e service operations
TRANSCRIPT
MD850: E-Service OperationsMD850: E-Service Operations
Order Fulfillment and Forward Supply Chain Processes
AgendaAgenda
Background Order Fulfillment in e-Services Supply Chains
Supply Chain Components Supply Chain Problems Supply Chain Design Extending SCM Concepts to E-Services Supply Chain Modeling & Evaluation Supply Chain Technology
SCM Perspective on Li & Fung Case
BackgroundBackground
Competition is changing Old: “Firm vs. Firm” New: “Supply Chain vs. Supply Chain”
BackgroundBackground
Supply Chain Concept of a “supply chain” is relatively new Prior to 1996, very few management or engineering
schools had courses on supply chain management (SCM) Previous “stumbling blocks” that impeded SC integration
high transaction costs between partners poor information availability challenges of managing complex interfaces between
functional organizations
BackgroundBackground
Scope of Supply Chain Topics Customer Facing & Internal
Customer Value and SCM Web-centric product design Forecasting and inventory management in B2C Order fulfillment and returns management in B2C
BackgroundBackground
Scope of Supply Chain Topics Supplier Facing
Coordinated product design and supply chain design Integration of supply chain planning and procurement Logistics network configuration Order fulfillment and returns management in B2B Distribution strategies Strategic alliances Models for B2B exchanges Auctions & analysis of auction properties
BackgroundBackground
Scope of Supply Chain Topics IT Related
Information technology for SCM Decision Support Systems (DSS) for SCM Web services: frameworks and technologies
Microsoft’s .NET technology Sun’s J2EE technology Open Source technologies
Order Fulfillment in e-ServicesOrder Fulfillment in e-Services
Order Fulfillment in e-ServicesOrder Fulfillment in e-Services
Goals of customer care applications are simple What do online shoppers want? (BCG)
Free delivery – 95% Free returns if I am unhappy with product – 91% Guaranteed delivery time – 75% Quicker delivery – 69% Site has a store located near me – 46%
“Proper fulfillment is whatever serves the customer best while preserving adequate profit margins to continue in business at a high level of customer satisfaction”
Order Fulfillment in e-ServicesOrder Fulfillment in e-Services
Designing and implementing customer care applications can be another matter Central problems
Enterprise information and customer information must be integrated into a unified whole
New kinds of customer behavioral information must be captured and processed
Customers and employees must share a common knowledge base All organizational functions must have access to a consistent
picture of the customer relationship
Order Fulfillment in e-ServicesOrder Fulfillment in e-Services
E-Fulfillment Processes (Bayles, 2001) Notification Process
Acknowledgement and confirmation Instantaneous after purchase
Information fulfillment of digital service-product attributes Low cost delivery of information Instant gratification for customer
Picking and Packing Delivery Reconciliation/settlement of credit card payment request Post-delivery activities that ensure customer satisfaction
Returns Exchanges
Order Fulfillment in e-ServicesOrder Fulfillment in e-Services
Fulfillment Recommendations (e-Service, Chap. 8) Build an order confirmation system into your service process to
ease customer worries Grant customers online access to production order process and
shipping data Build (or outsource) warehouse, fulfillment, and product
delivery chains that create as much customer contentment on the back end of your service process as on the front end
Focus on fast, efficient fulfillment Shipping charges …
Probably don’t want to make them free Perhaps free for …
Large purchase size above some dollar amount Loyal, high-value customers In-store pickup
Order Fulfillment in e-ServicesOrder Fulfillment in e-Services
Fulfillment Recommendations (e-Service, Chap. 8) Integrate online bill payment into the fulfillment process Return policies … make the return process as easy as the
process for buying Synchronize returns between digital and physical storefronts Supply on-the-spot return authorization numbers
Be careful with using purchase information for permission marketing
Where possible, employ online post-sale self-help Use post-transaction web surveys to gather customer feedback
and continually improve service performance
Order Fulfillment in e-ServicesOrder Fulfillment in e-Services
Fulfillment Tasks for e-Businesses GOAL: Achieve total end-to-end visibility throughout the
supply chain Must deal with international pricing/taxation and shipping issues
Pricing customized to location of customer Shipping agents to deal with tax issues Local fulfillment center
Provide online shipping tools Link web site to package carriers’ host systems
FedEx, UPS – online tracking tools with APIs USPS – eventually will have tracking tools
Integrate shipping, tracking and distribution systems with ERP systems
FedEx, UPS – systems with APIs for doing so
Order Fulfillment in e-ServicesOrder Fulfillment in e-Services
Fulfillment Outsourcing Potential benefits
Speed to market Deploy e-Service quickly No capital investment in fulfillment Level of service provided by outsourcer may be better than a
start-up’s fulfillment service Scalability
Higher when using an large fulfillment service Focus
On business competencies, not on shipping Lower costs
No need to hire shipping staff Focus on the customer Capitalize on efficiencies
Supply ChainsSupply Chains
Supply ChainsSupply ChainsWhat is a Supply Chain?What is a Supply Chain?
