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Order Fulfillment,


Chapter 15 Order Fulfillment, Logistics, and Supply Chain Management – PowerPoint PPT presentation

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Title: Order Fulfillment,

Chapter 15
  • Order Fulfillment,
  • Logistics, and
  • Supply Chain Management

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

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
  • Understand the relationship among ERP, SCM and EC

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

The Toy Order Fulfillment 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

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

Figure 15-1 Push vs. Pull Supply Chains
Major Concepts
  • Order fulfillment Deliver right order on time
  • Front office operations
  • Order taking
  • Advertisement
  • CRM
  • Back office operations
  • Accounting Packaging
  • Finance Logistics
  • Inventory

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
  • Right product
  • Right place
  • Right time

Figure 15-2 Order Fulfillment and Logistics
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

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?

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 Purchasing, delivery, packaging,
    checking, warehousing, etc.

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

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

Typical Problems Along the Supply Chain
  • Delays in production, distribution, etc.
  • Expensive Inventories
  • Lack of partners coordination
  • Uncertainties in deliveries
  • Poor demand forecast
  • Interference with production
  • Poor quality

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

Bullwhip Effect and Information Sharing
  • Flow of information to and from all participating
  • Information sharing between retailers and their
  • 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

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

Avoiding the Sting of 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

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

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

Areas of Opportunities (cont.)
  • Invoicing, auditing and other accounting
  • 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

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

Using Inventories
  • Using inventories to solve supply chain
  • 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
  • Excessive levels are costly to store
  • Insufficient levels cannot protect against high
    demand or slow delivery times

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

Littlewoods Stores (cont.)
  • Use a Web-Based performance reporting system that
    analyzes daily
  • Marketing and financial data
  • Merchandising
  • Space planning
  • Purchasing data

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

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

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
  • Understand the causes/problems
  • Determine how uncertainties will affect other
    activities up and down the supply chain
  • Formulate ways to eliminate or reduce

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

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

EC Solutions Along the Supply Chain (cont.)
  • Digitization of productsinstant order
  • 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

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

Innovative Solutions to Order Fulfillment Problem
  • 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

Innovative Solutions to Order Fulfillment Problem
  • 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

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

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

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

Figure 15-4 Proposed Order Fulfillment for
Source Steinert-Threlkeld (January 31, 2000).
Originally published in Interactive Week,
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

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

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

Outsourcing Logistics The 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

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

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

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

Supply Chain Components (cont.)
  • Downstream all activities in distribution and
    delivery to end customers
  • Sales
  • Customer billing
  • Delivery scheduling

Software Support
SCM Activities Type of Software
Upstream activities Supplier management Ordering systems Order tracking systems
Internal supply chain activities Inventory management Purchasing order management Budgeting, cost control Human resource information
Downstream activities Salesperson productivity tools Online telemarketing Ad management etc.
  • Automation of segments useful, but integration
  • 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

Integration Along the Supply Chain
  • Need to streamline operations
  • New business models
  • New organizational relationships (virtual
  • Examples Warner Lambert and Wal-Mart (Box 15.6)

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

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

Evolution of Software Integration (cont.)
  • Completely Independent of each other
  • ERPEnterprise Resources Planning
  • All functional areas
  • Extended ERP includes
  • Suppliers
  • Customers

From SAP to mySAP.com
  • SAPTraditional ERPAutomate and Integrate
  • 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

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

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

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
  • Rent in from ASP service

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

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)

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

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
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