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How to Reduce The High Costs of Order Errors

Posted on August 23, 2018 by Vicky Lawrence

Reduce Cost of Order Errors

Do you know how much order errors are costing your business right now?

These ordering mistakes can be costly on both sides of the transaction, whether they’re caused by miscommunication on price, a typo on a form, or data entry error into an ERP system.

It’s truly remarkable, even in today’s digital-everything landscape, how many expensive mistakes are caused by human error.  The pandemic has certainly brought greater attention to the issue of supply chain disruption, where purchase order line item changes have increased 60%.  A single employee’s clerical error cost Citi over $900 million in misallocated payments earlier this year. Elsewhere, a misaligned Excel spreadsheet column nearly disqualified 500,000 voters in Virginia, while another spreadsheet error caused over 16,000 COVID cases in the UK to go unreported.

Organizations in every sector are still handling complex transactions with outdated systems that are too vulnerable to human error or simple mistakes.  Even if you’re not mistakenly paying someone $900 million, your profits might be getting eroded one small mistake at a time.

For the supplier, it can go beyond entering and shipping the wrong product, or incorrect pricing, it can also affect your reputation and your credibility.

In order to fully understand the full cost of an order error, here is a real-life example from a garden center at the peak of their busy season.

How A ‘Simple’ Order Error Can Cost Hundreds of Dollars

Trevor is a manager of a medium-sized garden center.  He placed an order over the phone with one of his suppliers, requesting two pallets of 2 cubic feet bags of mulch.  When the shipment arrived, he realized he had been delivered 2 pallets of 3 cubic feet bags of mulch in error.

With no proof of what was said during the call, the supplier has little choice but to absorb the cost of the error and issued the garden center a credit of $1.10 per bag, representing the difference between the cost of the request and what was delivered.  Taking into consideration the cost of loss of revenue and man-hours for both the customer and supplier, this single error cost $660.  That is an expensive miscommunication, and one that could have easily been avoided.

Correcting an order error could cost a company 50% to 125% of the cost of the product in the first place.

When processing customer orders by phone, email, text, fax, or in person, the responsibility of the order error often rests with the suppliers as they manually enter the orders into their system.  The risk of and size of order entry errors grows dramatically as order volumes increase.

This example is just one way a simple miscommunication on the phone can cost hours of time and money on both sides of the transaction.  How many of these tiny errors/ big cost events has your company seen over the last year?  The last month?  If you’re reading this blog right now, the odds are good that you’ve seen enough to warrant immediate action.

How to Calculate the REAL Cost of Order Errors

A simple order error is especially costly because it’s almost impossible to prevent even with implementation of more guidance or training for your employees.  If an error is made over a phone conversation, it’s hard to offer more guidance than “pay more attention” or “be sure to confirm everything.”  That doesn’t address the fact that the order system is fundamentally susceptible to mistakes on either side of the phone.

When looking at the true cost of your order errors, be sure to consider:

  1. The cost of fulfilling orders: How much does it cost your employee(s) to make/fulfill an order, correctly or incorrectly.
  2. The cost of returning an item.
  3. The cost to ship the right items, possibly with expedited shipping costs added to “make things right.”
  4. In the B2B space, The Lifetime Value (LTV) of a recurring customer you may have just lost, and…
  5. The Cost per Customer Acquisition (CAC) to replace that business.

Use the OrderEase ROI Calculator For Wholesalers to determine how much time and money you can save with online ordering.  

Three Ways to Reduce Order Errors

TDI Brands Customer Service Team TestimonialTo reduce order errors, it’s important to look at the process in which the orders are being taken and submitted. Identifying which methods have the greatest frequency of errors (often those placed by text,  email,  phone or fax) and then reducing your reliance on that ordering method is the first step in the right direction.

Manage all product information in one place

Encourage digitally submitted orders vs manual order entry

Integrate online ordering with internal systems



1.  Manage All Product Information in One Place

Digital data management is no longer a futuristic vision, it’s a reality.  With volatile supply chains, fluctuating pricing, and constant generation of new products, it’s next to impossible to keep up-to-date by using paper catalogs, order forms and pricing lists.  

If we consider that manual order-taking can lead to a 10% or greater error rate on orders as a result of outdated printed materials, we can quickly see that print materials can be setting your order accuracy up for failure.

These errors can be reduced by digitally managing all your product information in one place allowing your sales team, admin and customer access to up-to-date product data and pricing information.

Digital product data management also ensures customers always access your up-to-date pricing, reducing any client relation risk in the process.