Porter’s “Value Chain”
Firm Infrastructure
Human Resources Management
Technology Development
Procurement
InboundLogistics Operations
OutboundLogistics
Marketing& Sales Service
ProfitMargin
Supply ChainsSupply ChainsWhat is a Supply Chain?What is a Supply Chain?
Value Chain of Supplier Value Chain of Buyer
Supply ChainsSupply ChainsWhat is a Supply Chain?What is a Supply Chain?
Value Chain of Buyer
Buyer’s Virtual Value Chain
Value Chain of Supplier
Supplier’s Virtual Value Chain
ProfitMargin
ProfitMargin
ProfitMargin
ProfitMargin
InformationFlow
InformationFlow
Supply Chain ComponentsSupply Chain Components
Supply Chain ComponentsSupply Chain ComponentsComponents of a Supply Chain?Components of a Supply Chain?
Value Chain of Buyer
Buyer’s Virtual Value Chain
Value Chain of Supplier
Supplier’s Virtual Value Chain
Digital Content Networks Digital Content Networks
Networks of Physical ObjectsNetworks of Service Providers
Networks of Physical ObjectsNetworks of Service Providers
Supply Chain ComponentsSupply Chain ComponentsComponents of a Supply Chain?Components of a Supply Chain?
Supply chain is a “network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate customer.” (Christopher, 1998)
Supply chain components Two or more legally separated organizations Material, information, and financial flows Firms producing objects Logistics service providers Ultimate customer
Supply Chain ProblemsSupply Chain Problems
Supply Chain ProblemsSupply Chain Problems
Supply Chain Problems Inventory
Work of the devil Holding costs Risk of obsolescense Quality problems hidden
The Bullwhip Effect
Retailer Distributor Wholesaler
Manufacturer
“The BullwhipEffect”
Supply Chain ProblemsSupply Chain ProblemsThe Bullwhip EffectThe Bullwhip Effect
A SmallDemand
ShiftLeads To
Huge Variation inOrders and Inventories
Huge Variation in On-Hand Inventory
and Manufacturing
Supply Chain ProblemsSupply Chain ProblemsHistorical Inventory ManagementHistorical Inventory Management
Inventories Independent demand
Multiple Period Demands Assume demand pattern. Forecast when you will stock out. At the appropriate time,
order some order quantity (or up to some quantity), so that with the amount you receive at a future date -- plus the buffer inventory (“safety stock”) -- you will have a small probability of stocking out
Single Period Demand -- “paperboy problem”; “fashion goods” Order to balance costs of “overage” against costs of “underage” -- giving maximum
profit A/B/C -- some inventories more important or costly than others
Monitor costly inventories closely Don’t monitor cheap inventories, just hold lots of buffer stock
Dependent demands MRP/MRP II ERP/Extended ERP
Supply Chain ProblemsSupply Chain ProblemsDrawbacks of Inventory MethodsDrawbacks of Inventory Methods
Inventories Independent demand
Multiple Period Demands, Single Period Demand, A/B/C Paper orders Misplaced products Inaccurate inventories Human errors Cycle Counting -- strategies to count everything in warehouse (e.g., 1/N of warehouse
at a time, over N periods); facilitates balancing the objectives of different inventory methods
Dependent demands MRP/MRP II/ERP/Extended ERP
Stacks of paper production schedules Paper order releases Change reports -- to previous schedules System nervousness -- when allowing updating of schedules
Supply Chain ProblemsSupply Chain ProblemsWhat “The Experts” Now SuggestWhat “The Experts” Now Suggest
Rocket Science Retailing (Fisher et al., HBR, July/Aug 2000)
Retailer objective: “right product, right place, right time, right price” Historically, the opposite has happened
most inventory planning is for long life-cycle products online and offline stockouts increasing markdowns supply chain lead times often are so long, that forecasts of demand only
confirm that the product will tank, and nothing can be done about it Rocket Science Retailing
“create a high-tech forecasting system supported by a flexible supply chain”
