How to Reduce The High Costs of Order Errors

Are you aware of how much order errors cost your business right now?

Figuring out the exact cost of a missed or incomplete order can be a nebulous task. Not only do you have to worry about the time, money and effort it takes to rectify the situation with your buyers, your reputation as a trading partner drops with each failed transaction.

What’s really surprising is how often missed orders happen. They can be caused by a miscommunication in price, a typo on a form, or a small data entry error into an ERP system which can snowball out of control.

The main cause of all of this is, unsurprisingly, human error. It’s truly remarkable that in today’s digital world, most of the expensive and even newsworthy mistakes are made by human error. For example, a simple clerical error cost Citibank over $900 million in misallocated payments in 2021.

Mistakes like this aren’t uncommon. To be frank, they’re more the rule than the exception. 75% of all data loss of any kind comes from human error. For manually keyed entries, error rates can be up to as high as 4%. That means every 1000 data entries that your company makes, you could be seeing up to 40 errors — some of which will make an impact on your bottom line.

In every sector, companies are still handling vital, complex transactions with outdated systems that are vulnerable to human error or simple mistakes. Even if you’re not mistakenly losing $900 million, your profits are still getting eroded one preventable accident at a time.

For a supplier, it can go beyond just entering and shipping the wrong goods, or incorrect pricing, it can also affect your reputation and credibility long term. 

To fully understand the cost of an order error, let's use a sample case from a garden center at the peak of their busy season.

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

Trevor is the manager of a medium-sized garden center. He places an order over the phone with one of his key suppliers, requesting two pallets of 2 cubic foot bags of mulch. However, when the shipment arrives he realizes that he’s received two pallets of 3 cubic foot bags instead.

He calls the supplier to complain — and since his supplier has no record of what was said on the phone call, they have little choice but to absorb the cost of the error. They then issue the garden center a credit of $1.10 per bag, representing the difference between the cost of the request and what was delivered.

Taking the loss of revenue and time spent to rectify the mistake, this error ends up costing the garden center upwards of $600. This may not be the most expensive miscommunication in the short term, but spread across multiple orders and years, it adds up considerably.

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 supplier as they manually enter orders into their system. As the size of the order increases, so does the risk of order error costing your company money.

The less tangible costs of order entry errors

So far, all of the costs that we’ve covered can fit neatly into a spreadsheet. But… there are some intangible costs consistent order errors can bring which are harder to quantify, including damaged reputation, or bad online reviews.

Damaged Reputation

This is a hard one to quantify. To give an example, political pollsters are notoriously often wrong and their entire career is to monitor perceptions. What there is no doubt about however is that a bad reputation comes with a high cost to your bottom line.

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.”

When 91% of B2B sales are influenced by word of mouth in some way or another, having a bad reputation can absolutely tank your company’s chances for long-term success. 

Bad online reviews

It’s not just word of mouth that can cause real problems for your company, a bad enough experience can spill over into your digital footprint as well.

To continue with the previous example, let’s say that your order error was so inconvenient to them, it compelled them to write about you online, calling you unreliable.

That might not be the end of the world for you. 67% of B2B buyers prefer to see a mix of positive and negative reviews, and 72% of them believe that negative reviews help them gain a depth of insight into their decision making process. But, with enough order errors and enough annoyed customers — it could quickly become a problem.

How to calculate the real cost of order errors

When looking at the true cost of order errors, there are six main points that you have to consider to know your potential losses:

1. Your average error rate: It’s vital to know a ballpark figure of how many entry errors your company makes every month.
2. The cost of fulfilling orders: Look at how much it costs your company in labor to make / fulfill an order, correctly or incorrectly. 
3. The cost of returning an item.
4. The cost to ship the right items, potentially with expedited shipping to make amends with your customer.
5. The lifetime value of a recurring customer you may have just lost.
6. The cost per customer acquisition to replace that customer.

It might sound like a lot to consider, but we’ve helped to simplify the process. We’ve included an order error calculator in our OrderEase ROI Calculator for Wholesalers so you can get an estimate of what you could be saving if you didn’t have to worry about human error. 

Three key ways to reduce order errors

The first step in the right direction to higher profitability and customer confidence is to look at your processes for taking in and submitting orders. By identifying the methods that have the highest error frequency, (text, phone, fax and email) then reducing your reliance on them is the first step in the right direction.

From there, there are three things you need to do

• Manage all your 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

Managing your order information digitally used to be a far off vision that only the biggest suppliers could hope to achieve. That reality has changed, and there are options for better management. 

With volatile supply chains, fluctuations in price and the constant creation of new products and new demands, it’s next to impossible to keep up to new market realities by using paper catalogs, order forms, and pricing lists.

If you consider that manual order taking can lead to a 10% or greater error rate — higher than the data entry rate cited above, it’s clear that print materials are setting your order accuracy up for failure.

This can be reduced by digitally managing all your product information in one place, giving your sales team, administrators and customers access to your up-to-date product data and pricing information.

As a secondary benefit, errors in orders can be corrected instantly and across the board. In the old catalog and paper system, making such a thorough correction at all levels wouldn’t have been possible.

2. Encourage digitally submitted orders vs. manual ordering

Digital customer ordering provides clear and convenient access to your products, pricing, and inventory information to reduce order entry errors on both sides of the equation. 

With an efficient and effective online ordering system your customer can enter and submit orders by themselves, placing the responsibility of accuracy on them and reducing the risk to you.

Customer-entered digital orders reduce the likelihood of miscommunication or misunderstanding when an order is placed over the phone or by any other means.

3. Integrate online ordering with your internal systems

Digital orders submitted by customers and sales reps eliminate the need to manually enter orders into your internal system. Removing this step from your order management process drastically reduces the chances for typos or other common human errors while decreasing the fulfillment time of every order as well as the operational processing required.

How to achieve these three key steps

The best way to reduce order errors and achieve these main three goals is by working with a solution that has the ability to automate and integrate with data from 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, but don’t offer the full package. If you’re a company who receives orders from marketplaces like Amazon, EDI orders from large retailers, and PDF orders from franchises, most software solutions aren’t built to accept all these orders digitally.

Since not all online ordering and product information management systems aren’t built alike, you want to work with one that suits your needs. OrderEase can handle any challenges your company is facing with data entry or interfacing with your customers. We can help you reduce order errors, increase efficiency and build great customer experiences while building your sales channels.

I 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.

Andrew Warren, IT system administrator

Want to learn more about how you can reduce order errors? Click here for a free guided demo.