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A guide to order management

Order management tracks, orchestrates, and fulfills orders across channels, ensuring accuracy, efficiency, and a smooth customer experience.

What is an order management system?

Order management includes every stage of the order lifecycle, from order placement and inventory checks to shipping, delivery, and returns. An order management system (OMS) is the technology and set of procedures that facilitate this process.

A modern OMS integrates with various departments and systems—such as sales, inventory, commerce, store operations, distribution centers, marketplaces, third-party logistics (3PL) companies, accounting, marketing, and customer service—to ensure orders are processed accurately and efficiently. For large businesses, the stakes of effective order management are particularly high. Here’s why:

Customer expectations: Today’s customers demand fast, accurate, and transparent product availability and fulfillment. Delays or errors can lead to dissatisfaction and lost loyalty.
Operational efficiency: Automating and optimizing order workflows reduces labor, inventory carrying, and shipping costs, minimizes human error, and improves cycle times.
Scalability: As businesses grow, their ability to handle higher order volumes and more complex fulfillment networks becomes a competitive advantage.
Omnichannel complexity: Enterprises selling through multiple channels, including marketplaces, need centralized visibility and coordination.
Regulatory compliance: Accurate recordkeeping and traceability support compliance with industry standards and regulations.

How does an order management system work?

Understanding order management requires a closer look at the order lifecycle. While the specific steps may vary by industry and business model, these are the core phases:

Order placement: Customers place orders through online platforms, in-store systems, mobile apps, or phone calls. The OMS captures and validates the order details.
Order processing: The system checks inventory levels, applies pricing and discount rules, and confirms payment. If items are out of stock, the system may initiate backordering or suggest alternatives.
Fulfillment: Orders are routed to appropriate warehouses, distribution centers, stores, marketplaces, or 3PL companies. Picking, packing, and shipping are executed based on predefined logistics workflows.
Shipping and delivery: The order is dispatched, tracked in real time, and delivered to the customer. Notifications are often sent to keep customers informed.
Returns and after-sale support: A good OMS also manages returns, refunds, and customer service inquiries, helping enhance long-term customer relationships.

Types of order management systems

Order management systems come in various types, each designed to meet different business needs, operational complexities, and levels of technological sophistication. Here’s a breakdown of order management system examples:

Manual: Traditional and paper-based, these systems involve spreadsheets, phone orders, email chains, and manual data entry.
Standalone: These are dedicated OMS applications that handle order intake, processing, and fulfillment but operate separately from other enterprise systems.
ERP-based: Many enterprise platforms offer order management capabilities as part of a larger suite.
E-commerce platform: Popular e-commerce platforms offer built-in or add-on order management features.
Distributed: These advanced systems are built to handle omnichannel and dispersed fulfillment across complex networks.
Cloud-based: Cloud-native or cloud-hosted order management systems are accessible via the web and offer high scalability and flexibility.
Custom-built: Some large enterprises develop proprietary OMS platforms tailored to their specific processes and legacy systems.

The right order management system for an organization will vary, given its size, complexity, channel strategy, and growth goals.

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Discover how SAP Order Management Services, connected to SAP ERP data, can provide a foundation for sustainable growth and competitive advantage.

Benefits of an order management system

A solid OMS streamlines and automates the entire order lifecycle across sales channels and fulfillment locations. Investing in OMS yields both immediate and long-term benefits, such as:

Improved customer satisfaction: Transparent inventory availability and faster, more reliable deliveries lead to better customer experiences.
Reduced operational costs: Automation and process optimization help reduce waste, transportation costs, and labor expenses.
Better decision-making: Real-time data and analytics support strategic planning.
Increased revenue: Better inventory visibility and omnichannel coordination enable faster, more accurate order fulfillment and maximize sales opportunities.
Agility and resilience: A flexible OMS can adapt quickly to market changes and supply chain disruptions.

Overall, an OMS helps businesses reduce operational costs, prevent stock issues, and deliver faster, more reliable customer experiences.

Challenges with order management

Order management isn’t without its hurdles. It can be a complicated process, especially with disorganized and outdated systems. Some common challenges include:

System silos: Disconnected systems can lead to duplicated efforts and data inconsistencies.
Inventory discrepancies: Poor inventory accuracy across physical and digital channels can cause fulfillment errors and lost sales.
Returns management: Handling returns efficiently without eroding margins is a complex task.
Demand forecasting: Inaccurate forecasts can lead to supply imbalances.
Customization needs: Enterprises often require tailored workflows that out-of-the-box solutions may not support.

