Web-only retailers, including Amazon, accounted for 42% of sales of all retailers ranked in the Read Now
Order management is an ever-growing challenge. Retailers have adopted a number of strategies and technologies to survive.
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.
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.
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.