Sales Order Processing

The sales order process is one of the most vital workflows in any business that sells goods.
Get it right and you’ll cut costs and delight customers. Get it wrong and – unfortunately – the opposite tends
to apply.
So what is sales order processing, how does it work, and why should you optimise it

What is Sales order processing

Sales order processing, also known as order management, is the flow of steps from customer purchase through to
product delivery. It details each phase of the purchase and order fulfilment process, including financial transaction,
order picking and logistics.

This sequence is often depicted using a flow chart – like the one you’ll see below. Ideally a business will achieve a
smooth process that covers these steps and ensures customer satisfaction through less chance of errors, faster delivery
time and less money wasted on inefficient tasks.

Sales orders vs purchase orders and invoices

Sales order processing, and in particular the phrase ‘sales order’, is not to be confused with purchase orders and
invoices:

Sales order vs purchase order

A sales order and purchase order are, in essence, the same thing but going in opposite directions.
A sales order comes from the seller – your business – and is generated to confirm that a sale has been made. It outlines
what goods have been sold, their quantities, payment methods, delivery information and so on.

A purchase order goes in the other direction. It comes from the customer and outlines what they wish to purchase. For
example, a manufacturer may send a purchase order to their supplier outlining what they require. The supplier would
then generate a sales order on the back of that purchase request, once the price has been accepted.

Sales order vs sales invoice

A sales invoice is the final piece of the puzzle, acting as the bill for goods and services. When a price has been agreed
and a sales order issued, an invoice can be generated by the supplier and sent to the buyer outlining the agreed
payment terms. Whether this is before or after receipt of goods is up to the two parties.

The accounting team of each party records both the sales order and sales invoice to ensure that they match – as part of
the reconciliation process.
What are the basic steps of sales order processing?

The basic steps of sales order processing are usually:

Receive the order
Generate a sales order
Picking, sorting and packing
Shipping
Invoicing

A sales order flowchart gives you a top-down view of each step in your sales order pipeline and can be used to
explore inefficiencies in your sales order processes
Example of a typical sales order process flow
Here we break down the individual steps in a typical sales order process workflow, from receiving an order to
invoicing.

Step 1: Receive the order

The first step in any sales order process is order receipt. The customer initiates their purchase order through their
platform of choice, whether that’s over the phone, online, or via your mobile app – we’ll talk more about multichannel
sales processes below.

Sales orders should include:

Requested products
Quantities
Shipping details
If your company has multiple warehouses or fulfilment centres, shipping details are important – they’ll help you
decide which of your warehouses you send the order to.

Step 2: Generate a sales order

For some companies generating a sales order is automatically included in Step 1 – so effectively it’s all one process.
To make this a single step in your sales order process, your stock levels need to be kept up to date and held
electronically in a central database that is integrated with your sales ordering system – also known as an order
management system (OMS).
When your sales ordering system determines that your company has the right goods in stock, it raises its own sales
order and passes the details on to the relevant warehouse managers.
Any company that doesn’t use an automated system has to do this manually – in other words, a staff member receives
the purchase order, checks stock, then raises a sales order.

Step 3: Picking, sorting and packing

When an order has been raised and confirmed, it’s over to the warehouse staff to complete the picking, sorting and
packing phases:
Picking: Warehouse staff pick out the customer’s items so that they can be sorted and delivered. Barcodes and
scanners may be utilised here to speed up data entry, allowing warehouse staff to tell the inventory management
system that a particular item has been taken off the shelf. Some companies, such as Amazon, are increasingly
using robots to automate the picking process.
Sorting: Picked goods are organised by purchase and delivery location. Picking is often done in batches or zones,
where multiple customer orders are picked at the same time from one location in the warehouse. In the sorting
phase, these goods are separated into individual customer orders.
Packing: Finally, orders are packed into appropriate containers, sealed, and labelled for shipping.

What if there isn’t enough stock

If there isn’t enough stock to fulfil an order, you’ll need to generate a new purchase order for one of your suppliers.
This is where an inventory management system that automatically generates a new purchase order comes in handy. In
other words, the system detects that there isn’t enough stock and raises a purchase order with suppliers on its own –
updating the computer and customer as required.

Step 4: Shipping
The shipping step is where outbound goods are finally transferred to an approved logistics partner who will then
deliver the product to the customer. Depending on what is most cost efficient, or what the customer prefers, purchased
goods may be sent out individually or in bulk.
Collecting everything into one shipment can sometimes increase delivery times as it may take longer to pick and sort
some goods over others – for instance, when stock isn’t immediately available. On the other hand, sending partial
shipments can increase shipping costs and is more complex to manage.

