Order Fulfillment,

1
Chapter 15

• Order Fulfillment,
• Logistics, and
• Supply Chain Management

2
Learning Objectives

• Understand the role of order fulfillment and
  back-office operations in EC
• Describe the order fulfillment process
• Understand the concept of the supply chain, its
  importance and management
• Describe the problems of managing the supply
  chain and the use of innovative solutions

3
Learning Objectives (cont.)

• Describe the need for integrating information
  systems of front office and back office
• Trace the evolution of software that supports
  activities along the supply chain and their
  management
• Understand the relationship among ERP, SCM and EC

4
The Toy OrderFulfillment Problem

• Overall satisfaction with online purchasing
  declined significantly in December 1999 and
  January 2000
• Order fulfillment infrastructure shown to be very
  weak
• Toysrus.com and other toy e-tailers had the most
  critical problems

5
The Toy OrderFulfillment Problem (cont.)

• Fierce competition in the toy industry caused
  inventory deficiencies
• Offered free delivery
• Offered 20 discount
• Orders could not be met in time for the
  holidaysso they gave out 100 coupons
• Amazon.com had to ship orders for several
  products in several shipments instead of
  oneraising the delivery cost

6
Order Fulfillment Overview

• Introduction
• Taking orders may be the easiest part
• Factors responsible for delays in deliveries
• Inability to accurately forecast demand
• Ineffective supply chains
• Pull type manufacturing
• Customized products

7
Figure 15-1Push vs. Pull Supply Chains
8
Major Concepts

• Order fulfillment Deliver right order on time
• Front office operations
• Order taking
• Advertisement
• CRM
• Back office operations
• Accounting Packaging
• Finance Logistics
• Inventory

9
Major Concepts (cont.)

• Definitions of logistics
• Managing the flow of goods, information and money
  along the supply chain
• Aspect of military science dealing with
  procurement, maintenance, and transportation
• Management of details of an operation
• All activities involved in management of product
  movement
• Right product
• Right place
• Right time

10
Figure 15-2Order Fulfillment and Logistics
Systems
11
The Steps of Order Fulfillment

• 1. Payment Clearance
• 2. In-stock availability
• 3. Packaging, shipment
• 4. Insuring
• 5. Production (planning, execution)
• 6. Plant services

• 7. Purchasing, warehousing
• 8. Customer contacts
• 9. Returns (Reverse logistics)
• 10. Demand forecast
• 11. Accounting, billing
• 12. Reverse logistics

12
Shipping a Tropical Fish

• 1. Placing order, payment
• 2. Transfer order to Petstore.com, check stock
• 3. Use a wholesaler to get the fish
• 4. Supplier finds fish, ships to wholesalers
• 5. Wholesalers rush to Petstore
• 6. Petstore uses FedEx to ship to customer with
  copy of credit card payment
• Discussion What is the contribution of EC?

13
Supply Chain Management

• Definition Flow of material, information, money,
  etc. from raw material suppliers through
  factories to customers
• It includes organizations, procedures, people

• SCM Integration of the business processes along
  the chain, Planning, Organizing, control of many
  activities
• Activities Purchasing, delivery, packaging,
  checking, warehousing, etc.

14
Figure 15-3An Automotive Supply Chain
Source Modified from Handfield and Nichols
(1999), p. 3.
15
Benefits of SCM

• Reduce uncertainty along the chain
• Proper inventory levels in the chain
• Minimize delays
• Eliminate rush (unplanned) activities
• Provide superb customer service
• Major contributor of success (ever survival)

16
Global Supply Chain

• Can be very long
• Possible cross-border problems
• Need information technology support of
• Communication
• Collaboration
• Possible delays due to customs, tax,
  translations, politics

17
Typical Problems Alongthe Supply Chain

• Delays in production, distribution, etc.
• Expensive Inventories
• Lack of partners coordination
• Uncertainties in deliveries
• Poor demand forecast
• Interference with production
• Poor quality

