Order Please

When French Toast School Uniforms LLC went online in 1998, order management was almost the farthest thing from President Michael Sutton’s mind. “I initially thought, What’s the big deal?” Sutton recalls. “I thought all we needed an order management system for was to track the orders and do the financial processing.”

Many retailers who went online during the rush, especially those who had not sold direct before, had a similar reaction. But they since have found out what the big deal is. “I didn’t understand the frequency and complexity of exceptions,” Sutton says. “20% of orders require an inordinate amount of our time.”

FrenchToast.com is the online marketing operation of Lollytogs Ltd., manufacturer of children’s clothing that started selling school uniforms in 1991 through retailers. In response to customer requests for items that local retailers did not stock after the start of the school year or for low-demand sizes that retailers did not stock at all, Lollytogs began selling direct in 1998 with a web site and a catalog. FrenchToast.com executives quickly learned the vagaries of direct selling. “An order management system needs to accommodate any path an order might go,” Sutton now says.

Order management is widely recognized as the key that makes fulfillment work. But it is just now being understood as a key part of the supply chain as well. And as a key part of a customer relationship management system. “Order management is the piece that ties the supply chain and the value chain together,” says David Himes, senior vice president of business process solutions for NewRoads Inc., an outsourced provider of e-commerce services. “It’s the centerpiece in how you satisfy the needs of a customer who has placed an order.”

Handling it all

To fill their role as the key link throughout a retailer’s operation, order management systems must not only accept and track orders, but also be able to tell the warehouse that the fulfillment center needs more product, tell the supplier that the retailer needs replenishment on a certain item, keep the customer relationship management database up to date and report to the marketing department how well its campaigns are functioning.

“It’s no longer enough to take the order and tell the customer when she will receive it,” says Donny Askin, CEO of CommercialWare Inc., a supplier of order management software. “The order management system is a foundation for so much more.”

And with the rise of multi-channel retailing, it’s the foundation for all that happens in all channels. “We expect our order management system to handle it all—mail orders, phone orders and web orders,” says JoAnn Muegge, application software support manager for Miles Kimball Inc., a $140 million-a-year retailer of greeting cards and specialty housewares. “And we expect consistency so we can move from mail to phone to web easily.”

Even the simplest kinds of orders involve a degree of complexity that order management systems must be able to handle. Take personalization, for instance. At Miles Kimball, personalization is big business. Throughout the year, 40% of orders require personalization in the form of return address labels or names on pencils, mugs or backpacks. During the holiday season that increases to 50% as customers order personalized Christmas cards as well as other items.

Personalization creates not only the challenge of making sure the personalization is correct but also the challenge of making sure that personalized items and standard items in the same order, each of which can take a different route through the fulfillment center, get packaged together and shipped correctly. Thus Miles Kimball requires its order management system to be able to split orders to direct them to the correct personalization station as well as to the correct picking area.

Check and balances

To that end, it has developed an interface to the order management system it operates from Ecometry Inc. Before anything happens, an employee manually verifies all personalization orders that come in over the phone to make sure the phone rep entered the information correctly. Web orders do not receive such scrutiny, except for Christmas cards. Then the system processes the order for payment and only then does it assign a particular item in inventory to the order. From there, the system splits the order into its components, breaking out each personalized product, sending instructions to the personalization software, which resides on a server, and creating a separate work ticket for each item.

Employees scan each work ticket at the personalization device; that scan pulls the personalization information from the server. Once personalization is complete, the items are consolidated into one order at a staging area and from there they go to the packing area. The order management system manages the entire process, making sure that every step is fulfilled and all the right items end up in the right box with the right label. “We customize a lot of products and we need a lot of checks and balances,” Muegge says.

But even beyond dealing with the actual order, order management systems need to feed into upstream and downstream databases. Miles Kimball’s system, for instance, reports replenishment needs to the warehouse in case quantities so as items sell out of the fulfillment center, warehouse pickers can send new ones in.

Then the systems need to report even deeper into the supply chain. “The supply side of the equation has become of increasing importance,” Askin says.