Multiple companies may be involved in this phase. Your business could use a logistics partner to get your goods to a
distribution centre, from where a courier delivers the goods to your customer. Alternatively, a single freight company
could deliver your goods the whole way.

Shipping is one of the last steps in the sales order process, and for this you may use a logistics partner or freight
company
Step 5: Invoicing
If payment wasn’t handled at the sales end of the pipeline an invoice will need to be generated so your company
receives payment.
A basic system can be used where the invoice is paper-based and mailed out with the package itself. Or the invoice
can be generated electronically and emailed to the customer.

Depending on what accounting systems you’re using, you may also be able to use an e-invoice with payment options
built in to the invoice itself – like a Pay Now button that is linked to both your accounting platform and the
customer’s.

Why multichannel sales order management is important

Most shoppers nowadays – even in the B2B space – want the option to shop online, which means that you’re going to
need a multichannel or omnichannel strategy if you want to improve your sales order process.

‘Omnichannel’ means that your business sells across multiple platforms and devices, and each of these is integrated
into one system. ‘Multichannel’ refers to selling across different platforms, but their systems are separate.

What does this mean for my sales order processing system

Any company looking to optimise its sales order processing flow will need to think bigger than traditional sales to a
multichannel or – even better – omnichannel strategy.

To optimise for these strategies automation is key, and you’ll be looking to invest in an order and inventory
management system that can eliminate time-consuming manual steps like checking stock levels, inputting data into
spreadsheets, producing invoices either from scratch or a template, and more.

When each of these processes is automated they become instant, which means staff can be occupied with more value-
adding tasks.

Automating your sales order processes removes time-consuming and tedious tasks for staff – and the risk of human
error

The benefits of optimising a sales order process flow

The sales order process involves a number of very important and sometimes complex steps, and

so any degree of optimisation can have huge benefits, including:

Fewer errors: Automating elements like data entry means there’s less chance of human errors – like typos, or
putting decimals in the wrong place. It also reduces the chance that the wrong items will be put in the wrong
shipment, or get missed entirely.
Faster order fulfilment: By streamlining each phase of this process you’re making it faster. That means you’ll
pick and ship customer orders more quickly, which cuts costs and delights customers.
Lower costs: As mentioned, faster fulfilment cuts costs. But it goes beyond that – there’s less chance of errors
being made, so fewer costs related to returns and reshipments.
Complexity is easier to manage: With a streamlined process – especially a digital or automated one – it can be
easier to manage more complex orders such as partial shipments. This is because calculations, data entry and order
management are done on your behalf. Your teams can get on with what they do best, while the system keeps track
of other tasks like sending reminders or shipping out the second or third batch in a partial shipment when stock
arrives.

5 ways to optimise the sales order process

1. Audit your current system

To optimise your processes you’ll need to start with an audit. This can be a revealing exercise – and you won’t know
where you need to go if you don’t know where you are now. If you can’t capture the data you need for this, that is the
first point you’ll need to address.
Your first step is to map out your current sales order process in a flow chart, describe each step, and ask yourself :
Who or what is involved? How long does it take?
From this you can work out the most complex or slowest parts of your pipeline – you’ll look at optimising these first.

Auditing the way you undertake your sales order process is the first step to improving it
2. Automate
Automation is about taking tedious and repetitive jobs and letting a computer do them faster and more accurately – so that
staff can focus on more meaningful tasks.
For sales order processing, you could think about automating these actions:
Receiving purchase orders and checking inventory levels
Raising sales orders if inventory is confirmed
Sending purchase orders to suppliers if new stock is required
Raising a sales invoice to be printed or emailed to the customer
Sending picking requests to the appropriate warehouse manager
Updating stock levels based on what items are removed from shelves and scanned
Organising pickups and estimating shipping costs
Communicating with the customer at key steps in the process, or when there’s a delay

So how do you go about automating these processes?

To manage these steps you’ll need to use order management software that’s integrated with your inventory management
system. Between these two systems you can handle the sales process, stock count and supplier requests.

If needed, these two in turn may then plug into a wider enterprise resource planning (ERP) system to connect with more
apps, such as those for accounting, sales databases, CMS platforms, and so on.

3. Invest in inventory management software

Inventory management is key to optimising almost the entire first half of the sales order workflow.

