What is Order Processing for Ecommerce and How Does It Work?

The global ecommerce market has continued to grow at an unprecedented pace, with more and more customers availing the ease and convenience of online marketplaces. Analysts at Statista predict that by 2027, ecommerce will make up close to a quarter of total global retail sales. In ecommerce, the success of any business is determined by the efficiency at which they fulfill orders. Order processing plays a crucial role in the success of the overall fulfillment pipeline to ensure consistency and accuracy in delivering the products to the end consumers on time. 

What is Order Processing?

Order processing is the process that ensures customer orders are accurately processed, prepared, and delivered without any errors. Order processing for ecommerce typically includes receiving the order, picking, packing, and shipping the products to the customer. The aim is to ensure that orders are delivered accurately, efficiently, and on time, ensuring a positive customer experience and operational efficiency.

In today’s ecommerce delivery lifecycle, there are three major approaches to order processing: in-house, 3PL-based, and dropshipping. The choice between in-house warehousing, partnering with a 3PL, or adopting a dropshipping model depends on specific business needs, availability of resources, and goals. In-house warehousing offers maximum control but requires significant investment, whereas 3PLs provide expertise and scalability but with less direct oversight. Dropshipping minimizes the need for inventory management but relies heavily on consistent suppliers.

In-house Warehouses

For in-house, companies process and manage orders within their own facilities. Companies have complete control over inventory, staffing, and the order fulfillment process. Taking the in-house route allows for greater customization in packing, branding, and handling of orders.

Direct Oversight: Direct oversight of operations enables businesses to quickly adapt to market changes or business demands. It's easier to maintain quality control and implement changes or improvements directly.

Costs and Investment: Operating an in-house warehouse requires significant upfront investment in infrastructure, technology, and staff. While potentially more costly, it avoids fees typically associated with outsourcing.

Scalability Challenges: Scaling up during peak times requires additional investment in resources, labor, and space.

Third-party Logistics Providers (3PLs)

3PLs specialize in logistics and order fulfillment services — they leverage their expertise, 3PL wms software and networks to optimize order processing and fulfillment for businesses.

Resource and Cost Savings: By outsourcing to 3PLs, businesses save on the costs of warehouse space, staff, and technology. Due to higher volumes, 3PLs often have established, efficient pipelines to process orders quickly and offer more competitive ecommerce shipping rates.

Flexibility and Scalability: 3PLs offer greater flexibility to scale operations up or down depending on business needs without investing in physical space or hiring temporary staff.

Less Control: Outsourcing to a 3PL means less direct control over the order processing and fulfillment operations. This can impact the ability to customize the process and requires trust in the 3PL's ability to maintain quality standards.

Dropshipping

In the dropshipping model, the retailer does not keep goods in stock. Instead, when a customer places an order, the retailer transfers the order details to either the manufacturer or a wholesaler, who then ships the goods directly to the customer. According to Fundera, dropshipping is the preferred fulfillment model for an estimated 33 percent of online stores. 

Minimal Inventory Management: Since the retailer does not handle the actual products themselves, dropshipping reduces the need for inventory management and storage space. This makes dropshipping an attractive option for businesses looking to minimize overhead costs.

Reliance on Suppliers: The retailer is highly dependent on the suppliers for order fulfillment. While dropshipping allows businesses to outsource logistics, it also means less control over the shipping process, inventory levels, and handling of the products.

Product Quality and Delivery: Since the retailer doesn’t handle the products directly, there can be challenges in ensuring product quality and consistency in delivery experiences. The retailer must rely on the supplier to address these aspects effectively and consistently.

Profit Margins and Competition: Dropshipping often involves lower profit margins compared to traditional retail models due to competition and the cost of buying products from suppliers. However, the reduced overhead can balance this out for many businesses.

How Does Order Processing in Ecommerce Work?

Order processing in ecommerce is a multi-step procedure where every step is critical to ensure timely and accurate delivery to the end consumer. 