Supply Chain ProblemsSupply Chain ProblemsWhat “The Experts” Now SuggestWhat “The Experts” Now Suggest
Rocket Science Retailing (Fisher et al., HBR, July/Aug 2000) Forecasting
Update forecasts based on early sales data Track and predict forecasting accuracy Get product testing right -- make it scientific Use a variety of forecasting approaches
Supply Chain Speed Work with supply chain partners Reserve production capacity; hold generic raw-material
inventories that can later be developed into finished product Troubleshoot production problems, design for easy
manufacturability Make decision making flexible; empower employees
Supply Chain ProblemsSupply Chain ProblemsWhat “The Experts” Now SuggestWhat “The Experts” Now Suggest
Rocket Science Retailing (Fisher et al., HBR, July/Aug 2000) Inventories
Need to track stockouts UNFORTUNATELY, no commercial software available to track stockouts
Accurate, Available Data Most retailing data inaccurate and inaccessible to employees Store-level sales data usually incorrect
Why: (1) clerk scanning one item multiple times to ring up multiple slightly different items, (2) like-for-like returns, without scanning in return and exchange
Inventory counts usually off warehouse ships wrong item, supplier shorts, case-pack dimensions change without changing in inventory
system
Most companies don’t keep enough data kills their ability to forecast time-series of demand accurately aggregation of data kills knowledge at SKU level lack of SKU kills ability to customize supply chain and shipments
Supply Chain ProblemsSupply Chain ProblemsWhat “The Experts” Now SuggestWhat “The Experts” Now Suggest
Manufacturing for Lean Retailing (Abernathy et al., HBR, Nov/Dec 2000)
Historical large order at beginning of period manufacturers treated SKUs within a product line all the same
Lean Retailing Manufacturers must replenish retailers stocks on an ongoing basis; tend to
accomplish by holding extra inventory; get stuck with inventory if styles change; risk of getting stuck increases with product proliferation
Solution Need to differentiate between SKUs -- think of product lines as portfolios of
distinct goods Need to rethink sourcing strategies, reallocating manufacturing across
off-shore sources (high volume, low-variance demands) close-to-market sources (low volume, high-variance demand)
Supply Chain ProblemsSupply Chain ProblemsIT to the RescueIT to the Rescue
“The Wearable Warehouse”, Business 2.0 VISION
“Turn the supply chain into the warehouse” reliable inventory numbers better order fulfillment security: reducing in-transit theft … (in turn, improving on-hand data) accurate tracking of goods
Humans (networked objects) provide services to the system Essentially automated Cycle Counting Wireless IS implements strategy for what item should be counted when
Distributed, heterogeneous objects [inventory containers] report what they contain and where they are, to update system information
Supply Chain DesignSupply Chain Design
Supply Chain DesignSupply Chain Design
Research in Supply Chain Design and Management Stretches back to 1940s/1950s Prior to 1990s, most SCM research was for “simple”
material flows and transportation Most complex: optimal policy for a single-product, single-stage,
capacitated SC with a stationary demand process
Simple multi-stage and/or multi-product supply chain models were computationally intractable
First mathematical modeling papers with computational results were published in 1991 Start of modern supply chain management research
Supply Chain DesignSupply Chain DesignConceptual ApproachesConceptual Approaches
Research in Supply Chain Design and Management Conceptual SCM Research
Porter’s Value Chain Model (1985) Fine’s Clockspeed (1998) Approach
Supply ChainsSupply ChainsConceptual FrameworksConceptual Frameworks
Clockspeed (Charles Fine, MIT) “Biologists study fruit flies because their fast rates of
evolution permit rapid learning that can then be applied to understanding the genetics of slower-clockspeed species -- like humans.”
