance and labelling

Once order data is received at the fulfilment centre, items are retrieved and scanned by pickers before being placed into a package. Via scanning, the WMS will notify pickers in real time if they’ve retrieved the wrong item. The package is then weighed before a shipping label is applied.

Picking strategy and slotting

With the aim of maximising efficiency, a business will select a picking strategy based on their order profile. This can include discrete picking (picking items for one order at a time), batch picking (for multiple orders at the same time) or wave picking (orders are picked in waves at specific times of day). 

Slotting, which involves strategically placing stock in the warehouse, also contributes to efficiency. For instance, to minimise walking distances for packers, you should place fast-selling items closer to packer stations.

Shipping, tracking and return

The package is picked up by the courier and delivered to the customer. The operations team can track its progress via the OMS, which also sends notifications to the customer.

If returned, the package is received at the warehouse, inspected and its items put back in storage or disposed of.

Now that you understand the core components of each, let’s dig deeper into their differences.

Comparing objectives - Orchestrate demand vs execute supply

The objective of managing orders is to coordinate the activities required to make good on the customer purchase. This involves ensuring ordered items are in stock, finding the items, verifying the customer’s payment and routing the order to the most optimal fulfilment location.

Meanwhile, the objective of order fulfilment is to manage the physical processes that take place within a warehouse or distribution centre. The aim is to ensure processes required to receive stock and pick, pack and deliver an order flow as quickly and accurately as possible.  

Primary data flows - Orders/payments vs inventory/handling

The management of orders involves the OMS receiving the order data from the sales channel, including ordered items, their quantities and the customer address. The system authorises and captures payment data, before allocating the order to the optimal fulfilment location.

The order fulfilment process starts with software, typically a warehouse management system, receiving the fulfilment request from the OMS. The WMS then provides the OMS with a real-time view of inventory as items are picked, shipped or returned to the warehouse.

Success metrics for managing orders

Two key KPIs include:

On-time-in-full

Provides the percentage of orders that were successfully delivered on time and to the customer’s expectations. You can work it out with this formula:

On-time-in-full = (total orders delivered completely and on time / total orders placed) x100

Customer satisfaction

This can be gauged by tracking the order cancellation rate, which measures the proportion of orders that are cancelled by the customer. Use this formula:

Order cancellation rate = (total orders cancelled / total orders placed) x100

Order fulfilment success metrics

Two key KPIs include:

Pick rate

Tells you how efficient and productive pickers and packers are by measuring the amount of items picked per hour. The formula to use is:

Pick rate = total items picked / total labour hours in picking process

Cost per order

Measures the total cost of labour, materials and shipping required to process an order. You can use this formula:

Cost per order = total fulfilment operating costs / total orders shipped

Let’s dig deeper into the details to see how order management software (OMS) interacts with a warehouse management system to trigger the fulfilment process.

OMS signals drive fulfilment actions  

After receiving the customer order, the OMS ensures the promise to the customer can be met. This involves confirming the customer’s address and checking that ordered items are in stock.

Depending on these factors and the customer’s desired delivery speed (for example, standard or next-day), the OMS calculates an expected delivery time. The system then allocates the ordered items against the sales order to ensure they’re not sold elsewhere. 

Next, the OMS routes the order to the optimal fulfilment location via its pre-set rules. These rules are based on criteria like the lowest shipping cost or the closest location to the customer. 

Finally, the system communicates with the warehouse management system (WMS) to trigger the order fulfilment process. It tells warehouse staff about the items required, the delivery address and delivery method. Items are then picked, packed and shipped from the location.

Feedback loop - Inventory updates, exceptions and returns flow back to OMS

While the order is being fulfilled at the warehouse, the WMS will update inventory in real-time to account for the picked items. If any issues arise during fulfilment, the WMS will flag the exception and alert the order management software. This allows the OMS to reroute the order to another fulfilment location (if possible) and prompt the customer service team to alert the customer of delays.

Once the order is packed and shipped, the WMS transmits the tracking number and final costs to the OMS, which then triggers a customer email alerting them of their order’s shipment.

If an order is returned, the WMS will capture details related to the inspection of returned items and update inventory levels once they’re back in storage. It communicates with the OMS to trigger the customer refund and update inventory levels across all sales channels.