Here's a breakdown of each step in the order processing workflow:

Order Placement

A customer places an order through an ecommerce platform and initiates the order fulfillment process. As part of the order processing workflow, the business needs to first accurately capture the order details, including customer information, payment, and shipping details, and log the data into the order processing system. If a business has more than one fulfillment center or warehouse location, the order processing system can determine which location to process and fulfill the order from based on proximity to the shipping location and availability of products. 

An integrated order processing system is necessary to accurately capture customer data and order details. Any errors at this stage can lead to incorrect or delayed shipments, affecting customer satisfaction and increasing order fulfillment costs. Order placement data also supports data-driven decision-making around demand forecasting, inventory management, and resource allocation to streamline warehousing operations further.

Picking

Picking involves locating and retrieving the ordered products from the warehouse or storage area. Staff members work in tandem with a complete warehouse management system to collect the relevant items on the picklist from their respective locations. Warehouse order Picking is a highly controlled process that directly impacts the speed at which orders are fulfilled. Some of the common picking strategies in ecommerce fulfillment are:

• Piece Picking: Staff members pick items for one order at a time. This method is straightforward and commonly used in smaller operations or for orders with a large number of unique items.
• Batch Picking: Workers collect items for multiple orders in a single trip around the warehouse. This approach increases efficiency by reducing the number of trips to various locations.
• Zone Picking: The warehouse is divided into different zones. Pickers are assigned to specific zones and only pick items within their designated area. Orders that require items from multiple zones are passed along the zones until complete.
• Wave Picking: Similar to zone picking, but it combines elements of both zone and batch picking. It's organized around specific times (waves), optimizing the picking process according to various factors like shipping times or order priorities.

Efficient picking strategies, supported by smart picklists and warehouse management systems, are vital in minimizing errors and speeding up the order processing time. According to APS Fulfillment, order picking takes up as much as 55 percent of operation costs in a distribution center. 

Sorting

Sorting is the process of organizing the picked items according to order number or delivery location. There are different approaches to order sorting, especially in cases where a single order contains multiple items from different parts of the warehouse or when multiple orders are processed simultaneously.

• Order-based Sorting: Each order is treated as a separate entity, and items are organized accordingly. This method is particularly effective for complex orders with multiple items.
• Item-based Sorting: All similar items are grouped regardless of the specific order they belong to. This method is often used in batch picking and is effective for warehouses with a high volume of similar products.
• Destination-based Sorting: This approach organizes items based on their final destination. It is particularly useful for logistics operations that involve shipping to various geographic locations.
• Carrier-based Sorting: In this method, sorting is done according to the shipping carrier or the method of transportation. It's beneficial for businesses that use multiple shipping services, ensuring that items are grouped according to the specific requirements or guidelines of each carrier.

Effective sorting ensures that the right products are bundled for each order. It is essential to handle large volumes of orders and maintain the speed and accuracy of order fulfillment.

Packing

Once the items are sorted, the warehouse labor needs to securely pack the products and prepare them for shipping. This step involves choosing the right packaging materials to protect the products during transit while considering cost-effectiveness and sustainability. 

The shipping boxes need to be weighed and labeled with the customers’ addresses and delivery instructions, if any. Proper packing is critical to prevent damage during shipping. It also represents the brand — creative, branded packaging can enhance the customer experience.

Shipping

Shipping is the final step of order processing — here, the packed orders are delivered to the customers. This involves selecting a courier or shipping service based on cost, delivery speed, and destination. Depending on their business model, businesses can either ship directly to the customer or consolidate orders based on destination to minimize the total number of shipments based on locale. 

Till the order has been successfully delivered, the order status should be continuously updated, and tracking information should be shared with the customer. Timely and reliable shipping is vital for customer satisfaction. Statista estimates in 2023, 47 percent of U.S. consumers abandoned online purchases during checkout due to additional costs, such as shipping, taxes, or fees.

Order Processing Factors

Businesses need to consider the nature of the product, order volume, packaging requirements, productivity goals, and seasonality to determine the right approach to order processing in ecommerce. Implementing rule-based order processing allows businesses to create a tailored workflow aligned to specific business needs and scenarios.