Consider this scenario: A customer orders an item. The order management system sees that the retailer is out of stock. But if it can look into the supply chain, it may also see that the retailer ordered replenishment stock and the manufacturer is due to ship the order within a day or two. Or perhaps it even sees that the new merchandise is on a truck on its way to the warehouse. In the Internet age when it is so easy for a customer to simply click from one retail site to another, a retailer might be able to save a sale by taking the order and giving the customer an expected delivery date within a few days.

The order management system also needs to feed into a manufacturer’s inventory and fulfillment center if the manufacturer is drop shipping for the retailer, with many of the same issues of timing and availability. “You have to capture that global inventory visibility regardless of the fulfillment source,” says Will Fox, vice president of product strategy for Yantra Corp. “You need good information on what you have on hand or what’s in transit.”

And the same holds for re-ordering, industry participants say. An order management system needs to report sales to the re-ordering system so that as stock dwindles, the merchant can order more. “Our Ecometry package feeds into the inventory forecasting management system and creates a purchase order for various vendors,” says Karl Kroeplin, vice president of information technology for Miles Kimball. “That’s an important part of the package.”

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Feeding into CRM

But in addition to going back into the supply chain, order management systems also need to feed into the customer relationship management systems. “CRM systems depend on the order management systems for all the data and a large percent of functionality,” Himes of NewRoads says. Some order management systems come with CRM functionality as simply another part of the e-commerce services that the vendor provides. Others are designed to feed into CRM systems from other vendors.

And finally the order management system needs to connect with the marketing program to report the results of marketing campaigns. “Order management systems need to be able to report to marketing departments such things as the results of different test offers and of specific campaigns,” says John A. Marrah, president and COO of Ecometry.

FrenchToast.com started its direct-to-consumer business believing it could perform order management by itself. “The requirements grew exponentially as we got into all the different parts of direct selling,” Sutton says. “For instance, we had to know how to handle the freight and sales tax requirements for split shipments, how to handle returns against split shipments, how to handle the order if part of it was a gift. After dong it manually ourselves for the first year, we started looking for a system that could accommodate all the requests we got.”

Sutton took a simple approach to identifying vendors who could help: “We asked all the questions our customers had asked of us,” he says.

As with any technology investment, the cost of implementing an order management system will vary based on the size of the retailer. Small retailers can buy off-the-shelf small systems for a few thousand dollars, then scrap them in favor of more sophisticated systems as the company grows. At $5 million in sales, a retailer can implement an Ecometry system for $50,000 to $70,000, Marrah says. At about $20 million in annual revenue, a retailer could spend $400,000 to get an entry-level system from CommercialWare, Askin says. Yantra systems cost into the seven figures, Fox says. Or retailers can outsource to a provider like NewRoads.

The benefits of doing it in-house vs. outsourcing have been widely debated in many areas of technology and retailing. The same arguments pro and con apply here, analysts say, including the primary questions of the amount of direct control a retailer wants over a system and the amount of money a retailer wants to invest in hiring in-house support staff and in upgrades as they become available.

Flexibility

FrenchToast.com outsourced for the customer service and fulfillment expertise of NewRoads, Sutton says, leaving FrenchToast to do what it does best. “We know school uniforms and that’s what we wanted to focus on,” Sutton says. “We’re leveraging the expertise of the people and the systems at NewRoads.”

Some observers place the size of the order management market at about $200 million, but some caution that the market for order management systems is being absorbed by broader e-commerce systems. “The b2c space is very finite because the lines are becoming fuzzier,” Askin says. “We are expanding our reach into a broader retail application and in two or three years, the silos will dissipate.”

Vendors of order management systems are doing their best to make those lines disappear. But until they do, retailers need to carefully examine claims of what an order management system will do and make sure that the system fits the strategic direction of the company. “We bend over backwards to accommodate every request a customer could have,” Sutton says. “So it was very important for us to automate and to do it in a way that could offer the level of flexibility that consumers want.”

kurt@verticalwebmedia.com

What to expect of an order management system

As the pivotal point between customers and supply chain, order management systems must: