Order Processing: Meaning, Importance, and Steps

Order Processing: Meaning, Importance, and Steps

The number of consumers who order products and services online has been steadily increasing in recent years. This increase has led to rapid growth in orders processed by the different parties involved, from businesses to delivery companies. 

Order processing is essential in any business’ marketing and distribution strategy to save money on production costs and grow revenue through effective marketing strategies. Learning to process orders effectively helps improve customer relations and enhance customer satisfaction by ensuring timely product delivery. 

Let’s take an in-depth look at order processing, its importance, and the steps involved.

What Is Order Processing?

Order processing is fulfilling a customer’s request for goods or services. In order processing, suppliers accept the orders, then deliver the products to customers. The suppliers receive and verify the order, select the products or services, and ensure that they are delivered to the customer promptly and accurately. 

This process can include steps such as verifying the availability of the products, calculating the cost and taxes, and processing payment. Order processing is a crucial step in selling goods or services. It ensures that customers receive what they have ordered and helps to build trust, increase customer satisfaction and foster a positive user experience.

Why is Order Processing Important?

There are several reasons why businesses should consider adopting and implementing effective order processing practices. Good order processing practices help companies avoid overstocking and understocking issues by accurately tracking and forecasting demand. They also save businesses money by reducing excess inventory holding costs and lost sales due to stockouts.

Streamlined order processing helps businesses fulfill orders more quickly and accurately, which reduces mistakes and improves customer satisfaction. The process frees up time for other tasks and allows firms to handle more orders without increasing labor costs. 

Accurate and timely data on order history and trends can help businesses make informed decisions about inventory levels, staffing needs, and other operational matters. Efficient order processing can help enterprises offer faster turnaround times and better service, giving the business a competitive advantage in the market.

Order Processing Advantages and Disadvantages

Order processing can help a business manage inventory, as processing orders can provide data on what products are selling and which are not. The process can improve customer satisfaction, as customers are more likely to be happy with their purchase experience when orders are processed efficiently. Tracking and fulfilling orders efficiently ensures that customers receive their products or services on time.

However, order processing can be time-consuming, mainly if a business gets many orders. It can be costly, as a company may need to invest in software or systems to process orders efficiently. There is also a risk of errors occurring during the order processing process, leading to delays or issues with fulfilling orders.

The Steps of Order Processing

Businesses follow steps to process orders effectively without errors. Here is the order management process flow.


The first step in order processing is placement. It involves receiving and accepting an order that a customer places. Different businesses have different ways of taking orders, such as online sales through an e-commerce site or over the phone.


The next step is receiving the order, which involves checking to ensure that the customer has sent all the necessary information. The stage includes ensuring the customer has entered all required information and that everything is correct in the order details.


The next step is the picking process, which involves determining which products or services are necessary to fulfill the order. In this stage, you can check to see if the ordered products need restocking.


In the next step, products are separated into groups before they are packed and prepared for delivery. This process can eliminate any confusion or delays in the order processing process.


In this step, the products are packaged, labeled, and sealed to prepare them for transport.



In this step, the products get shipped to the customer. Depending on the business’s order distribution methods, this process can use either online or offline delivery channels.


In the last step, the products get delivered to the customer. A third-party provider handles this step unless a business chooses to own and operate its fleet of delivery channels.

Factors Involved in Order Processing

Businesses must ensure they have the necessary systems to manage the order-processing process. It involves investing in technology, establishing business processes and procedures, and training employees to process orders effectively.

To effectively maintain an optimal order processing workflow throughout the ordering cycle, your business must consider several factors when selecting a new system. Here are the factors involved in order processing.

Nature of the Product

Businesses have multiple types of products and services that they offer to customers. Each product or service requires a distinct order processing workflow. As such, you must select the appropriate software system to fulfill the needs of each type of product and service. Different types of products include fresh produce, automobiles, and consumer electronics. 

Shipping Packaging

Your business needs to have an effective shipping packaging system in place. Suppose a product is shipped as raw materials or as an assembly kit. The company may choose a shipping design to handle shipments and associated order processing.

If you plan on selling products and services shipped in bulk boxes or pallets, you must invest in a packaging and order processing system that can efficiently handle per-unit orders. 

The right software solution should be able to manage all the shipping details involved with packing and labeling individual items when they leave the packaging area, tracking them throughout the entire process, and loading them into boxes before sending them out for delivery.


Many costs can be associated with order processing. Labor costs are the costs related to the staff time required to process orders. This includes the time it takes to pick and pack orders, process payments, and handle customer inquiries. 

