What to Look For

Multi-channel retailers are under pressure to fulfill orders in customer-pleasing ways, whether that means a small retailer providing a FedEx tracking number or a big retail chain enabling customers to order online and pick up in the store. That pressure is creating growing demand for order management systems that let retailers satisfy every whim of the increasingly demanding cross-channel customer.

The good news for retailers is that order management systems have grown more powerful as e-commerce has grown, and vendors that provide them more financially stable. That gives Joe Hardiman, chief technology officer at Charming Interactive, the confidence to shop for a new e-commerce platform and order management system to replace the in-house technology that the e-commerce arm of retail chain Charming Shoppes Inc. has used for seven years.

Less sense

Given the instability of the products and the vendors seven years ago, Hardiman says it made sense for a Fortune 1000 company like Charming—owner of Lane Bryant, Catherines, Fashion Bug, and other apparel shops and web stores that conducted $118 million in online sales last year—to use its 300-strong I.T. staff to build and run its own web site, including order fulfillment.

“It’s making less sense today,” Hardiman says. “That’s because the industry has matured as far as solution providers in this space are concerned, and it’s gone through consolidation. There are fewer solutions, the solutions are older and more robust, and the vendors are in a better economic position.”

Hardiman is not alone in searching for an order management system. A survey of retailers last year by AMR Research found 61% planned to evaluate a new order fulfillment system in the next 24 months, and 10% already were implementing a new system. The retailers surveyed said they plan to spend an average of $1.7 million this year on order fulfillment, more than double the $792,000 they estimated spending in 2006.

While AMR surveyed larger retailers, the results were similar in a June e-mail survey of 195 e-retailers by Internet Retailer, in which 30% said they plan to replace their order management system within a year and another 14% within two years. In that survey, 48% of respondents had technology budgets of under $100,000 a year, making them smaller retailers.

Big or small, retailers express common themes about how to shop for an order management system: know what you want, make sure the system can talk to other systems you use, and look for technology flexible enough to evolve with online retailing.

At a minimum, an order management system must check the availability of items ordered, reduce inventory levels by the amount shipped, interface with a payments system, and convey order-picking information to a warehouse or drop shipper.

Basic functions

But there are differences in how systems handle even a basic function, such as updating inventory, and vendors are continually upgrading their offerings. For instance, GSI Commerce Inc., which provides order management as part of a hosted e-commerce platform, used to update inventory for clients four times a day; last year, it moved to four times an hour. That reduced order cancellations for lack of stock by 63% in the 2006 holiday season compared to the prior year across four GSI clients.

“What’s important about order management is the customer experience, which is primarily defined as: Are they going to get what they think they’re going to get?” says Christina Callas, vice president of e-commerce at apparel retailer Aéropostale Inc., a GSI client. “At high-volume times, like back to school and the holiday season, frequent inventory updates are very important.”

Increasingly, order management systems go beyond the basics, adding complex features that let retailers serve customers across channels. A high-end system like Escalate Inc.’s Escalate Retail, which carries a six-figure price tag, can manage inventory in many locations and the business rules for handling complex orders efficiently, says Brian Dean, senior vice president of strategy and marketing at Escalate.

For instance, if a customer wants to order three things online but would like to pick up one, a navy blazer, in a store because he needs it today, Dean says, “you need a system that knows where I have that blazer and the other two items, is it possible to get all three to him in one convenient store location, and, if not, what is the most efficient way to meet that demand considering my warehouses and my suppliers that support direct-ship to customers.”

A wide price range

With the wide variation in features comes a big range in prices. The entry-level version of Dydacomp’s Mail Order Manager, for instance, starts at $1,000 for a one-seat license. But Hardiman figures that the industry average budget for putting together an e-commerce platform and order management system for a 1,500-store chain like his with multiple web sites is $8 million to $10 million, with implementation likely to take 18 to 24 months. He would not say how much Charming has allocated.

For most retailers, the cost of an order management system will fall in between.

Stone Edge Technologies Inc., for instance, which is geared to smaller and mid-sized merchants, offers its Standard edition for $1,500 with a year of support and program updates; after the first year, support is $400 per year. A Plus POS version that adds support for stores costs $2,500.

Those editions are based on a Microsoft Access database. The Stone Edge Enterprise edition, which requires a more powerful SQL Server database from Microsoft, costs about $10,000, including the cost of SQL Server and hardware, says Sean Frank, CEO of LA Police Gear, an online retailer of police and military equipment that uses the Stone Edge Enterprise edition.

Coggins Promotional Advertising Inc. chose a more expensive option, InOrder from Morse Data Corp., because it could handle everything from the web shopping cart, through order entry to management of the company’s new 10,000-square-foot warehouse. The first year cost to get that 10-seat system up and running was about $75,000, says Paul Coggins, president.

Those are all packaged software products that the retailer maintains in-house. Another option is a hosted system like that of OrderMotion Inc. that charges no initial licensing fee, and bills by usage.

Most clients pay a per-transaction fee of 40 to 55 cents, although some retailers that have relatively few, higher-ticket orders pay a percentage of revenue, says Donny Askin, OrderMotion CEO. The average retailer using OrderMotion spends $13,000 a year, he says.