Here we recap the key processes an OMS and WMS perform and explain the integrations they rely on:

Order management system

Order capture: The OMS receives order details from the sales channel, including desired items, quantity and delivery address

Allocation: It reserves items for the order and updates inventory levels to prevent overselling

Routing: Automated logic chooses the optimal fulfilment location and sends a fulfilment request to the WMS

Customer updates: Automated notifications inform customers of their order’s real-time status.

Order fulfilment software and tools

Inventory visibility: The WMS provides the OMS with a real-time view of the quantity and location of warehouse stock

Task assignment: The WMS receives the fulfilment request from the OMS then assigns pick lists and directions via mobile scanners to warehouse staff

Picking and packing: Staff are assigned optimal picking paths, pick lists and mandatory quality control scanning via the WMS.

Integrations

In addition to the OMS and WMS working in tandem, the end-to-end fulfilment process relies on integrations with third-party platforms. These are facilitated by APIs (application programming interfaces) or webhooks.

Key integrations include those with:

ERP (enterprise resource planning) systems: To transfer financial data, like cost of goods sold, tax and inventory valuation data

Payment gateways: To verify, authorise and capture customer payment

Sales channels: To synchronise order capture and updated inventory data with marketplaces or a store POS.

With so many systems on the market, it’s often hard to know what capabilities your business needs. Let’s look at six of the most important factors to keep in mind during your search:

Ensure it fits your workflows

The system must not only meet your current but also future needs. Here are the key capabilities it should offer:

Omnichannel: The system must unify order data and inventory visibility across all sales channels, including your website, marketplaces or in-store POS

Pre-orders: It should provide the ability to finalise orders for items not yet in stock and allocate the items once they’re received at your warehouse

Store pickup/dispatch: The system must allow you to use physical stores as fulfilment centres, so online customers can pick up orders from the store or you can ship to them directly from the store.

Integration fit

Integrations are key to having order management software that grows with your needs and won’t require complex and costly custom integrations down the track. Look for a solution that’s built to seamlessly integrate with the following:

ERP: The OMS should have an API to allow for connectivity, so financial data automatically transfers between the two

Transport platforms: Look for order management software that has native integration with transport platforms. Connectivity is critical to route orders and provide shipping status updates to the customer.

Fulfilment software: Some leading cloud-based solutions offer OMS and WMS capabilities within a single platform, making your workflows far more streamlined

Sales channels: Built-in or API connectivity with marketplaces, store POS systems or websites are critical to ensure order data and inventory updates are performed by the OMS.

Scalability and peak-season performance

Ensure you choose an order management system that can provide reliable performance as the demands of your business grow. Ask sales reps if your system can handle a growing amount of users and data as orders increase during peak periods or over the long-term.

Usability and support

An intuitive solution is key to simplifying the administrative and operational side of things. Sign up for demos and free trials to get a feel for the interface and functionality. See if the solution makes it easy to set and manage order routing rules, monitor sales channels and configure new sales channels.

It should offer an easy-to-use dashboard for customer service reps to instantly locate orders and understand their status.

Vendor support is critical for a successful OMS or warehouse management system implementation. Ask sales reps what kind of implementation and ongoing technical support they offer.

Security, compliance and data residency

Unlike on-premise solutions, cloud-based order management software is hosted in the cloud by your vendor, rather than on your own servers. Its security is therefore far more advanced.

Cloud-based systems offer encryption, multi-factor authentication, firewalls and role-based access controls. All security updates are automatically performed by your vendor in the cloud.

In terms of data security, it’s important to look for an Australian vendor to ensure your data is hosted locally. This, along with the robust security of a cloud-based solution, helps ensure your business is compliant with legal obligations, including those around data privacy.

Total cost of ownership and roadmap alignment

It’s important to work out not only the initial costs of a system, like software licenses, implementation fees and hardware, but also those incurred over the long term. 

Ongoing costs can include recurring subscriptions, staff training, technical support and maintenance. You can calculate your total cost of ownership for a given period using this formula:

TCO = Upfront costs + ongoing costs

When assessing different vendors, check if they’re investing in the development of the solution. It’s worth researching the vendor’s financial performance, as this can indicate how likely they are to invest in upgrading the solution’s capabilities. 

Access Mintsoft unifies order and fulfilment management in a single platform that helps you save time with powerful automation and gives you end-to-end visibility of your operations.

Watch our 4-minute video tour to get a glimpse of its features and understand why it’s trusted by 600+ fulfilment houses, 3PLs and online retailers worldwide.