Managers should study industrial equivalents of fruit flies Fast clockspeed industries
Internet services personal computers multimedia entertainment
Supply ChainsSupply ChainsConceptual FrameworksConceptual Frameworks
Clockspeed (Charles Fine, MIT) “The ultimate core competency of an organization is
“supply chain design,” which I define as choosing what capabilities along the value chain to invest in and develop internally, and which to allocate for development by suppliers.”
“Fast-clockspeed” supply chain characteristics rapidly evolving world designing and redesigning firm’s chain of capabilities objective is a series of competitive advantages -- often quite
temporary
Supply ChainsSupply ChainsConceptual FrameworksConceptual Frameworks
Clockspeed (Charles Fine, MIT) Computer-industry motivated principles about the design
and evolution of supply chains “Beware of Intel Inside”
IBM employed modular supply chain design (Intel, MS DOS) power in the chain, and financial rewards, had shifted upstream since most modern products are largely computer components and
electronics, they potentially fall prey to same forces Supply Chain Double Helix
oscillation of supply chain structure Three-Dimensional Concurrent Engineering
concurrent design of capabilities (product, process, supply chain)
Supply ChainsSupply ChainsConceptual FrameworksConceptual Frameworks
Integral Product,Vertical Industry
Modular Product,
Horizontal IndustryNiche
Competitors
High-DimensionalComplexity
OrganizationalRigities
Pressure toDis-Integrate
TechnicalAdvances
Supplier MarketPower
ProprietarySystem
Profitability
Pressure toIntegrate
Supply ChainDouble Helix(Charles Fine, Clockspeed, 1998)
Supply ChainsSupply ChainsConceptual FrameworksConceptual Frameworks
3-D C. E.:Supply ChainOverlapping
Responsibilities
PRODUCT PROCESS
SUPPLYCHAIN
PerformanceSpecifications
Technology,& Process Planning
Time, Space,& Availability
Recipe,Unit Process
Details,Strategy
ManufacturingSystem,Make/Buy
Product Architecture,& Make/Buy
(Charles Fine, Clockspeed, 1998)
Supply ChainsSupply ChainsConceptual FrameworksConceptual Frameworks
3-D C. E.:Supply ChainConcurrency
Model
(Charles Fine, Clockspeed, 1998)
PRODUCT PROCESS SUPPLY CHAIN
DesignDetailed
PerformanceSpecific’s
and Functions
ArchitectureModular
vs.Integral
UnitProcessesTechnology
&Equipment
Manufact.SystemFunctional
Cellular
SupplyChain
Architect.Set of
Organizationsand
Allocationof Tasks
Logistics& Coord.
SystemAutonomous
vs.Integrated
Technology
Architecture
Focus
Supply ChainsSupply ChainsConceptual FrameworksConceptual Frameworks
Clockspeed (Charles Fine, MIT) Prediction:
“supply chain design as a strategic precursor to supply chain management will only increase in the decade to come as industry clockspeeds continue to accelerate, and the half-lives of many capabilities in our existing supply chains need replacement and/or upgrading”
Extending Supply Chain Concepts Extending Supply Chain Concepts to e-Service Operationsto e-Service Operations
Supply ChainsSupply ChainsConceptual FrameworksConceptual Frameworks
Service-ProductProcess Control
Static Dynamic
NicheNeed
BroadNeed
Static;Mechanization
Dynamic;Intelligence
UniqueItems
CommonItems
(Heim and Sinha, 2001) (Jaikumar, 1994)
?
