Ultimate Guide to Distributed Order Management
Last updated on April 4th, 2023 at 12:44 pm
If you’re struggling to optimize your company’s fulfillment but lack the tools to do so efficiently, distributed order management (DOM) may be the remedy you need. This method can help you compete with Amazon to deliver the shopping experience your customers expect.
Ironically, Amazon is considered one of the significant drivers of this strategy: In 2019 alone, it accounted for 13.7% of worldwide retail ecommerce sales, and with its market share increasing each year, other retailers have to adapt to survive. Enter DOM, your potential competitive advantage over the online retail giant.
As a caveat, distributed order management isn’t a straightforward concept. However, it’s an essential tactic to deliver an omnichannel experience to your customers.
What is Distributed Order Management?
Retail sales have increased each year and are projected to amount to over $30 trillion USD U.S. in 2025.
E-retail is also booming, with revenues projected to grow to almost $7.5 trillion USD by 2025. This, in turn, means higher demand, more physical locations, and larger inventories that businesses need to connect, maintain, and monitor, which requires a solution that can handle these operations on a large scale.
Distributed order management helps businesses meet customer expectations and increasingly complex logistics requirements by optimizing order fulfillment.
DOM involves separating orders to optimize fulfillment costs, leveraging third-party logistics (3PL) providers and physical retailers, and making inventory visible throughout the supply chain. It also:
- Merges multiple orders placed by a single customer to consolidate shipping
- Lets you access the best rates from your shipping partners while nailing delivery dates
- Provides real-time visibility of demand and inventory
- Makes order processing faster and more efficient
- Prioritizes tasks and optimizes inventory performance
- Dynamically decides how products should be sourced and shipped
- Improves the customer experience
We merely cover the basics here; distributed order management is enormous in terms of its scope. To help you better understand it, let’s compare it to traditional order management.
Who Is Distributed Order Management for?
With four out of five retailers believing they have to pair any omnichannel upgrade they implement with operational efficiency, retailers and brands need to incorporate DOM to survive.
But how do you know it’s time to shift from your old OMS to a DOM system? Every company has unique circumstances that dictate when to switch from their legacy systems, including growth stage, company size, number of sales channels, and more.
Maybe you run an online store and have expanded it so you now sell through marketplaces and other sales channels, or perhaps you’ve decided it’s time your brick-and-mortar store sold online and provided a BOPIS option. Whatever path your journey has taken, you’ve undoubtedly realized the method or technology that served you well when selling via a single channel or ecommerce platform is no longer up to scratch.
Your business needs a more robust and unified enterprise order management system that ensures an integrated customer experience by providing you a single, global view of all inventory available, real-time visibility of customer purchases, split orders, automatic order routing, and more—this is where distributed order management comes in.
Distributed Order Management vs. Traditional Order Management
A traditional supply chain consists of a brand that sells in bulk to a brick-and-mortar store, which then sells the stock to the customer. The brick-and-mortar retailer typically buys in bulk quantities on a monthly, quarterly, or other regular basis.
Meanwhile, through distributed order management, the merchant sources inventory from numerous fulfillment locations to multiple sales channels. It’s the ability to ship many orders to your customer in an omnichannel fashion, such as from your internal warehouse, your brick-and-mortar store, your online sales channels, and your third-party warehouse.
The practices and systems in traditional order management are fairly static, which can be limiting. Distributed order management moves away from these by leveraging modern practices and technologies that make companies more flexible and agile.
Traditional Order Management
Traditional order management systems focus on static companies. They don’t give clear insights into supply chain management, and still make use of on-premises, 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 thanks to its 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 platforms. You can send smaller, more frequent invoices without worrying about them getting lost in piles of paperwork or spreadsheets.
Using distributed order management increases productivity, maintains organization, and ultimately provides a more positive customer experience.
Distributed Order Management Example
Imagine a merchant who sells children’s toys both online and in store. They have two physical locations and a Shopify store, with seven suppliers providing their goods. As the holiday season approaches, they analyze their current inventory, weigh up the forecasted demand, and place their orders.
If this merchant relied on traditional order management, they would run into an immediate problem: They’d be unable to count their inventory for these products because they aren’t integrated into their suppliers’ EDI.
