Order Processing - Definition, Steps, Factors & Example
Published in Marketing and Strategy Terms by MBA Skool Team
What is Order Processing?
Order processing is the process of identification, sorting, picking, packaging, movement and delivery of the packed items to a shipping carrier after the customer has placed the order successfully. It is generally conducted at distribution centers. Order processing consists of all the activities that have to be completed from the point customer has placed the order to the point the customer receives it.
5 Steps in the Oder Processing
Order processing involves the following steps:
Step 1 Order Placement
This is the step where the order is placed by the customer successfully. It typically includes the order and item details like the customer details, address, items ordered with quantity, order number, instructions etc. It also includes the inventory lookup to identify the optimized delivery of the products.
Step 2 Picking
It refers to the collection of articles in a specified quantity before shipment, to fulfil the customer’s orders. Picking could be of three types:
a. Piece picking- When the orders are picked one piece at a time, it is known as piece picking. This is generally done in repair part distributors or mail order catalogue companies.
b. Case picking- A case as a whole is picked instead of a single item.
c. Pallet picking- Here, the whole order is picked in one go and is shipped to the customer.
Step 3 Sorting
This stage refers to the sorting of the picked articles according to their destination, type size etc. depending on the customer’s orders.
Step 4 Pre-consolidation or package formation
In this the pricing, labelling weighting of the package is done.
This is the final step. Here, the final packets are consolidated and filled in to the container. Ready to be transported to the customer.
The above process is a much generalized process. Depending upon the characteristics of the products and the industry, this process can be modified to suit the specific needs of the customers.
Factors in Order Processing
The factors that need to be considered while designing an order processing are:
i) Nature of the product- Shipping of vegetable and those of clothes needs two different processes.
ii) Nature of the order- Some orders are very huge and some are rather small. Shipping few kilograms and shipping huge tons of products are two different things.
iii) Nature of shipping package- Shipping of boxes of biscuits and cans of milk require different processes.
iv) Costs- Depends on time required, products weight that is to be shipped etc.
v) Availability of work force and labor also affects the processes. If labor is not available, the processes need to be automated.
vi) Seasonality- Demand of some products varies according to seasons. The order processing changes with the seasonality.
To keep a business going, it is very necessary to fulfil the orders in time. It is also necessary to maintain the quality in order to keep the customer happy.
Order Processing Example
Let us assume a customer in New York orders a pair of earphones from a seller. The order processing immediately begins once the order is received with details. In the order the customer has ordered 1 wired earphones of a particular brand. With this information and the location of delivery, the order management and supply chain systems determine that the product is in New Jersey which is the closest to the customer.
The item is picked up from the warehouse and labelled properly with the order details. After that the product is packaged properly with address and other details. The order is consolidated in the end on the basis of whether the payment is already done or not. This order can then be combined with other orders from the same location to the same location and then shipped on its way to the customer. The customer receives the product in the expected time and then order processing is closed.
Hence, this concludes the definition of Order Processing along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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