Why is it essential to have sustainable fulfillment processes in e-commerce, and how can Order Management Systems help us achieve it?

April 29, 2023 by
Frank Calviño

By Malte Kappelhoff - The e-commerce industry has undergone significant changes and process innovations in recent years, driven by factors such as the COVID-19 pandemic, which led to record-breaking sales and the adoption of new distribution channels and delivery concepts.

While cross-channel sales strategies such as "click and collect" saw a 208% increase in sales during the temporary closure of brick-and-mortar retail, production, and delivery bottlenecks, along with the logistics industry's labor shortage, have impeded e-commerce growth.

Companies must adapt to political conflicts and changing market conditions to maintain flexibility in procurement and partner management. Consequently, critical logistics processes, such as procurement and order fulfillment, have become the primary focus of e-commerce.

The high volume of e-commerce orders and growing customer expectations for fast and cross-channel order processing increase the complexity of these processes and demand efficient management of suppliers and order processing.

The rapid growth of the e-commerce industry poses additional challenges for environmental sustainability, as the increasing consumption of natural resources demands resource efficiency strategies to remain cost-efficient and competitive.

Awareness of ecologically sustainable action has long since arrived in society and represents a purchasing criterion that should not be underestimated. According to a NetO study, 73% of online consumers pay attention to climate impact when choosing a brand.

And as can be read in "The B2B Future Shopper Report 2023" by Wunderman Thompson, 65 % of B2B shoppers are willing to accept a longer delivery time if it means that delivery is more environmentally sustainable. In addition to the price and the quality of the product, the image of the brand and its communicated values are decisive for customer acceptance and the resulting economic success.

It is, therefore, no longer just about the advantages of e-commerce in terms of price reduction and improved delivery speed but rather about applying the potential of digitalization in an ecologically and economically sustainable context. This is the only way to ensure long-term entrepreneurial success in a highly dynamic market.

Why Order Management Systems is an asset to any commerce infrastructure.

In recent years, effective and well-organized order management has become crucial for success in e-commerce. The fulfillment process begins when a customer selects a product and proceeds to check out, including payment, delivery, and the possibility of a return.

Traditional ERP systems were once used to manage this process. Still, the growth of omnichannel commerce has led to increased complexity, a greater need for streamlined operations, reduced manual effort, and improved order accuracy. Order management systems (OMS) are comprehensive software solutions that optimize and standardize the order fulfillment process across all sales channels.

They serve as a hub for managing the fulfillment process and streamlining data integration between enterprise software systems such as customer relationship management (CRM), product information management (PIM), and warehouse management systems (WMS). Point-to-point integrations between individual systems can be avoided, making the software infrastructure more manageable and flexible.

Furthermore, an OMS centralizes all order-related information and provides a single database for customer and order data, linking demand from distribution channels to the company's available inventory. It captures orders from various distribution channels and routes them to the optimal internal or external fulfillment locations.

This provides real-time inventory and order status updates that can be used for internal monitoring and customer service.

No wonder, then, that interest in OMS solutions continues to grow. According to a study by the IHL Group, investments in order management systems are expected to increase significantly from 2019 to 2024 and are expected to reach 1.574 billion euros.

How order management systems can contribute to more environmentally sustainable e-fulfillment processes:

The growing importance of sustainable action is one of the trends of recent years and demands a radical rethink in almost all areas. New ecological corporate goals must be defined to make the company's strategic orientation future-proof. Here, monetary key performance indicators (KPIs) such as the cost-turnover ratio of orders in online retailing reach their limits and must be supplemented by ecological key figures such as the carbon footprint per order or the resource consumption per order.

Since the resource consumption of an online order occurs primarily in the logistical order processing, well-coordinated order management can contribute to resource savings here. The central view of all fulfillment-relevant data in the OMS can optimize the use of resources in the company and minimize error rates in the fulfillment process.

Incoming orders from online shops or marketplaces like Amazon or eBay are centrally recorded and compared with real-time stock levels. In addition to the company's stock levels, stock levels from manufacturers, suppliers, and stationery shops can also be taken into account in the availability check. On the one hand, this has the advantage that the probability that the item ordered by the customer is in stock is significantly higher, and the customer can expect prompt delivery. On the other hand, it can also save distances in fulfillment.

Assume that a customer from Munich buys a product from an online retailer based in Berlin. This online retailer obtains some of its products from a wholesaler in Munich. Of course, the online retailer could now arrange delivery from his Berlin warehouse.

Still, the far more efficient option would be to forward the order to the wholesaler and commission him with the fulfillment of the order. Such forwarding of an order is called "drop-shipping" and can be supported by order management systems. This approach can result in reduced delivery distance, lower resource consumption, and increased cost efficiency for the online retailer. Moreover, drop-shipping can help online retailers expand their product offerings without incurring the costs of stocking and maintaining inventory.

A holistic overview of all available stock has another advantage: excess or missing inventory can be identified early on, reducing safety stock. This, in turn, helps to minimize the amount of waste caused by excess supply and to use storage space more efficiently.