18
More Difficulties

• Virtual companies do not have logistics
  infrastructures
• One company is a member of several supply chain
• Conventional warehouses are too expensive
• Need automatic warehouses with robots as pickers

19
Bullwhip Effect andInformation Sharing

• Flow of information to and from all participating
  entities
• Information sharing between retailers and their
  suppliers
• Bullwhip effect refers to erratic shifts in
  orders up and down supply chain
• Distorted information leads to
• Inefficiencies Ineffective shipments
• Excessive inventories Poor customer service
• Missed production schedules

20
The Bullwhip Effect

• Slight changes in actual demand create problems
• Partners build just in case inventories
• Lack of trust among partners
• Stockpiling results in huge cost
• The manufacturers cannot plan production
• Cannot order material from suppliers

21
Avoiding the Stingof the Bullwhip

• How to do it?
• Information sharing is a must and is facilitated
  by EDI, extranets, and groupware technologies
• Trust and agreements in regard to
• Ordering and inventory decisions
• Placing supply chain ahead of individual entities
  within the corporation
• Sharing information could save 30 Billion/year
  just in the grocery industry

22
Preliminary Activities

• Understand the supply chain (flow charts)
• Study internal and external parts
• Performance measurement are a must (Benchmarking)
• Multidimension performance analysis
• A BPR may be needed
• Peoples relationships are a must

23
Areas of Opportunities

• Manufacturing processes
• Warehousing operation
• Packaging and delivery
• Material inspection/receiving
• Inbound and outbound transportation

• Reverse logistics (return)
• In-plant material handling
• Vendor management program
• Customer order processing

24
Areas of Opportunities (cont.)

• Invoicing, auditing and other accounting
  activities
• Collaboration procedures with partners
• Employee training and deployments
• Labor scheduling

• Use of teams and empowerment of employees
• Automation of processes
• Use of software for facilitating all the above
• Inventory management and control

25
Using Inventories

• Insurance against stock out
• Can be in several places
• Can be excessive
• Can be insufficient
• Example Littlewoods stores UK

26
Using Inventories

• Using inventories to solve supply chain
  shortages
• Building inventories as insurance against
  uncertaintyproducts and parts flow smoothly
• Very difficult to correctly determine inventory
  levels for each product and part
• Customized finished products can only stock
  components
• Excessive levels are costly to store
• Insufficient levels cannot protect against high
  demand or slow delivery times

27
Using Inventories (cont.)

• Example Littlewoods Stores UK
• Retail clothing industry is very competitive
• Littlewoods instituted an IT-supported initiative
  to support supply chain efficiency specifically,
  to deal with the overstocking problem

28
Littlewoods Stores (cont.)

• Use a Web-Based performance reporting system that
  analyzes daily
• Marketing and financial data
• Merchandising
• Space planning
• Purchasing data

29
Littlewoods Stores (cont.)

• Using data warehouse, DSS and other end-user
  oriented software system has helped
• Reduce backup inventory expenses
• Increased the ability to strategically price
  merchandise differently in different stores
• Reduced the need for stock liquidations
• Cut marketing distribution costs significantly
• Increased the number of Web-based users

30
Proper SCM

• Proper SCM and inventory management requires
  coordination of all activities and links in the
  supply chain to
• Ensure that goods move smoothly and on time from
  suppliers to customers
• Keep inventories low
• Keep costs down

31
Proper SCM (cont.)

• Coordination is needed because
• Supply chain partners depend on each other
• Partners dont always work together toward the
  same goal
• To properly control uncertainties it is necessary
  to
• Understand the causes/problems
• Determine how uncertainties will affect other
  activities up and down the supply chain
• Formulate ways to eliminate or reduce
  uncertainties

32
Proper SCM (cont.)

• Support is needed to ensure this communication
  and is enabled by
• IT support
• EC support

• Information flow is a key communications between
  business partners should be
• Effective
• Efficient