• Nature of the Product: Fragile or large items require special handling and packaging while perishable goods like food items demand faster processing and specialized storage, impacting the entire order processing workflow. High-value items might necessitate additional security measures during processing and shipping.
• Volume of Orders: Businesses with a high volume of orders may benefit from automated systems and batch picking strategies to manage the workload efficiently. For smaller operations, simpler methods like piece picking and manual sorting will be more cost-effective.
• Packaging Requirements: Businesses need to choose between standard packaging and customized or branded packaging, depending on the brand and business model. For companies that prioritize sustainability and zero waste, the choice of packaging materials needs to be aligned with an eco-friendly future.
• Productivity Goals: Order processing strategies to maximize efficiency, reduce processing time, and optimize labor use should be aligned with business goals. If needed, businesses should train the warehouse labor to ensure the workers can work in tandem with the available technology and productivity doesn’t suffer as a result.
• Seasonality: During peak times like holidays, businesses need to adjust operational strategies and resource allocation to handle increased order volumes. In slower periods, a more cost-effective approach may be suitable.

What is an Order Processing Software?

Order processing software helps businesses automate and manage various stages of the order fulfillment cycle in ecommerce. Order management systems typically integrate several functions – from receiving and processing orders, through inventory management, to shipping and delivery tracking. Mordor Intelligence estimates the multichannel order management market size to reach USD 3.27 billion in 2024, with significant growth in ecommerce and retail segments.

Order processing software tracks the customer purchasing journey from end-to-end — from order placement to delivery, including processing payments and handling returns or exchanges. It coordinates with shipping carriers, calculates shipping costs, and provides tracking information. Modern order processing systems can maintain customer data and order history and generate reports on sales, order status, inventory levels, and other key metrics for informed decision-making.

Five Benefits of Using Order Processing Software

Order processing software oversees the order fulfillment lifecycle from end to end to introduce significant benefits to businesses. These benefits include enhanced operational efficiency, improved inventory management, accurate and reliable order processing, enhanced customer satisfaction, and cost-effectiveness coupled with data-driven insights.

1. Enhanced Operational Efficiency

Order processing software streamlines order fulfillment by automating tasks such as order entry, picking, sorting, and shipping. It reduces the time and labor involved in processing customer orders, leading to faster order turnaround and boosting overall productivity and operational throughput.

With m-commerce and omnichannel fulfillment across social media and online marketplaces gaining ground, a centralized order processing system allows businesses to track orders across multiple channels. It can consolidate customer and order data to track order routing and inventory turnover ratio and deliver a consistent and cohesive omnichannel retail experience.  

2. Improved Inventory Management

According to Package X, 43 percent of small businesses are not tracking their inventory. Order processing software allows businesses to track and manage inventory levels in real-time, dramatically improving visibility into the warehouse and operations. It analyzes demand, selling patterns, and key performance indicators to anticipate stock levels and prevent issues like overstocking or stockouts. 

Businesses can leverage order processing software to monitor inventory levels across multiple sales channels and use the consolidated data to maintain adequate inventory. A centralized approach provides the granular visibility and control necessary to automate inventory management tasks like updating customer information, adding carrier data, and maintaining optimal stock levels.

3. Accurate and Reliable Order Processing

Order processing systems enable businesses to automate traditional pen and paper-based tasks and reduce the likelihood of human error in order processing. The software ensures that orders are processed accurately and consistently, reducing the chances of errors such as incorrect item picking or shipping. 

Order processing software improves the productivity of warehouse workers by guiding them to the right products, supporting various picking and packing strategies, and creating smart picklists. It provides continuous oversight for multichannel inventory management — this reliability is key to minimizing ecommerce returns, exchanges, and customer dissatisfaction.

4. Enhanced Customer Satisfaction

Order processing software provides transparency and real-time updates to customers regarding their order status. This level of communication, combined with real-time visibility into the order status, improves customer trust and satisfaction. 

