prentice hall, 2002 1 chapter 15 order fulfillment, logistics, and supply chain management
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Prentice Hall, 2002 1
Chapter 15
Order Fulfillment, Logistics, and Supply Chain Management
Prentice Hall, 2002 2
Learning Objectives
Understand the role of order fulfillment and back-office operations in ECDescribe the order fulfillment process Understand the concept of the supply chain, its importance and managementDescribe the problems of managing the supply chain and the use of innovative solutions
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Learning Objectives (cont.)
Describe the need for integrating information systems of front office and back officeTrace the evolution of software that supports activities along the supply chain and their managementUnderstand the relationship among ERP, SCM and EC
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The Toy OrderFulfillment Problem
Overall satisfaction with online purchasing declined significantly in December 1999 and January 2000
Order fulfillment infrastructure shown to be very weakToysrus.com and other toy e-tailers had the most critical problems
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The Toy OrderFulfillment Problem (cont.)
Fierce competition in the toy industry caused inventory deficiencies
Offered free deliveryOffered $20 discount
Orders could not be met in time for the holidays—so they gave out $100 coupons
Amazon.com had to ship orders for several products in several shipments instead of one—raising the delivery cost
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Order Fulfillment: Overview
Introduction Taking orders may be the easiest partFactors responsible for delays in deliveries:
Inability to accurately forecast demandIneffective supply chainsPull type manufacturingCustomized products
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Figure 15-1Push vs. Pull Supply Chains
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Major Concepts
Order fulfillment: Deliver right order on timeFront office operations:
Order takingAdvertisement CRM
Back office operationsAccounting Packaging Finance LogisticsInventory
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Major Concepts (cont.)
Definitions of logistics:Managing the flow of goods, information and money along the supply chainAspect of military science dealing with procurement, maintenance, and transportationManagement of details of an operationAll activities involved in management of product movement
Right productRight placeRight time
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Figure 15-2Order Fulfillment and Logistics Systems
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The Steps of Order Fulfillment
1. Payment Clearance2. In-stock availability3. Packaging,
shipment4. Insuring5. Production
(planning, execution)
6. Plant services
7. Purchasing, warehousing
8. Customer contacts9. Returns (Reverse
logistics)10. Demand forecast11. Accounting,
billing12. Reverse logistics
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Shipping a Tropical Fish
1. Placing order, payment2. Transfer order to Petstore.com, check
stock3. Use a wholesaler to get the fish4. Supplier finds fish, ships to wholesalers5. Wholesalers rush to Petstore6. Petstore uses FedEx to ship to customer
with copy of credit card paymentDiscussion: What is the contribution of EC?
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Supply Chain Management
Definition: Flow of material, information, money, etc. from raw material suppliers through factories to customersIt includes: organizations, procedures, people
SCM: Integration of the business processes along the chain, Planning, Organizing, control of many activitiesActivities: Purchasing, delivery, packaging, checking, warehousing, etc.
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Figure 15-3An Automotive Supply Chain
Source: Modified from Handfield and Nichols (1999), p. 3.
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Benefits of SCM
Reduce uncertainty along the chainProper inventory levels in the chainMinimize delaysEliminate rush (unplanned) activitiesProvide superb customer serviceMajor contributor of success (ever survival)
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Global Supply Chain
Can be very longPossible cross-border problemsNeed information technology support of:
CommunicationCollaboration
Possible delays due to: customs, tax, translations, politics
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Typical Problems Alongthe Supply Chain
Delays in production, distribution, etc.Expensive InventoriesLack of partners’ coordinationUncertainties in deliveriesPoor demand forecastInterference with production Poor quality
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More Difficulties
Virtual companies do not have logistics infrastructuresOne company is a member of several supply chainConventional warehouses are too expensiveNeed automatic warehouses with robots as pickers
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Bullwhip Effect andInformation Sharing
Flow of information to and from all participating entitiesInformation sharing between retailers and their suppliers
Bullwhip effect refers to erratic shifts in orders up and down supply chainDistorted information leads to:
Inefficiencies Ineffective shipmentsExcessive inventories Poor customer serviceMissed production schedules
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The Bullwhip Effect
Slight changes in actual demand create problemsPartners build “just in case” inventoriesLack of trust among partnersStockpiling results in huge costThe manufacturers cannot plan productionCannot order material from suppliers
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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 decisionsPlacing supply chain ahead of individual entities within the corporation
Sharing information could save $30 Billion/year just in the grocery industry
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Preliminary Activities
Understand the supply chain (flow charts)Study internal and external partsPerformance measurement are a must (Benchmarking)Multidimension performance analysisA BPR may be neededPeople’s relationships are a must
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Areas of Opportunities
Manufacturing processesWarehousing operationPackaging and deliveryMaterial inspection/receivingInbound and outbound transportation
Reverse logistics (return)In-plant material handlingVendor management programCustomer order processing
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Areas of Opportunities (cont.)
