Ultimate Guide to Distributed Order Management
If you’re struggling to optimize your company’s fulfillment and simply don’t have the tools to do it efficiently, you may be considering utilizing distributed order management (DOM). It’s a great method to help you compete with Amazon to deliver the shopping experience your customers expect.
At the same time, distributed order management isn’t exactly the most straightforward concept for businesses to get their heads around. But it is essential if you want to deliver an omnichannel experience to your customers in this very modern era of commerce.
Who Is Distributed Order Management For?
When 4 out of 5 retailers feel that any omnichannel upgrade they implement must be paired with operational efficiency, it’s time for all retailers and brands to utilize DOM if they want to survive.
How do you know it’s time to make the change from your old OMS to a newer DOM system? Every company has a unique case for switching from its legacy systems, especially as they evolve and mature.
Perhaps you run an online store and have expanded it so that you’re now selling through marketplaces and other sales channels, or maybe you’ve decided that it’s high time your brick and mortar store sold online and provided BOPIS. Throughout this journey, you’ve probably found that the method or technology that had served you so well when selling via a single channel or ecommerce platform is suddenly not up to scratch.
You now need a more robust and unified enterprise order management system that ensures an integrated customer experience by allowing you to have a single, global view of all inventory available, provide real-time visibility of customer purchases, split orders, automatic order routing, and more. This is where distributed order management comes in.
Distributed Order Management Explained
Retail sales have been increasing year on year, and they are projected to amount to 27 trillion U.S. dollars in 2021.
E-retail is also booming, with revenues projected to grow to 6.54 trillion US dollars by 2022. This, of course, means more demand, more physical locations, and larger inventories that need to be maintained, monitored, and connected, which necessitates a need for doing things differently.
As a result of the changes, today’s fulfillment requirements are more complex than ever. Distributed order management helps businesses meet customers’ expectations in this increasingly difficult omnichannel world, ensuring the merchant can optimize the way their orders are fulfilled so that all their order processes are optimized and their customers are satisfied.
Distributed order management includes separating orders so that fulfillment costs are optimized, leveraging 3rd party logistics providers and physical retailers, and making inventory visible in the whole supply chain.
Distributed order management also:
- Merges any orders placed by a single customer so that shipping is consolidated
- Lets you get the best rates from your shipping partners while at the same time nailing delivery dates
- Provide real-time visibility of demand and inventory
- Makes order processing faster and more efficient
- Prioritize tasks and optimize inventory performance
- Dynamically decide how products should be sourced and shipped
- Improves the customer experience
Distributed Order Management vs. Traditional Order Management
The traditional supply chain consisted of a brand that would sell in bulk to a brick and mortar store, then sold the goods to the customer. The brick and mortar retailer buys in bulk quantities – monthly, quarterly – and this is what we’re used to.
Distributed order management, on the other hand, is when the merchant sources inventory from numerous fulfillment locations to multiple sales channels. It’s the ability to ship out numerous orders in an omnichannel fashion to your customer. You can do this from your internal warehouse, your brick-and-mortar store, your online sales channels, as well as your third-party warehouse.
Traditional order management is fairly static in terms of both its practices and systems. Distributed order management is forcing a move away from that by leveraging the power of modern practices and technologies that make companies more flexible and agile.
Traditional Order Management
A traditional order management system will focus on static companies. It doesn’t give clear insights into supply chain management, and still makes use of on-premise, heavy architecture.
On top of being nearly obsolete, traditional order management software isn’t always accurate, either.
Distributed Order Management
A modern distributed order management supports and enhances dynamic growth demands. It’s more nimble, using cloud-based infrastructure and web service-based integrations.
A DOM system provides up-to-date inventory information and allows you to place orders with suppliers across multiple, disparate platforms. You can send, smaller, more frequent invoices without worrying about them getting lost in piles of paperwork or spreadsheets.
When you’re using distributed order management to increase productivity and stay organized, you’re able to provide a more positive customer experience.