The outsourcing decision

Whether to license software and maintain it in house or use a hosted system like OrderMotion or GSI is among the first decisions facing a retailer considering an order management system.

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Proponents of hosted systems, such as Maris Daugherty of consulting firm J.C. Williams Group Ltd., argue that they provide retailers with better technology with lower upfront costs.

Frank of LA Police Gear considered a hosted system and decided against it, fearing disruption of his Internet connection would shut down his business. With the system in house, he says, he can still take phone orders and produce pick tickets for his warehouse even if his Internet connection goes down.

But Kent Krueger, vice president and part-owner of online pet supply retailer SitStay.com has no such fears. Having both his web site and his order management system hosted by specialists frees him to focus on his business, not on technology, he says. “I’m not in the data management business,” says Krueger, who is using OrderMotion software. “I’m in the retail business.”

Once decisions about budget and outsourcing are made, each retailer must figure out which features are essential to its business.

For Coggins Promotional Advertising, which sells items such as caps and umbrellas with corporate logos for marketing use, the system had to accommodate the many ways businesses pay. That can include setting up budgets that salesmen can draw on to buy items they need. InOrder provided that functionality as well as Coggins’ other requirements.

In many cases, what’s key is being able to integrate an order management system with another system. For Cowgirl Creamery, a cheesemaker that ships exclusively via FedEx, easy data exchange with FedEx was essential, says Maureen Cornelia, mail order and online sales manager.

The San Francisco-area company chose Mail Order Manager after several other food retailers told Cornelia they used the Dydacomp software. Just being able to easily provide a customer with a FedEx shipping number, rather than sifting through paper orders to find it, made the 2006 holiday season easier, Cornelia says.

For Toys 2 Wish 4, which sells on Amazon.com, a big benefit of the Stone Edge system is its integration with software from WrinkleBrain Inc. that automates the updating of inventory on Amazon, says Jan Lawrence, president of the toy retailer, which also has two bricks-and-mortar stores.

As its sales have grown, LA Police Gear finds more suppliers asking that it order through electronic data interchange, a standardized format for business communications. Frank says he is negotiating with Stone Edge and his suppliers to share the expense of adding EDI functionality to the Stone Edge software.

The flexibility to add revenue-generating features is important for Hardiman of Charming Interactive. He wants a system that can interface with customer records so he can provide personalized offers and handle complex promotions, such as a coupon on top of an employee discount.

Better use of data

Retailers also want to make use of the data an order system accumulates. Krueger of SitStay.com says one topic of discussion at a recent OrderMotion user group meeting was the need for an improved report writer so retailers can more easily design custom reports that draw on order data. OrderMotion says it’s working on that request.

For Systemax Inc., which assembles personal computers and sells mostly to businesses, a key requirement was a single system that contained information about all its products, customers, orders and sales, rather than having that data split into several databases. When the company could not find a system that met its needs, it set out four years ago to build one, and for the past two years has marketed it under the name ProfitCenter Software.

Richard Leeds, CEO of Systemax, says the system ensures consistency of data. For instance, while regional and national sales managers normally want to see only summary data, if the CEO wants to see exactly what was shipped to whom at what price, the data is in the system.

“I can drill down to the minutest detail, and it all matches because it’s all out of one database,” Leeds says. ProfitCenter has signed up 39 external clients, although most will not go live until next year, says George Winter, executive vice president.

Among the earliest to sign up was Ken Bain, president of Mary of Puddin Hill, a manufacturer of pecan fruit cakes and other treats that sells online, through a catalog, through one permanent store and some seasonal stores in malls. He wanted an all-encompassing system like ProfitCenter so that different vendors would not point fingers at each other when problems arose. The web-based system would also allow him to quickly set up a store in a mall and have ready access to available inventory.

But the ProfitCenter software was designed for a business-to-business manufacturer, and implementing it at a business-to-consumer company like Bain’s has gone slowly. He signed a deal last fall, committing $120,000, and expected to go live in February. Now PCS is promising a September implementation date, too close to the holiday season for Bain’s comfort.

Important consultation

Experiences like that underscore the wisdom of a retailer consulting with other merchants before making a buying decision. One way to do that is to ask a vendor for access to its online user group, says Donald Bizzaro, senior marketing representative for Morse Data, which markets the InOrder system.

“That’s where you’re going to learn what it’s like to own the package, because those people are totally honest,” he says. “If there are any dirty secrets, that’s where they’re going to be.”

While there will be glitches in almost any new system, most retailers say their investments in order management have paid off.

Krueger says warehouse productivity has improved 50% because OrderMotion sorts orders more efficiently. Coggins says order accuracy has improved with InOrder, and he now has real-time visibility to his inventory. Stone Edge has a feature that prevents double filling of orders, “which really comes into play at Christmas or whenever your busy season is,” says Lawrence of Toys 2 Wish 4.

Those efficiencies explain why more e-retailers are wishing for, and investing in, upgraded order management systems.

don@verticalwebmedia.com

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