Let’s say they decide to offer free shipping, so they’ll need to work with the cheapest shipping order. Again, traditional order management makes this difficult to figure out due to its disjointed nature.
A third problem is avoiding stockouts. Because they don’t know how long it’ll take their suppliers to replace the items people are buying, they order too much inventory too quickly. Unfortunately, there’s not much else they can do using the traditional order management model.
On the other hand, if they used a distributed order management system, they’d be able to see their suppliers’ inventory levels in real time, revealing exactly how much of each item they can sell. They’d also be able to set up rules for fulfilling orders to optimize shipping processes.
The Challenges of Implementing Distributed Order Management
A distributed order management system nets you more options for fulfilling customer orders. While highly beneficial, it’s also incredibly taxing if you’re unprepared for this wealth of choice; too many can result in selection paralysis and even confusion.
When you jump from having one way to fulfill a complex order to ten possibilities, deciding which is best for your business is time-consuming. You have to consider the location of the item, the dropship fee, the shipping method the customer requested, etc.
To avoid feeling overwhelmed and assist your selection, you need to clarify your goals from the start. Do you want to boost customer satisfaction? Or is reducing costs more important to you right now? Set your goals and define any restrictions before moving forward.
As its name implies, distributed order management involves multiple companies working together toward the same goal. This can be difficult due to each organization’s unique ideas and processes (as well as cultures). While DOM doesn’t demand each company in the supply chain adopt the 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’s compatible with the other organizations’ processes.
For example, it’s challenging to monitor your inventory if another company counts stock differently. Distributed order management hinges on the successful cooperation between numerous organizations.
In addition to separate companies, you may also have separate systems. 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 of a Distributed Order Management
Distributed order management has three main components you can implement to fulfill your customer’s orders. You don’t need to use all of them; evaluate each element before deciding which one(s) is best for your company.
Third-Party Logistics (3PLs)
Many brands leverage 3PLs in their supply chains, and when combined with a DOM system, they provide inventory visibility across multiple warehouses. 3PLs boast several advantages, including:
- Shift the power to brands and retailers of all types to enable fast shipping
- Allow 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
- Enable dropshipping fulfillment through 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 Fulfillment Model
Through dropshipping, retailers purchase inventory as needed from brands, who then ship the order directly to the customer. With this model, you can:
- Increase your product catalog with zero inventory risk
- Test new brands and product lines efficiently and quickly
- Access more of wholesalers’ and brands’ catalogs
Ship From Store & “BOPIS”
In the first option, customers can buy online and have their order shipped from the store directly to them. However, if they purchase using the BOPIS method, they buy online and then pick up their order in store. The advantages of these fulfillment methods are:
- Brick-and-mortar stores can go head-to-head with digital retailers on more equal footing, leveraging the physical space more efficiently as well.
- They reduce residential shipping costs while boosting your margin and upsell potential.
- They greatly minimize the logistical challenges and costs of returns: Customers feel more at ease buying online because they know they can simply pop into the store and return an item, if necessary.
What Is a Distributed Order Management System (DOMS)?
To incorporate distributed order management into your business successfully, you’ll need a distributed order management system (DOMS). This system streamlines your supply chain by optimizing certain business processes, such as inventory management, fulfillment, and more. For instance, a DOMS can automate workflows like order routing, splitting, and shipping to speed up your order deliveries.
A DOMS can also reduce expenditures associated with these operations, which you can then pass on to your customers (for example, you could offer more cost-effective shipping options).
Additionally, the complexities of modern ecommerce mean you’ll need a versatile DOMS capable of handling various facets such as:
- Processing of payments
- Customer service (i.e., product returns and refunds)
- Order receiving and tracking
- Sales and inventory reporting
- Supplier monitoring
Benefits of a Distributed Order Management System
Seamless Multi-channel Selling
If your various sales channels acquire inventory from a single source, selling becomes extremely difficult without a DOMS. In fact, multi-channel inventory management is the third-largest challenge for supply chain executives.
A DOMS can track your inventory by sales channel, making management easier through greater clarity. It also streamlines the following activities:
- Replenishing stock and keeping levels up to date
- Seeing which products perform best for each channel and region
- Allocating inventory appropriately
A DOMS gives you the ability to sell on multiple channels as well, which can significantly boost profits. Shopify reported that multi-channel sellers generate 190% more revenue than businesses that sell on one—and a DOMS enables this massive jump.