33
EC Solutions Along the Supply Chain

• Automate order taking
• Use EDI/Internet
• Web-based ordering intelligent agents
• Electronic payments
• Inventory reduction (made-to-order pull process)
• Improved inventory management
• Decreased administrative costs

34
EC Solutions Along the Supply Chain (cont.)

• Digitization of productsinstant order
  fulfillment
• Back-office interface
• Shortens cycle time
• Eliminates errors

• Collaborative commerce among members of the
  supply chain
• Shortens cycle time
• Minimizes delays and work interruptions
• Lower inventories
• Lower administrative costs

35
Innovative Solutions toOrder Fulfillment Problem

• Examples of solutions to order fulfillment
• Real-time video (Webcam)
• Move inventory 70 times/year
• FAO Schwartz demonstrates famous store in New
  York
• MailBoxes Etc. and Innotrac Corp.
• Comprehensive system
• Software connects e-tailers and order management
  systems

36
Innovative Solutions toOrder Fulfillment Problem
(cont.)

• Role of 7-Eleven convenience stores
• Can be used as a collection point for returns
• Can be used as a pick-up place
• Can be used as a place for order placing
• Can pay in cash/card to the store
• Returns are a problem up to 30

37
Innovative Solutions toOrder Fulfillment Problem
(cont.)

• Relysoftware.com helps find
• Forwardersintermediaries that prepare goods
  for shipping for companies
• Relysoftware.com also helps
• Forwarders find the best prices on air carriers
• Carriers fill up empty cargo space by bidding it
  up

38
Same Day, Even Same Hour Delivery

• Role of FedEx and similar shippers
• From a delivery to all-logistics
• Many services (see Box 13.4)
• Complete inventory control
• Packaging, warehousing, reordering, etc.
• Tracking services to customers

39
Same Day, Even Same Hour Delivery (cont.)

• Supermarket deliveries
• Transport of fresh food to people who are in
  homes only at specific hours
• Distribution systems are critical
• Fresh food may be spoiled

40
E-Markets and Exchanges

• Types
• One company with many suppliers (RFQ)
• Catalogs, auctions
• One company with many buyers (RFQ)
• Exchanges controlled by few large companies
  (e.g., ANX)
• 3rd-party managed exchanges
• Vertical vs. Horizontal portals

41
Figure 15-4Proposed Order Fulfillment for
Groceryworks
Source Steinert-Threlkeld (January 31, 2000).
Originally published in Interactive Week,
www.xplane.com
42
Automated Warehouses

• B2C order fulfillmentsend small quantities to a
  large number of individuals
• Step 1 retailers contract Fingerhut to stock
  products and deliver Web orders
• Step 2 merchandise stored SKU warehouse
• Step 3 orders arrive
• Step 4 computer program consolidates orders from
  all vendors into pick waves

43
Automated Warehouses (cont.)

• Step 5 picked items moved by conveyors to
  packing area computer configures size and type
  of packing types special packing instructions
• Step 6 conveyer takes packages to scanning
  station (weighed)
• Step 7 scan destination moved by conveyer to
  waiting trucks
• Step 8 full trucks depart for Post Offices

44
Handling Returns

• Necessary for maintaining customer trust and
  loyalty
• Return item to place it was purchased
• Separate logistics of returns from logistics of
  delivery
• Allow customer to physically drop returned items
  at collection stations
• Completely outsource returns

45
Outsourcing LogisticsThe UPS Strategy

• UPS provides broad EC services
• Electronic tracking of packages
• Electronic supply chain services for corporate
  customers by industry including
• Portal page with industry-related information
• Statistics
• Calculators for computing shipping fees
• Help customers manage electronic supply chains

46
The UPS Strategy (cont.)

• UPS provides broad EC services
• Improved inventory management, warehousing, and
  delivery
• Integration with shipping management system
• Notify customers by e-mail of
• Delivery status
• Expected time of arrival of incoming packages