With an average annual electricity consumption per square meter of 65 kWh/m2 in logistics properties and 198 kWh/m2 in stationary non-food retail, this results in considerable economic and ecological savings potential, leading to a cost advantage in the market.

Once the optimal sourcing location for order fulfillment has been determined, order management must decide which delivery method is most cost-effective or environmentally friendly. This optimization is based on rules defined by the company and can therefore be adapted to the respective corporate strategy.

If the aim is to achieve the most environmentally friendly fulfillment strategy, the findings of scientific studies, such as those by van Loon et al. (2015), could be considered. This study deals with the environmental impact of various fulfillment methods in online retail and recommends action accordingly.

For example, smaller e-commerce orders can be delivered in the most environmentally friendly way by centralized shipping from a cross-docking service provider or a brick-and-mortar shop. However, as the number of items per order increases, it becomes more advantageous to consolidate orders to maximize the number of items per delivery and minimize environmental impact.

Factors such as the volume and weight of the items also play a crucial role in choosing the optimal fulfillment method and can be considered in fulfillment by setting further rules.

Another decisive factor in online retail is the handling of returned products. Germany is the unhappy European champion regarding the number of returned products, causing around 795,000 tonnes of CO2 in 2021. This is about as much as 6.6 million cars need for a distance of about 800 kilometers.

This enormous dimension of CO2 emissions already suggests that the returns rate not only impacts the environment but also entails considerable financial burdens for companies in the online trade. This makes it all the more important for companies to develop an awareness of the resource consumption caused there and to reduce it where possible. Order management systems can support this in various ways.

  1. Identification and determination of return key figures.

When order management systems are used ideally, they act as a data interface between incoming orders and order fulfillment and communicate with external partners such as suppliers or CEP service providers.

Thus, they can provide a holistic view of customer, product, and delivery data. Analysis and monitoring tools can be used to evaluate crucial data regarding the returns process and identify starting points for optimization.

  1. Improved customer communication

Managing online orders is becoming more complex for companies due to the increasing possibilities and options. Customers must also learn to understand and appreciate the benefits of omnichannel commerce. An OMS can simplify the entire ordering process for customers by giving them real-time information about possible fulfillment options and delivery status.

By setting up a "remorse period," the customer also has the option to cancel or make changes up to a certain point after the order has been placed. The transparency and flexibility created for the customer promote customer satisfaction on the one hand and reduces the likelihood of a return due to incorrect orders on the other.

  1. Intelligent routing of returns

Order management systems are focused on efficient communication between systems and intelligent routing of orders, making them a key area for increasing efficiency. They offer great potential for making returns logistics more environmentally friendly by handling returns more efficiently. This can be achieved by directly incorporating returned products into the fulfillment of other orders and utilizing other distribution channels, such as brick-and-mortar retail.

The routing and consolidation of returned products are based on predefined rules and can be adjusted by the company as desired. For example, returned products can be redirected to compensate for stock shortages at certain warehouse locations or reallocated as needed. This approach can help to reduce waste and lower costs for the online retailer.

By leveraging existing returns data and enhancing communication with partners and customers, businesses can effectively manage and optimize the flow of goods in the supply chain, thereby minimizing waste and reducing the environmental impact associated with product returns.

The key takeaways from OMS

In conclusion, efficient order fulfillment is becoming increasingly important in online businesses due to economic and ecological factors. Implementing an order management system can provide significant value to a company by providing tools to manage and coordinate the fulfillment process efficiently. The flexibility and wide range of solutions offered by OMS make it a valuable tool in the highly competitive online trade market, allowing companies to adapt to changes and challenges.

In addition to economic benefits, OMS can contribute to the sustainability trend by allowing businesses to set guidelines for the most efficient shipping methods and returns handling. This leads to reduced carbon emissions and more sustainable operations. A better view of fulfillment-related data provided by OMS can also help companies make more efficient use of warehouse space and minimize the environmental impact of excess or incorrectly stored inventory.

The trend towards sustainability in e-fulfillment is undeniably becoming an increasingly important factor for customers.

Companies must align their processes and values with these customer expectations to avoid lost sales and maintain their reputation. In this context, adopting resource-saving practices is advantageous both ecologically and economically. An order management system (OMS) can support businesses in achieving this by providing a more sustainable approach to order fulfillment.

About the author: Hello, my name is Malte Kappelhoff, and I'm a business administration student at Friedrich Schiller University in Jena. My area of focus is supply chain management, and I'm particularly interested in how we can make supply chains more efficient and environmentally friendly.

I recently completed my thesis on order management systems and their impact on environmental sustainability. In this research, I explored how these systems can help reduce waste, reduce emissions, and promote energy efficiency in the e-commerce industry. I've also worked for the past 2.5 years at Intershop Communications AG, where I've been involved in market research and product development of order management systems. This experience has allowed me to understand better how these systems can be implemented in practice to drive positive change.

I'm passionate about exploring the intersection of economics and sustainability and finding ways to create a more sustainable future for businesses and the environment.

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