Streamlined Order Fulfillment
You can unify your sales channels and supply chain with a DOMS. The system can also automate and streamline fulfillment processes such as order routing, splitting, and shipping to promote overall efficiency.
In addition, the following DOMS capabilities will ensure your customers consistently receive their orders either early or on time:
- Payment processing for various countries and currencies
- Sharing of order order information with 3PLs or suppliers
- In the case of in-house fulfillment, automation of shipping label printing
Optimized Inventory Management
A DOMS digitally integrates and enhances your inventory management systems, providing you an up-to-date, end-to-end look at how your goods behave. With it, you can:
- Receive alerts when your inventory hits a certain level, giving you an idea of the ideal time to replenish or stop acquiring inventory.
- Strategically locate your distribution centers based on where your goods and customers are.
- Determine inefficient and manual processes to optimize and automate operational bottlenecks.
- Prevent overselling and going out of stock, which costs retailers up to $1 trillion annually. Lacking enough inventory prevents you from effectively serving your customers, which can escalate and result in lost revenue, SERP, and customer loyalty.
- Avoiding overstocking, as too much stock means aged inventory taking up storage space, depreciating as time passes, and racking up warehousing fees.
A distributed order management system can help prevent these problems with real-time updates of inventory levels across your sales channels, alongside intelligent inventory predictions based on history.
Ease Reverse Logistics
A surveyed 31% of consumers said they would stop buying from a brand if they received the wrong item. Meanwhile, those who would continue to support your business stipulate quick resolutions for these issues, with 39% expecting to receive the correct order within one to two days after contacting you.
With a DOMS, you enjoy smoother reverse logistics, which improves the processing of product returns and replacements, return shipments scheduling, and refund approvals—all of which are integral to an exemplary customer experience.
You should also be able to organize returned items easily according to their conditions so you can decide what actions to take. For example, you can:
- Repair faulty or broken items
- Resell incorrect items as new or returns
- Refurbish, recycle, or scrap returned products
Cut Down on Human Error and Free up Time
Since your DOMS automates repetitive tasks like the manual entry of data, you can effectively reduce human error. Further, the automation of data-related processes like collecting, uploading, and syncing frees up more time for your staff.
Reveal Deep Business Insights
The bountiful information you gain from a DOMS provides visibility and traceability throughout the entire fulfillment process. For instance, it’ll reveal your top-performing channels and their trends so you can strategize and make decisions based on that data.
You can forecast and plan, then purchase and allocate the appropriate amounts of inventory. You can also take steps to improve your profitability and decrease your expenses. Other business insights a DOMS can give you are:
- Which workflow stage your inventory is in, like order fulfillment, so you can provide customers updates about their purchase
- Consumer behaviors based on which seasons and regions certain items move the fastest
- Individual channel inventory levels so you can easily keep up with how much you need on hand
How to Choose a Distributed Order Management System
When beginning your search for a DOM system, you should first compile a list of your warehouses, as well as the companies you do business with. You should also define your process for determining when an item is in stock and your ideal distribution levels. This information will guide you to the right DOM system for your business.
Determine what your system needs to do for your business. Talk with your suppliers about your plans and expectations, then ask yourself:
- What are our success metrics in terms of our inventory?
- Do we want to develop a more precise inventory count, or do we want to reduce carrying costs?
- How can we achieve optimal fulfillment?
- Are our sales seasonal?
- What are our growth plans?
Any system you choose needs to help you stay on track with your goals and objectives.
Conduct Research and Ask for a Demo
Analyze and compare available systems to understand and narrow your options. Make a list of the technical requirements and core features you need, including:
- The number of SKUs the system can accommodate
- A breakdown of the training and implementation process
- Any networks, hardware, and software you currently use (i.e., tech stack)
- Your current vendor landscape (the number of suppliers and how you integrate with them)
- Current order volumes
- Active sales channels (including physical retail locations)
- List of locations (for fulfillment)
- Real-time visibility of your inventory status
Also, talk to DOM vendors about their systems and ask for a demo. This will give you a clearer idea of what you need and what works for you. Make sure to read customer reviews as well to learn how each system performs in practice.