A secondary benefit of digital product information management is that an error can be corrected instantly and across the board.  With the old catalog and paper method, it would never be possible to make that thorough of a correction.

2. Encourage Digitally Submitted Orders vs Manual Ordering

Digital customer ordering helps to provide clear and convenient access to your products, pricing, and inventory information to reduce order entry errors and backorders.

An efficient online ordering system allows your customers to enter and submit orders themselves, placing the responsibility of the order accuracy on the customer and reducing the risk for the supplier.
These customer-entered digital orders will reduce the likelihood of miscommunication or misunderstanding that can arise when an order is placed over the phone or other means.

3. Integrate Online Ordering With Internal Systems   

Orders submitted digitally by customers and sales reps eliminate the need to manually enter orders into your internal system.  The elimination of this step in the order management process reduces the chance for typos and other errors.  You are also decreasing the operational processing and fulfillment time on every order.

Unnecessary order entry errors are not only costly to your business’s bottom line, they can also be costly to well-established business relationships.  Technology offers wholesale suppliers like you, the ability to provide their customers and sales teams with accurate product information and user-friendly online/ mobile ordering, reducing manual entry and order errors.

The first step to achieve items 1, 2, and 3 is by leveraging a solution that has the ability to automate or integrate with data within your ERP or accounting system to a sales rep and customer-facing interface.  There are many software solutions that provide this functionality to a degree.  IF you are a business who also receives orders from marketplaces such as Amazon, EDI orders from large retailers, PDF orders from franchises, then most software solutions are not able to provide a way to accept all these different types of orders digitally.

Since online ordering and product information management solutions are not all alike, be sure to get a free guided demo to accurately compare.  OrderEase for wholesale suppliers and distributors can help reduce order error, increase efficiency, and help build great customer experiences as well as provide a solution to expand your sales channels.  As you consider the cost of order errors, consider how your business could benefit from technology in the future. 

The Less Tangible Costs of Order Entry Errors  

All of the costs covered can fit neatly on a spreadsheet. However, it’s difficult to quantify the cost of the intangibles related to your business including damaged reputation, bad online reviews, or even bad employee reviews

Damaged Reputation

A reputation is something everyone intuitively understands yet is troublesome to quantify because it deals with the subjective territory of  perceptions. There is no disputing that a bad reputation comes with a price. Some estimates have put the total cost of bad reputations at $500 billion in the US alone.

Consider this scenario:

  1. An order error sours your relationship with Company A and you lose their business.
  2. Meanwhile, Company A is approached by their friend who owns Company B, who is in the market for your services. 
  3. Company A says they definitely don’t want to work with you because they just had to fire you.  Now you’ve lost Company A’s business and Company B’s business. 
  4. At the same time, based on the advice they received, Company B may tell other people to avoid your company because, “I’ve heard they’re unreliable.”

These “hidden” and more widespread implications of a bad reputation can impact a business immeasurably.  How do you even begin to calculate that damage?

Bad Online Reviews

It's also important to remember that we live in a digital world where order errors can go well beyond word-of-mouth and spill onto your digital footprint.

Keeping with the example we used above, let’s say your order error with Company A was so inconvenient to them, it compelled them to write a bad review about you online, calling you unreliable. 

That’s not immediately the end of the world. In fact, 67% of B2B buyers want to see a mix of both positive and negative reviews to add credibility to the actual reviews. But at the same time, 72% of B2B buyers say negative reviews give depth and insight into a product. The negative words are clearly still resonating, even if your buyers expect to see them.

Bad Employee Reviews

Now consider the damage that bad reviews can do to your recruitment and retention. 

Let’s say you had to let John Smith go because of the incident with Company A.  He may now leave a bad review for you at a site like Glassdoor.com, claiming he was let go unfairly because of your outdated ordering system. Roughly 86% of employees and job seekers will look at your company reviews and ratings before they even apply for a job.

Now you can truly see why it’s in your best interest to reduce errors, and set your employees up to succeed.

Are You Ready to Eliminate Order Entry Errors?

OrderEase helps wholesale suppliers and distributors reduce order entry errors, increase efficiency, and help build great customer experiences.  As you consider the cost of order errors, consider how your business could benefit from technology in the future.

Left QuoteI want to thank the team at OrderEase for providing us with a single technology solution that quickly connected our internal systems with incoming orders. We realized a positive ROI almost immediately by reducing manual tasks and automating wholesale ordering. As we add more channels, we will see greater automation.Right Quote

Andrew Warren, IT system administrator

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We don’t replace your systems, we embrace your systems! Want to find out how? Click here to get your free guided demo.

 

   
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