Supply ChainsSupply ChainsConceptual FrameworksConceptual Frameworks
(Schonberger, World Class Manufacturing: The Next Decade, 1996)
Past:Many suppliers/customer flowsFlow volumes small and sporadic
Coming:Stable, selective supply chain relationshipsFew suppliers/customer flows(Reliable suppliers, Loyal customers) Large, steady flow volumesGeographic proximity
Evolution
Supply ChainsSupply ChainsConceptual FrameworksConceptual Frameworks
Supply Chain ControlStatic Dynamic
UniqueItems
(MD850, 2001)
CommonItems
Covisint
Li & Fung
Relationship Relationship +Speedy e-Service Communication
Relationship +Speedy e-Service Communication +Network Design, Control & Management
Supply ChainsSupply ChainsConceptual FrameworksConceptual Frameworks
Business 2.0, Kalakota & Robinson, 2001 First Generation: Communities, Storefronts, and
RFP/RFQ Facilitators Second Generation: Virtual Distributors and Auction
Hubs Third Generation: Collaborative Trading Hubs
end-to-end management of their supply chains Industry Consortiums: Joint-Venture Procurement
Hubs Covisint -- automotives Orbitz.com -- airlines
Supply ChainsSupply ChainsConceptual FrameworksConceptual Frameworks
Service-ProductProcess Control
Static Dynamic
NicheNeed
BroadNeed
Static;Mechanization
Dynamic;Intelligence
UniqueItems
CommonItems
Supply Chain ControlStatic Dynamic
UniqueItems
CommonItems
Goods Services
DigitalContent
e-Service
49 = 262,144possibledesign
positions
Guiding PrinciplesGuiding Principles
Supply ChainSupply ChainSome Guiding PrinciplesSome Guiding Principles
Align (a la 3-D Concurrent Engineering) Product Process Supply Chain
Reasonable Question: Yes, but how?
Conceptual Supply Chain Conceptual Supply Chain Modeling and EvaluationModeling and Evaluation
Supply ChainsSupply ChainsSupply Chain StructuresSupply Chain Structures
e-Fulfillment Step #1: Model Supply Chain Process Example: Furniture Industry
Manufacturing Ship to Retail Inventory at Retail
Repair Damage Local Shipping Assembly at Home
Traditional Furniture Supply Chain
Supply ChainsSupply ChainsSupply Chain StructuresSupply Chain Structures
Manufacturing Long Distance Shipping
Repair Damage
Local Shipping Assembly at Home
Pure e-Tailer Furniture Supply Chain
Manufacturing Ship to Warehouse Inventory at Warehouse
Repair Damage Local Shipping Assembly in Home
Pure e-Tailers with Warehouses Furniture Supply Chain
Supply ChainsSupply ChainsSupply Chain StructuresSupply Chain Structures
Manufacturing Long Distance Shipping
Repair Damage
Local Shipping Assembly at Home
Manufacturer Direct Furniture Supply Chain
Retailers On The Web Furniture Supply Chain
Manufacturing Ship to Retail Inventory at Retail
Repair Damage Local Shipping Assembly at Home
Supply ChainsSupply ChainsSupply Chain EvaluationSupply Chain Evaluation
e-Fulfillment Step #2: Back to the Basics (Cost, Quality,
Flexibility, Delivery) Analyze supply chain characteristics -- basic operations
strategies -- based on knowledge of product and process characteristics in that industry
3-D Concurrent Engineering Determine if there exists a dominant strategic position
compared to existing position(s) of incumbents … (Cdom, Qdom, Fdom, Ddom) “better than” (Cx, Qx, Fx, Dx) for all
design positions X
Supply ChainsSupply ChainsSupply Chain EvaluationSupply Chain Evaluation
e-Fulfillment Furniture Industry
TraditionalRetailer
Puree-Tailer
e-Tailerw/ Warehouse
Retaileron the Web
RelativeCost ofReturns
Cost ofInventory
Cost ofRepair
Cost ofShipping
Cost ofOrder
CaptureCost ofQuality
L M L L H L
H L H H M H
H M M M M M
L M L L H M
PossiblyBetter
PossiblyWorse
Supply Chain Management Supply Chain Management TechnologyTechnology
BackgroundBackgroundSupply Chain Management TechnologySupply Chain Management Technology
Procurement Production Distribution Sales
Strategic Network Planning
Master Planning
MaterialRequirements
Planning
ProductionPlanning
Scheduling
DistributionPlanning
TransportPlanning
DemandPlanning
DemandFulfillment & Available-to-
Promise
long-term
mid-term
short-term
AdvancedPlanningSystem(APS)
SoftwareModules
BackgroundBackgroundSupply Chain Management TechnologySupply Chain Management Technology
Procurement Production Distribution Sales
Strategic Network Planning
Master Planning
MaterialRequirements
Planning
ProductionPlanning
Scheduling
DistributionPlanning
TransportPlanning
DemandPlanning
DemandFulfillment & ATP
Forecast
Forecast
Configuration Simulation Results
PurchasingQuantities
Capacity BookingStock Levels
Capacity BookingDist’n Quant./Alloc.