With integrated order processing systems, businesses can handle specialized order scenarios like back orders and split orders with efficiency. Fast consolidation of returns enables businesses to process refunds or exchanges faster and reallocate inventory to accommodate the returned items.

5. Cost-effectiveness and Data-driven Decision Making

Software-driven automation streamlines order processing workflows, leading to notable cost savings by reducing labor and operational expenses. Advanced analytics and reporting capabilities provide comprehensive insights into various aspects such as sales performance, inventory levels, order fulfillment efficiency, customer service quality, and financial health. Sales reports reveal trends and customer preferences, inventory analytics optimize stock management, fulfillment metrics highlight process efficiencies, and financial reports offer crucial fiscal insights.

These insights feed data-driven decision-making to strategically manage inventory, tailor marketing efforts, streamline supply chain operations, and improve financial planning. According to research by Bain & Company, 56 percent of retail and consumer goods companies plan to ramp up investments in predictive planning and demand forecasting. Insights into customer behavior and feedback further help enhance customer service and improve retention. 

Five Best Practices for Effective Order Processing System

By combining the right software and hardware, automating key processes, and ensuring seamless integration with ERP and WMS, businesses can significantly enhance the efficiency and accuracy of their order fulfillment operations. These practices not only streamline processes but also contribute to better customer service and overall business growth.

1. Implement the Right Order Management Software

Select the order processing software that aligns with your business size, complexity, and specific needs. Look for features like real-time inventory tracking, integration support for your existing infrastructure, and customer management capabilities. 

Train your staff and warehouse labor to support ground operations and improve productivity. Your order processing system should be capable of tracking and refining existing workflows in real time to align your output with business objectives.

2. Leverage the Latest Hardware Technology

Use the latest hardware technology like barcode scanners, RFID tags, and mobile devices to speed up processes like picking, inventory counting, warehouse labeling, and shipping. Ensure that hardware devices are fully integrated with the order processing software for seamless data transfer and real-time updates. 

3. Automate the Pick, Pack, and Ship Process

Implement tools and technologies like automated conveyor systems, sorting machines, or robotic assistants to streamline the pick, pack, and ship process. Warehouse automation reduces errors and increases efficiency, allowing staff to focus on more critical tasks. 

Order processing systems can integrate with warehouse hardware and create smart picklists, streamline communication, and trigger tasks for warehouse workers. It can consolidate carrier information to recommend the best shipping option based on the product, destination, package weight, and size.

4. Integrate with Enterprise Resource Planning (ERP) Systems

Ensure that the order processing system is seamlessly integrated with your ERP system. ERP integration provides businesses with a unified view of business operations across all departments - from sales and inventory to finance and customer service. 

Integration ensures consistent and accurate data across all business functions and multiple sales channels to streamline order fulfillment and improve the overall customer experience.

5. Invest in a Warehouse Management System (WMS)

An ecommerce WMS can greatly improve warehouse operations and reduce operating expenses by optimizing space utilization, improving inventory accuracy, and streamlining picking and packing processes. Ensure the WMS is integrated with your order processing system for real-time data exchange and enhanced coordination between warehouse activities and order fulfillment.

Hopstack for Faster Order Fulfillment

Hopstack revolutionizes the pick, pack, and ship operations for today’s e-commerce companies, transforming order fulfillment into an intelligent, streamlined, and highly efficient process. 

Hopstack’s WMS seamlessly integrates with warehouse hardware like handheld scanners and automated robots and supports workers with smart picklists and guided picking workflows to ensure every pick is precise and efficient. We optimize the packing process and shipping process to minimize time and material usage and ensure compliance with instant carrier information, intelligent rule-based carrier selection, and cost-effective order consolidation. 

Hopstack's performance analytics and customizable workflow configurations enable businesses to not only boost their operational efficiency but also gain in-depth insights for continuous improvement. Contact us to schedule a demo and discover how Hopstack can elevate your e-commerce fulfillment operations to new heights of accuracy and efficiency.

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