47
The UPS Strategy (cont.)

• Representative tools
• 7 transportation and delivery applications
• Track packages
• Analyze shipping history
• Calculate exact time-in-transit
• Downloadable tools
• Proof of delivery
• Optimal routing features
• Delivery of digital documents
• Wireless access to UPS system

48
Supply Chain Components

• Upstream like placing orders
• Suppliers, their suppliers (several tiers)
• From raw material to the company
• Internal all internal processes that add value,
  conversion to find products
• Production scheduling
• Costing
• Inventory control

49
Supply Chain Components (cont.)

• Downstream all activities in distribution and
  delivery to end customers
• Sales
• Customer billing
• Delivery scheduling

50
Software Support
51
Integration-Benefits

• Automation of segments useful, but integration
  brings

• Tangible benefits
• Inventory reduction
• Personnel reduction
• Productivity improvement
• Order management improvement
• Financial cycle improvements

• Intangible benefits
• Information visibility
• New/improved processes
• Customer responsiveness
• Standardization
• Flexibility
• Globalization
• Business performance

52
Integration Along the Supply Chain

• Need to streamline operations
• New business models
• New organizational relationships (virtual
  companies)
• Examples Warner Lambert and Wal-Mart (Box 15.6)

53
Areas of Integration

• Order taking - production inventory levels
• Payment info in B2B - Visa, MasterCard, etc.
• Low inventory levels - automatic ordering
• Order to manufacturing - generate a list of
  needed resources their availability
• Changes in an order - transmit to suppliers and
  their suppliers
• Tracking systems - available to customers

54
Evolution of Software Integration

• Completely Independent of each other
• MRP Material Requirements Planning
• Inventory
• Production
• MRPIIManufacturing Requirements Planning
• more integrated
• MRPFinanceLabor

55
Evolution of Software Integration (cont.)

• Completely Independent of each other
• ERPEnterprise Resources Planning
• All functional areas
• Extended ERP includes
• Suppliers
• Customers

56
From SAP to mySAP.com

• SAPTraditional ERPAutomate and Integrate
  transactions
• MySAP.com Web-based comprehensive system
• Workplace - a personalized, role-based interface
• Marketplace - one stop destination for business
  professionals to collaborate
• Business Scenarios - products for the Internet
  and intranet
• Application-hosing - hosting Web applications for
  SMEs

57
ERP Benefits

• ERP Integrating business processes and
  activities in real time
• Solves many supply chain problems
• Necessary for medium to large corporations
• Helpful also for some SMEs

58
ERP Implementation

• Need to interface with EC order taking system
• Manages all routine transactions in the
  enterprise
• Recently extended to suppliers and customers

59
Developing ERP Systems

• Do-it-yourself, from scratch (only few will)
• Use Integrated packages such as R/3 from SAP
• Best of Bread approach, using integrating
  software
• Rent in from ASP service

60
Post-ERP (2nd Generation)

• 1st generation - transaction processing
  orientation
• 2nd generation
• Including decision-making capabilities
• EC requires decision support
• EC requires business intelligence
• SCM software Production Planning, Manpower
  utilization, Profitability models, market
  analysis
• Integration of SCM capabilities
• Other added functionalities CRM, KM

61
ASP and ERP Outsourcing

• Why ASP or lease?
• Leasing information systems application
• Back to the days of time-sharing
• A risk prevention strategy
• Very popular with ERP (expensive, cumbersome)

62
Managerial Issues

• Planning for order fulfillment is a critical
  task, especially for virtual EC vendors
• Dealing with returns can be a complex issue
• Partnerships and alliances can improve logistics
  and alleviate supply chain problems
• Many software products are available to improve
  SCM and logistics
• EC must be tightly connected with back-office
  operations

63
Managerial Issues (cont.)

• It is necessary to integrate it with EC
  front-office operations
• Importance of creation of logistics system for EC
  and how to use EC applications to improve the
  supply chain
• Software integration may require considerable
  time and money