Mandatory Features of a DOMS
Integration and Compatibility
Connectivity should be your main consideration when choosing a DOMS. The system is intended to bridge the gap between your various sales channels and sources of inventory, so it should also work or integrate properly with your business’s current tools and systems.
For instance, your DOMS should be able to connect with your ecommerce website and ERP system without issue. As a result, any need for manual input as well as the chances of human error will be slashed.
Using multiple tools and selling through several channels also entails many sources of data, which increases the chances of mistakes. Fully compatible integrations, however, ensure your data sources are both correct and aligned.
At its most basic, a DOMS should have certain core competencies, such as:
- Inventory Management: A consolidated view of your inventory across your sales channels is a must and simplifies stock management. Also, order routing algorithms let you conduct fulfillment using optimal facilities and shipping options.
- Multi-channel Features: Your DOMS must be able to manage different points of sale—like online and in-store—for your business. It should also support international orders and currencies from various countries.
- Customer Database: Your system should be able to store data on your customers. For instance, their purchase history can help you recognize their behaviors and tailor the services you offer.
- Accounting: A DOMS that can simplify accounting workflows is a huge plus. If it can automatically input and record information—including your income, liabilities, and expenses—it not only frees up time, but also reduces errors in tracking your finances.
Real-time updates are mandatory for growth to be sustainable. That’s why a DOMS must be able to provide you and your customers with up-to-date product information and availability. As previously covered, this helps you avoid overselling, stockouts, and overstocking.
A consistent inflow of data from your sales channels, distribution centers, and suppliers can easily prevent these and other issues. With a DOMS, you can effortlessly stay on top of any problems and avoid future ones.
Ease-of-use lessens the need to train yourself and your team, meaning you’ll only have to learn how to use the DOMS. To determine if the system you’re considering is user-friendly, ask a few basic questions, including:
- How easily can your team learn to implement it?
- Do your employees have to possess technical knowledge?
- How intuitive is the system’s user interface? Will it seem confusing and cause mistakes?
If the above questions yield positive responses, then that DOMS will be a great choice. You and your staff will no longer have to worry about rigorous training, manual processes, or a high probability of errors, and you’ll also save lots of time.
In addition to fulfillment logistics, a DOMS should be able to assist with some of your customer service activities. Analyze how well your system handles troubleshooting any issues that arise. Effectively addressing problems will prevent them from repeating.
To give you a concrete example, imagine your customer received their order late. Were there any workflow bottlenecks that caused it? Did it affect inventory management or fulfillment? The right DOMS will make it easier to identify the root of the problem and correct it for your current and future customers.
Omnichannel returns and exchanges should also be supported, as they’re integral to fostering positive relations with buyers. Having this feature lets you provide your customers a better experience when they want to return or replace a wrong or damaged item.
Calculating the ROI of Your DOMS…
…Due to Optimized Inventory Management
Here’s a simple calculation that reveals the savings from your improved inventory management: Decrease in your average inventory x Your line of credit’s interest rate
With deeper business insights and streamlined fulfillment, you can better manage your inventory’s flow and maintain the right amount. Additionally, in situations where your storage facilities have no stock, being able to ship from your store lets you fulfill orders without interruption.
The above formula gauges the impact of these benefits and how effectively you’re able to conduct business with less inventory and costs.
…Due to More Efficient Fulfillment
The following formula calculates your savings from streamlined fulfillment:
Decrease in return shipping expenses + Decrease in labor costs from reverse logistics + Decrease in labor expenses for returns-related customer service calls
Since your DOMS automates and handles order routing, splitting, and shipping, this formula measures the impact of:
- Reduced fulfillment errors
- Less need to manage reverse logistics and return shipping
- Lower labor costs for customer support
…Due to Faster Customer Problem Resolution
Lastly, you can gauge how much you save thanks to speedier resolution of customer concerns with the following equation:
Decrease in issue resolution time x Your customer service reps’ pay rate
With clearer visibility and traceability across your supply chain, your customer service staff are able to track anything concerning your customer’s order effectively, like its shipping status and whether it’s in stock.
Wrapping Up—How to Master Distributed Order Management
When you’ve had enough of the headache of traditional order management and its manual processes, it’s time to embrace distributed order management. Before jumping on the bandwagon though, analyze your goals (such as a streamlined order fulfillment process or new customer service commitments), then start searching for the right DOMS that’ll help you reach them.
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