At a high level, a DOM system typically contains the following capabilities:
Data inputs are a set of transactional data inputs detailing:
- Orders to be fulfilled via different customer transactional methods
- Sources and levels of stock available for order fulfillment
- Forecast costs of fulfilling orders for the company across its network
- Returns from previous consumer transactions
A DOM system has an order management rule engine that decides and orchestrates the fulfillment of orders from available inventory. This key component represents a centralized brain that reviews order fulfillment requests from all customers and routes this demand to the nodes of the network that can best fulfill these orders.
A DOM system includes the capability to instruct other systems at fulfillment locations to use available inventory to execute orders. Such locations include warehouses, distribution centers, brick-and-mortar locations, fulfillment facilities, suppliers, and third-party providers holding inventory and managing order fulfillment and dispatch.
The variety of collection methods chosen by the consumer and delivered by the DOM is a requirement for the fulfillment location.
Distributed Order Management Example
For example, let’s imagine a merchant who sells children’s toys both online and offline. They have 2 brick and mortar stores and a Shopify store, with seven suppliers providing their goods. With the holiday season on the horizon, they take stock of their current inventory, weigh up the forecast demand, and put in their orders.
If they were using traditional order management, they would run into an immediate problem: Namely, when requesting stock, they’ll find it impossible to count their inventory for these products because they aren’t integrated into their suppliers’ EDI.
And let’s say they decide to offer free shipping. To do this efficiently, they’ll need to work with the cheapest shipping order. But because they’re using traditional order management, this is again hard to figure out.
A third problem is that of avoiding stock-outs. Not knowing how long it will take their suppliers to replace the items people are buying, they buy too much inventory too quickly. There’s not much else they can do. Their suppliers are a bit of a black box – an unknown entity.
On the other hand, if they were using a distributed order management system, they would be able to see their suppliers’ inventory levels in real-time, which will allow them to understand exactly how much of each item they can sell. They would also be able to set up rules for fulfilling orders that will optimize shopping fulfillment.
Challenges of Implementing Distributed Order Management
So far, we’ve shed light on why distributed order management puts the merchant at a more significant advantage than traditional order management. However, distributed order management isn’t easy to get to grips with, and implementing it can be challenging.
Here are some issues that you may need to tackle and overcome:
A Lot of Options
Because your supply chain is now much more open, a distributed order management system nets you more options when it comes to fulfilling orders to your customers. On the one hand, this is highly beneficial. On the other hand, it’s incredibly taxing on those companies that weren’t prepared for it. Too many choices can result in choice paralysis and even confusion.
Just picture it: From previously having one way to fulfill a complex order, you now have ten possible ways. Deciding which is best can be time-consuming, and you may even be left with regret if you choose the least efficient option. You have to consider the location of the item, the dropship fee, what shipping method was requested, etc.
For distributed order management to work effectively, you need to be clear about your goals before you begin. Do you want to boost customer satisfaction, or is reducing costs more important to you right now? Set your goals and decide your rules before moving forward.
As per its name, distributed order management involves multiple companies working together on the same goal. Because each organization has its ideas and processes (as well as culture), this can cause difficulties. While distributed order management doesn’t demand that each company in the supply chain uses the exact same process, it does need them to fulfill orders, use inventory management tools to keep catalogs up-to-date, and ship items from their distribution center in a way that is compatible with the other organizations’ processes.
For example, it’s challenging to monitor your inventory if the other company is counting differently. Distributed order management hinges on the successful cooperation between numerous organizations. If you can get that right, you’re on your way.
As we know, distributed order management involves multiple companies and distribution centers working together. But what happens when those companies use different systems, such as retail ERPs?
Retailers need to be able to access product data, and they need to know the price and what the pricing involves. It will also be tricky for them to optimize other tasks, such as electronically sending orders out to each company.
Components & Benefits of Distributed Order Management
There are 3 main components of distributed order management that you can use to fulfill your customer’s orders. You don’t need to use all of them, but it’s important you evaluate them all before deciding which one is best for your company.