Due Dates Due Dates Supply
Lot-Sizes
Lot Sizes
TranportationQuantity/Modes
Current Orders
Coordination and Data
Flows of APS Modules
Supply Chain e-ServicesSupply Chain e-ServicesTechnologyTechnology
SCM Technologies J2EE Technologies
SAP re-tooled all of its applications to support the J2EE protocol, in addition to its own ABAP technology standards
Many examples of using Java for enhanced SCM
.NET Technology Doesn’t support multiple platforms, which will be difficult
for integration of supply chain Supply chain vendors have been trying to convince
Microsoft to support J2EE, so they could easily integrate enterprise SCM to the desktop, but Microsoft has refused
Supply Chain e-ServicesSupply Chain e-ServicesTechnologyTechnology
SCM Technologies OpenAdaptor.org
open source supply chain integration system, made open-source on 1/30/2001
originally developed for financial services developed by investment bank Dresdner Kleinwort
Wasserstein (DrKW) already used in global integration 40 projects by DrKW “allows the rapid, simple and often code-free integration of
any system to any other system, enabling the complete supply chain, plus internal systems, to be integrated while allowing access to the web”
SCM Perspective on Li & Fung SCM Perspective on Li & Fung Case StudyCase Study
SCM PerspectiveSCM PerspectiveLi & FungLi & Fung
Sourcing Characteristics Seasons
Past: 2-4 Now: 6-7 … “fast clockspeed”?
Customers Past: potentially many, but very slow deals, as translation was the
service Now: 350 big customers, potentially 22,800 SMEs might be added
Suppliers Past: relatively few Now: 7500 suppliers, 26 countries … more than 1 million workers
engaged on their behalf (assuming 200/plant)
SCM PerspectiveSCM PerspectiveLi & FungLi & Fung
Supply Chain ControlStatic Dynamic
UniqueItems
CommonItems
1980s: Delivering Manufacturing Programs
Present Li & FungMargin = 6-8% softgoods,10-30% hardgoods, function of sourcing complexity
Breaking up Value ChainDispersed Manufacturing
Rational Kitting of Parts
1910 InterpreterMargin=15%
BrokerMargin=10, 5, then 3%
1970s: Regional Sourcing Agent
SCM PerspectiveSCM PerspectiveLi & FungLi & Fung
DesignEngineeringProductionPlanning
Softgoods
Textiles USA
Textiles ROW
Hardgoods
ToysAccessoriesFestive ItemsFurnishingsHandicraftsHomeTravel GoodsSporting Goods
Quality ControlTestingLogistics
Front End Back End
Raw Material and Component Sourcing Managing Production
The ProcessThe Goods and Related Services
SCM PerspectiveSCM PerspectiveLi & FungLi & Fung
Li & FungClient
Design Materials Sourcing Factories Quality Control Logistics
“Sense”
“Respond”
Communications
SCM PerspectiveSCM PerspectiveLi & FungLi & Fung
Li & FungClient
Design Materials Sourcing Factories Quality Control Logistics
“OperationalSupportSystem”
SCM PerspectiveSCM PerspectiveLi & FungLi & Fung
Li & FungClient
Design Materials Sourcing Factories Quality Control Logistics
Cost: $1
Retail Price $4Margin to Share = $3
SCM PerspectiveSCM PerspectiveCovisintCovisint
CovisintFord, GM, et al.
Design Materials SourcingTier 1 Only
FactoriesTier 1 Only
Quality Control LogisticsTier 1 Only
Retail Price $19,000Margin (Ford, GM) = $3,000
Cost: $16,000?
Transaction Fee %
SummarySummary
Conceptual supply chain frameworks Fine: Two supply chain “periods” within an industry Fine: 3-D engineering of product, process, supply-
chain Guiding principle: link up service-product,
service-process, service supply chain Very complex task 3 product components, 3 process components, 3
supply chain types … all must work together Many different supply chain models
SummarySummary
Evaluation can initially (subjectively) be done based on standard operations strategies/metrics Cost Quality Flexibility Delivery
Thorough analysis and management of supply chains will involve hefty mathematics/OR models