Addressing these challenges requires cross-functional collaboration, process alignment, and the right technology.

How to choose the right order management system

Order management isn’t without its hurdles. It can be a complicated process, especially with disorganized and outdated systems. Some common challenges include:

System silos: Disconnected systems can lead to duplicated efforts and data inconsistencies.
Inventory discrepancies: Poor inventory accuracy across physical and digital channels can cause fulfillment errors and lost sales.
Returns management: Handling returns efficiently without eroding margins is a complex task.
Demand forecasting: Inaccurate forecasts can lead to supply imbalances.
Customization needs: Enterprises often require tailored workflows that out-of-the-box solutions may not support.

Addressing these challenges requires cross-functional collaboration, process alignment, and the right technology.

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Learn how SAP Order Management Services can help businesses optimize processes and sales.

How to choose the right order management system

Choosing an OMS is a critical decision—especially for large companies where complex operations, omnichannel demands, and global supply chains must be synchronized for efficiency and growth. The right OMS can improve workflows, reduce costs, and enhance customer satisfaction. The wrong one can create operational bottlenecks, limit scalability, and foster customer distrust.

Business decision-makers should do the following when shopping for an OMS:

1. Define business goals

Understand company objectives, such as growth targets and customer experience goals.

2. Map order lifecycle

Document how orders flow through the business—from capture to fulfillment to post-sale service—to identify gaps.

3. Prioritize core features

Evaluate an OMS based on key capabilities, including:

Inventory visibility
Order routing
Customer communication
Defining order decision criteria
Sourcing and reservations accuracy

4. Ensure integration capabilities

A good OMS needs to integrate easily with an organization’s ERP, warehouse management system, customer relationship management software, POS system, and other essential platforms.

5. Pick the right deployment model

Decide what type of OMS will work best based on the business’s needs, regulations, and agility.

6. Assess security, compliance, and reliability

Make sure the OMS meets enterprise-grade standards since customer data and payment information are involved.

7. Evaluate the vendor

Consider both the technology and the partner (Do they have good reviews and offer support?) to ensure a smooth OMS rollout.

8. Calculate the total cost of ownership

Factor in fees, implementation costs, ongoing upgrades, and more.

9. Test the system

Before a full rollout, test the system in a controlled environment to reduce risk.

10. Involve the right stakeholders

Engage key players across departments when choosing an OMS to see that it meets cross-functional needs.

Order management use cases

Here are examples of companies that improved their order management with SAP solutions.

Provide a consistent buying experience
See how SAP Order Management Services helps retailer HORNBACH offer a seamless experience across multiple channels from online to in-store. Watch a video on HORNBACH's story.
Meet evolving customer demands
Explore how retailer Canac Corporation uses advanced analytics for agile decision-making with SAP solutions. Watch a video on Canac Corporation's story.

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Explore order management solutions

Investing in modern, integrated order management solutions is essential to keep pace and lead in today's competitive marketplace. By centralizing and automating the order lifecycle, businesses can improve efficiency, reduce costs, and deliver seamless customer experiences at scale.

The right OMS can provide a foundation for sustainable growth and competitive advantage. Learn how SAP Order Management Services, connected to SAP ERP data, enables organizations to use these solutions more reliably, efficiently and at a lower total cost of ownership.

FAQs

What is a distributed order management system?

A distributed order management system is an advanced type of OMS designed to manage and fulfill orders across a complex supply chain. Unlike traditional OMS platforms that operate in a centralized manner, a distributed OMS intelligently coordinates inventory, fulfillment, and delivery across multiple locations—such as warehouses, stores, suppliers, and third-party logistics providers—to ensure optimal fulfilment.

Why is order management important?

Order management is important because it directly impacts a company’s ability to deliver products efficiently, support customers, and operate profitably. For large enterprises with complex supply chains and multiple sales channels, effective order management is a strategic capability versus a back-office process. Effective order management can help organizations enhance customer satisfaction, improve efficiency across functions, deliver actionable insights, and increase revenue and profitability.

How is AI used in order management?

AI can be used in OMS to help streamline processes, improve accuracy, and enhance customer service. One primary use for AI in this area is demand forecasting, where machine learning algorithms analyze historical sales data, seasonal trends, and external factors to predict future demand. This service can help businesses keep optimal inventory levels and reduce stockouts and excess inventory, too. AI also plays a crucial role in inventory optimization by monitoring stock in real time and recommending replenishment strategies, which minimizes holding costs and improves product availability.