Let’s take a look at the benefits of each one:
Third-party logistics (3PLs) are a key component for many brands in the supply chain, and they are helped tremendously by a DOM system, since they provide inventory visibility across multiple warehouses. 3PLs benefits include:
- Shifts the power to brands and retailers of all types to have fast shipping
- Allows you to shop directly instead of selling via distributors. Once you reach a specific order volume, it makes sense for you to place your inventory into a 3PL
- Enables you to offer dropshipping fulfillment to your retail partners. In other words, it gives you a foot in the door with other retailers who want to test you out first
Dropshipping Fulfilment Model
Retailers purchase inventory as when needed from brands, and then the brand fulfills the order by shipping it directly to the customer. This is the dropshipping fulfillment model and its benefits include:
- Lets you increase your product catalog with zero inventory risk
- Lets you efficiently and quickly test new brands and product lines
- Lets wholesalers and brands sell more of their catalog
Ship From Store & “BOPIS”
In this scenario, customers can either buy online and their order will be shipped from the store directly to them. However, if they choose to purchase using the BOPIS method, they will buy online and then pick up in-store. The benefits of these fulfillment methods are:
- Lets a brick and mortar store go head-to-head with digital retailers on a more equal footing. Transitioning from being a purely brick and mortar-based retailer to a mix of offline and online retail is tough, but distributed order management makes it easier. You can leverage your brick and mortar space better, too
- Reduces residential shipping costs while boosting your margin and upsell potential. Because the customer can buy online and pick up in-store, you don’t have to ship. They can come to you
- Hugely minimizes the logistical challenges and costs of returns. Your customers feel more at ease with buying online because they know they can pop into the store and return an item
How to Choose a Distributed Order Management System
To ensure you select the DOM system application that’s right for you, you need to know exactly what you’re looking to achieve first.
You should prepare yourself by compiling a list of warehouses, as well as a list of companies you do business with. Understand your process for determining how you know when an item is in stock and your ideal distribution levels. All of this will guide you through the process of choosing the right DOM system for your business.
Spend some time researching what your system needs to do for you and your business. Talk with your suppliers about your plans and expectations and ask and answer questions such as:
In terms of our inventory, what are our success metrics? Do we want to develop a more precise inventory count, or do we want to reduce carrying costs? How can we achieve optimal fulfillment?
What do our growth plans look like? Any tool you choose needs to help you stay on track with your goals and objectives.
Are our sales seasonal at all? If they are, that sort of thing can alter stock management drastically.
Carry Out Research and Ask for a Demo
By looking at the available systems, you’ll be a lot happier with your choice if you compare it with others. You could find a handful of DOM vendors and talk to them about their systems.
Make a list of exactly what technical requirements and core features you’re looking for. Included should be:
- Number of SKUs the system can accommodate
- Breakdown of the training and implementation process
- Any networks, hardware, and software you’re currently using (tech stack)
- Your current vendor landscape (number of suppliers and how you integrate with them)
- Current order volumes
- Active Sales channels (including physical retail locations)
- List of locations (for fulfillment)
- Your current real-time inventory visibility status
It would help if you also used demos and free trials, as this will give you a clearer idea of what you need and what works for you. Make sure to read customer reviews, too.
Wrapping Up Distributed Order Management
ou can begin to embrace distributed order management whenever you’re ready to drop the headache caused by the manual processes involved with traditional order management. It’s important to start analyzing your goals (such as a streamlined order fulfillment process or new customer service commitment goals), before choosing the right software that’s right for you.
Hopefully, this article has cleared up any questions you had about the need for a distributed order management system.
Let us know in the comments how you’ve approached distributed order management, how successful it has been for you, as well as any obstacles you’ve encountered.
When you’re ready to see how Flxpoint can provide a real-time view and detailed breakdown of your e-commerce business operations, talk with an expert today.
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