The Five eFulfillment Strategies: Application to ECommerce

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The Five e-Fulfillment StrategiesApplication to
E-Commerce

• Source Hau Lee and S Whang Winning the Last
  Mile of E-Commerce,
• MIT Sloan Management Review,
  Summer 2000, 54-62

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What is e-commerce?

• Commerce transacted over the Internet
• Is product information displayed on the Internet?
• Is negotiation over the Internet?
• Is the order placed over the Internet?
• Is the order tracked over the Internet?
• Is the order fulfilled over the Internet?
• Is payment transacted over the Internet?

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Existing Channels for Commerce

• Product information
• Physical stores, EDI, catalogs, face to face,
• Negotiation
• Face to face, phone, fax, sealed bids,
• Order placement
• Physical store, EDI, phone, fax, face to face,
• Order tracking
• EDI, phone, fax,
• Order fulfillment
• Customer pick up, physical delivery

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Revenue Impact of E-Commerce

• Length of supply chain
• Product information
• Time to market
• Negotiating prices and contract terms
• Order placement and tracking
• Order fulfillment
• Payment

5
Cost Impact of E-Commerce

• Facility costs
• Site and processing cost
• Inventory costs
• Cycle, Safety, Seasonal inventory
• Transportation costs
• Inbound and outbound costs
• Information sharing
• Coordination

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Two Core Concepts for e-Fulfillment

• Improving the use of information
• Leveraging existing resources

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Efficient e-Fulfillment Begins Here
Strategy
Principle
Concept
Logistics postponement Dematerialization Resource
exchange
Use information to direct final shipments
(postponement) Convert physical flows into
digital flows Use information to direct supply
chain from extensive supply base
Use information flows before, or in place of,
physical flows
Leveraged shipments Clicks-and-motar
Consolidate shipments on existing physical-flow
channels Ship on an outlet with final leg
covered by buyer
Leverage existing physical channels and
infrastructures
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Cutting-edge Companies Using Cutting-edge
Techniques
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Using the Right Strategy
Suitable environment
Suitable products
Strategy
Information-based logistics-services provider and
timely order information are available
High-value, bulky items with uncertain demand
Logistics postponement
Information infrastructure has sufficient capacity
Information-content goods
Dematerialization
Distributed and substitutable stocks are
available for pooling
Low-value, high-shipping-cost item
Resource exchange
High delivery-value density (DVD) in an existing
delivery network is available
Nonbulky items with stable demand
Leverage shipments
High DVD to conveniently located physical outlets
is available
Easy-to-carry items with higher value
Clicks-and-mortar
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Keys to Winning the Last Mile

• Understand your product characteristics
• Where are your customers, and what are the
  delivery-value densities?
• What level of demand uncertainty exists for your
  product?
• What fraction of your products can be
  dematerialized?
• Understand your environment
• What is the existing physical infrastructure in
  customer regions?
• What information networks are available?
• Are there available information-intensive
  logistics-service providers?
• Formulate your options
• Use as much as dematerialization as possible
• Use information to coordinate your deliveries
  intelligently
• Explore potential links to existing
  infrastructures and partnerships for leveraged
  resources
• Assess you options
• Consider costs, efficiency, reliability and risks
• Identify additional values and services that can
  be offered to customers
• Explore synergies between online and offline
  order fulfillment

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Pitfalls and Opportunities in Logistics
Management

• Source Hau Lee and C Billington Managing
  Supply Chain Inventory
• Pitfalls and Opportunities, MIT
  Sloan Management Review,
• Spring 1992, 65-73

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Avoid Pitfalls

• Information and measurement pitfalls
• Operational control pitfalls
• Design and strategy pitfalls

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Summary of Pitfalls
Classification
Pitfalls
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Pitfall 1 No Logistics Metrics

• Individual site metrics not connected
• Metrics not measuring entire logistics network
• Inadequate metrics
• Performance measures not tracked
• Tracked measures not utilized
• Periodic measurement of some metrics
• Metrics tinkering

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Pitfall 2 Inadequate Definition of Customer
Service

• Line-item fill rate not well-defined
• Order completion not measured
• Order aging / responsiveness not measured
• Individual performance masked by aggregate
  metrics
• Inconsistent measures throughout the supply chain

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Pitfall 3 Inefficient Information Systems

• Proliferation of operating / data systems
• Data inadequate linked between systems
• Data interchange delayed and inaccurate
• Excessively long planning cycles

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Pitfall 4 Inaccurate Delivery Status Data

• Response time standards inaccurate or outdated
• Long delays in providing delivery information
• Promised delivery date not accurate
• Order status information inaccessible

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Pitfall 5 Simplistic Inventory Policies

• Generic, subjective and static stocking policies
• Unique characteristics of SKUs ignored
• Uniform service policies used
• Simplistic ABC classifications
• Multi-site interactions not considered
• Uncertainties not accounted for

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Pitfall 6 Discrimination Against Internal
Customers

• Internal orders given low priorities
• Productivity reduced by interdivisional haggling
  for priority
• Service measures for internal customers not
  tracked

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Pitfall 7 Characteristics of Product Life Cycle
Ignored

• Ramp-up, mature, and end-of-life stages exhibit
  different uncertainties and demand
  characteristics, and have different cost
  structures
• One size fits all approach sub-optimal same
  supply chain structure, same product structure,
  same resource deployment, potentially costly

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Pitfall 8 Poor Coordination of Order Fulfillment
Among Sites

• Sites in parallel
• Order completion and freight not coordinated
• Shipment plans generated independently
• Interdivisional communication poor
• Sites in series
• Stocking policies generated independently

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Pitfall 9 Incomplete Transportation Channel
Analysis

• Uncoordinated transportation channel flows breeds
  inefficiencies
• Reparability of transportation economics and
  inventory and service analysis

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Pitfall 10 Incorrect Assessment of Inventory
Costs

• Obsolescence, damage, theft, and rework costs
  ignored
• Freight and duty costs omitted
• Inventory valued at transfer or discounted price

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Pitfall 11 Barriers Between Organizations

• Performance measures, objectives and incentives
  different among entities
• Manufacturing, distribution, marketing, RD, and
  accounting act independently

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Pitfall 12 Incomplete Product / Process Design

• Design for least material cost the norm, design
  for manufacturability gaining support, but design
  for supply chain management is only beginning to
  receive attention
• Myopic view of design continues to be dominant
• Design for supply chain too late in product
  development process

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Pitfall 13 Poor Logistics Network Design

• Network design without full analysis of supply
  chain impact
• Product by product approach to chain design
• Short term view in chain design

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Pitfall 14 Incomplete Logistics Network

• Only internal operations included
• Operational environment and needs of customers
  not well understood
• Costs and service impacts to suppliers or
  customers resulted from changes in the supply
  chain neglected

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Opportunities

• Expand view of logistics network
• Design for logistics / supply chain management
• Institute logistics management measurements
• Integrate data bases throughout the entire
  logistics network
• Integrate control and planning support systems
• Redesign of organization incentives