If you don’t know what stock you have at any given time, or you can’t update this information in real time, you will always
be at risk of stocking out unexpectedly – or overstocking goods that you then can’t sell.
Inventory management software is designed to cover this and more. It allows you to track and manage your stock, and even
generate business intelligence reports so you can see what is profitable in your business and what’s not.

Inventory management software deals with some of the core processes involved in sales orders, and is therefore an essential
part of any sales order software system

4. Look into demand forecasting

Demand forecasting builds on inventory management by using a range of data to predict future demand. Factors like
historical sales data, seasonal factors and your own forecasts all combine to help the system calculate when consumers are
going to want particular products, and in what quantity.

From there you’re able to ensure you have stock in the right place, in the right quantity, at the right time – meaning less risk
that you’ll either run out of stock due to unexpected demand, or that you’ll order too much stock when demand is due to
drop.

5. Learn to manage reverse logistics

When you’ve optimised each element of your sales order process, there’s still one part of your system that’s left – the
reverse supply chain.

Reverse logistics is the term for when goods come back up the supply chain, from customer to supplier or manufacturer.
Customer returns are a common example, but unsold goods, end-of-life goods, returned rentals and delivery failures may all
be reasons for goods to come up the supply chain in the reverse direction.

If your business isn’t ready to process returned goods quickly and efficiently, it may lead to some of the same problems
you’ve already worked hard to mitigate – like slow processing, human error, spiralling costs and dissatisfied customers.
What does sales order processing software do?

Basically, this software is a cross between a sales database and order control. Generally speaking, sales order processing
software can:
Track sales orders
Manage sales orders based on purchase date, delivery date, warehouse location, current status, and whether or not the
order can ship now or if it’s been delayed because you’re waiting for stock
Generate purchase orders for suppliers off the back of a sales order for the customer if there isn’t enough stock in-house
at the time of purchase
Reserve stock for future sales, partial orders or specific sales channels
Send you alerts to let you know about overdue orders
Effective sales order processing in ERP software
Sales order processing is a series of actions followed by a business to fulfil a customer’s order and details information suc h
as prices, delivery time frame and quantity. To successfully fulfil an order, you must relay the right information to all the
departments involved. Communication is very important in sales order processing, which is where ERP systems come in.
How can ERP software help you with sales order processing?
The main advantage of using ERP in any business operation is automation. Introducing automation at every level (sales,
accounting, customer service and fulfilment) improves efficiency and reduces errors. Here is how ERP can make order
processing easier for you.
Automates order capturing
In recent years, we have seen customers shift towards tech-enabled sales channels from the traditional in-person phone and
email channels. They also expect fast deliveries and regular updates on their orders. Manual data entry is not only slow and
tedious, but it also lacks coordination and transparency. Adopting an ERP system helps you automate and streamline
processes, which reduces the amount of time spent working on an order.
Faster order fulfilment
ERP software integrates information from different departments, such as sales, accounting, customer service and
fulfilment, into one data stream. Having access to such information together with automation makes it easier to process
orders.
Improved accuracy
Automation reduces human interference in sales order processing, eliminating the risk of human error. You will have fewer
returns, faster shipping, and, therefore, improved customer satisfaction.
Improved customer experience
To retain old customers and attract new ones, you must provide excellent customer service. Buyers want fast shipping and
accurate orders. ERP software helps you meet these needs by automating various functions and improving accuracy. For a
better shopping experience, also empower your customers with self-service opportunities. A sense of control enables them
to track and make changes to their orders.
How does ERP software promote efficiency?
When used correctly, ERP can be a game-changer for your company. Here are a few ways ERP can improve efficiency.
Cost-effective
ERP significantly reduces operational costs. Since all data is stored into a central database, you don’t have to worry about
handling multiple data sources.
Integrated management
Having access to real-time information from different departments is extremely important in sales order processing. ERP
goes a step further and enables users to access this information at any time. This kind of integration improves accuracy and
increases productivity among workers.
Better decision making
Executives and managers can make better decisions about the supply chain stakeholders because they have the necessary
information at their disposal. Customer feedback helps them identify which departments are performing well and also those
that need improving.
A one-size-fits-all ERP system will not offer you the benefits mentioned above. However, an integrated ERP system with
built-in sale processing will provide you with a seamless flow between initial sale and delivery.

Once a customer makes an order, all departments are alerted so that they can work together to process it. Automation and
integration enable them to track order progress and schedule their task accordingly. The sales team generates details of the
order to be used in production, packaging and shipping. Finally, an automated invoice can be generated inclusive of taxes
and freight charges, right before the order is dispatched.