Shipping and handling costs are associated with getting the order to the customer, including the cost of packaging materials, postage or courier fees, and any additional handling fees. If you are carrying inventory to fulfill orders, you will need to factor in the cost of storing and managing that inventory. Inventory costs include warehouse rent and insurance. 

If you are using any kind of software or hardware to help manage orders, you will need to factor in the cost of those tools. Technology costs include payment processing fees, CRM software subscriptions, and e-commerce platform fees.

It is essential to consider the cost of handling returns and exchanges, as these can be a significant part of the order processing process. Returns and exchanges include the cost of processing the return.

Available Workforce

Your business must have an adequate workforce available to handle order processing. It includes having enough employees to hand pick and pack merchandise and staff who can oversee the order fulfillment process.


Seasonality refers to certain events or activities, which can affect everything from consumer demand to the availability of labor, that tend to occur at certain times of the year. For example, there may be a decrease in the number of orders processed during the summer when many people are on vacation. 

If you are in a business that experiences seasonality, it is crucial to consider this when planning your order-processing activities. This may involve hiring additional staff, adjusting your production schedule to meet increased demand during peak seasons, or slowing down production during slower periods.

Number of Items

The number of items factor in order processing refers to the number of items included in an order. It can impact the time and resources required to process the order and the cost of fulfilling it. 

For example, an order with many items may take longer to pick, pack, and ship and may require additional packaging materials and labor. Similarly, the cost of fulfilling an order with many items may be higher due to the increased time and resources needed to process the order. 

Tips to Improve Order Processing

Here are several trends to consider to improve order processing in your business.


Automation can simplify the order processing process when you take the time to define the entire order processing workflow. A sound system can help you streamline the order-picking process, automate transactions such as payments and shipping labels, track inventory levels and order status, and send automated notifications when product shipments are complete. 

It will help prevent delays in customer orders and let customers know when they can expect their orders to be shipped.

Demand Forecasting

An effective demand forecasting system can ensure you are ready for high-volume periods. By forecasting your future order volume, you can plan for increased staffing levels during peak times so that your customers’ orders will be processed quickly. 

A solid demand forecasting system will also enable you to adjust your production schedule when needed and make any necessary adjustments to avoid excess inventory storage costs.

Choose the Right Shipping Company

A good shipping company will offer competitive rates, reliable delivery services, and efficient order processing. It should be able to handle deliveries to all your locations, handle customer inquiries and cancellations easily, and provide you with a complete record of orders they have processed so far.

Customer Communication

Good customer communication is key to the success of your order processing. Be clear about any additional charges associated with shipping, respond quickly to inquiries, and provide customers with a tracking number when their order ships. These actions will help build customer trust and see them return for future purchases.

Inventory Control

Having enough inventory will benefit your customers. If you run out of certain products, it can delay customer orders. To avoid this, ensure your warehouse management system provides the insights you need to stock enough products to process your customers’ orders at any time.

ERP Integration

ERP systems that integrate with your other business software can provide a seamless experience between your order processing systems and other back-end business processes.  The integration eliminates the need for third-party software and decreases the number of manual steps involved in processing orders.

Order Processing Software

An order processing (OP) system can help automate the order processing process, streamline your order fulfillment process, and provide you with a solid platform to manage customer relationships and track customer orders. Consider a warehouse management system to help you with all tasks.

Update Continuously 

Make sure to update your traditional OP systems regularly. Updating your order management software allows you to collect up-to-date information and respond when fulfilling customer orders. 


Here are the most common frequently asked questions regarding order processing.

What’s the best OP software for automation?

There are many different automation tools that you can use, and the best one for you will depend on your specific needs and goals. Some popular order management software options include QuickBooks Online and IBM Sterling Order Management.

How can you avoid errors while processing orders?

Follow established processes and review your work before completing the order. These steps will help you catch any errors before processing the order.

How can order processing help my business?

Order processing will help your business in many ways. Being able to process and fulfill customer orders quickly and efficiently will build trust with your customers, reduce order cancellations, improve customer satisfaction, and provide you with a solid customer relations system.

What are the most common OP errors?

Common OP errors include incorrect addresses and payment information, missing or incomplete orders, and delayed delivery dates.

Is order management and fulfillment the same?

Order management is managing orders made by customers, which can include accepting orders, tracking orders, and handling returns or exchanges. On the other hand, order fulfillment refers to completing and delivering an order to the customer.

Final Thoughts

Order processing can be a complex process that requires a great deal of attention and diligence. However, with the right tools and efforts, it can be manageable for your business. As long as you take the time to ensure that your order processing systems are working efficiently, you should have no problem achieving your goals.