Invoicing, auditing and other accounting activitiesCollaboration procedures with partnersEmployee training and deploymentsLabor scheduling
Use of teams and empowerment of employeesAutomation of processesUse of software for facilitating all the aboveInventory management and control
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Using Inventories
Insurance against stock outCan be in several placesCan be excessiveCan be insufficientExample: Littlewoods stores; UK
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Using Inventories
Using inventories to solve supply chain shortages:
Building inventories as insurance against uncertainty—products and parts flow smoothlyVery difficult to correctly determine inventory levels for each product and part
Customized finished products can only stock componentsExcessive levels are costly to storeInsufficient levels cannot protect against high demand or slow delivery times
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Using Inventories (cont.)
Example: Littlewoods Stores; UKRetail clothing industry is very competitiveLittlewoods instituted an IT-supported initiative to support supply chain efficiency; specifically, to deal with the overstocking problem
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Littlewoods Stores (cont.)
Use a Web-Based performance reporting system that analyzes daily:
Marketing and financial dataMerchandisingSpace planningPurchasing data
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Littlewoods Stores (cont.)
Using data warehouse, DSS and other end-user oriented software system has helped:
Reduce backup inventory expensesIncreased the ability to strategically price merchandise differently in different storesReduced the need for stock liquidationsCut marketing distribution costs significantlyIncreased the number of Web-based users
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Proper SCN
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 customersKeep inventories lowKeep costs down
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Proper SCN (cont.)
Coordination is needed because:Supply chain partners depend on each otherPartners don’t always work together toward the same goal
To properly control uncertainties it is necessary to:
Understand the causes/problemsDetermine how uncertainties will affect other activities up and down the supply chainFormulate ways to eliminate or reduce uncertainties
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Proper SCN (cont.)
Information flow is a key: communications between business partners should be:
EffectiveEfficient
Support is needed to ensure this communication and is enabled by:
IT supportEC support
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EC Solutions Along the Supply Chain
Automate order takingUse EDI/InternetWeb-based ordering; intelligent agents
Electronic paymentsInventory reduction (made-to-order pull process)
Improved inventory managementDecreased administrative costs
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EC Solutions Along the Supply Chain (cont.)
Digitization of products—instant order fulfillmentBack-office interface
Shortens cycle timeEliminates errors
Collaborative commerce among members of the supply chain
Shortens cycle timeMinimizes delays and work interruptionsLower inventoriesLower administrative costs
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Innovative Solutions toOrder Fulfillment Problem
Examples of solutions to order fulfillment:
Real-time video (Webcam)Move inventory 70 times/yearFAO Schwartz demonstrates famous store in New York
MailBoxes Etc. and Innotrac Corp.Comprehensive systemSoftware connects e-tailers and order management systems
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Innovative Solutions toOrder Fulfillment Problem (cont.)
Role of 7-Eleven & convenience storesCan be used as a collection point for returnsCan be used as a pick-up placeCan be used as a place for order placingCan pay in cash/card to the storeReturns are a problem: up to 30%
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Innovative Solutions toOrder Fulfillment Problem (cont.)
Relysoftware.com helps find:“Forwarders”—intermediaries that prepare goods for shipping for companies
Relysoftware.com also helps:Forwarders find the best prices on air carriersCarriers fill up empty cargo space by bidding it up
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Same Day, Even Same Hour Delivery
Role of FedEx and similar shippersFrom a delivery to all-logisticsMany services (see Box 13.4)Complete inventory controlPackaging, warehousing, reordering, etc.Tracking services to customers
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Same Day, Even Same Hour Delivery (cont.)
Supermarket deliveriesTransport of fresh food to people who are in homes only at specific hoursDistribution systems are criticalFresh food may be spoiled
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E-Markets and Exchanges
Types:One company with many suppliers (RFQ)Catalogs, auctionsOne company with many buyers (RFQ)Exchanges controlled by few large companies (e.g., ANX)3rd-party managed exchangesVertical vs. Horizontal portals
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Figure 15-4Proposed Order Fulfillment for Groceryworks
Source: Steinert-Threlkeld (January 31, 2000). Originally published in Interactive Week, www.xplane.com
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Automated Warehouses
B2C order fulfillment—send small quantities to a large number of individuals
Step 1: retailers contract Fingerhut to stock products and deliver Web ordersStep 2: merchandise stored SKU warehouseStep 3: orders arriveStep 4: computer program consolidates orders from all vendors into “pick waves”
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Automated Warehouses (cont.)
Step 5: picked items moved by conveyors to packing area; computer configures size and type of packing; types special packing instructionsStep 6: conveyer takes packages to scanning station (weighed)Step 7: scan destination; moved by conveyer to waiting trucksStep 8: full trucks depart for Post Offices
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Handling Returns
Necessary for maintaining customer trust and loyalty
Return item to place it was purchasedSeparate logistics of returns from logistics of deliveryAllow customer to physically drop returned items at collection stationsCompletely outsource returns
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Outsourcing Logistics:The UPS Strategy
UPS provides broad EC services:Electronic tracking of packagesElectronic supply chain services for corporate customers by industry including:
Portal page with industry-related informationStatistics
Calculators for computing shipping feesHelp customers manage electronic supply chains
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The UPS Strategy (cont.)
UPS provides broad EC servicesImproved inventory management, warehousing, and deliveryIntegration with shipping management systemNotify customers by e-mail of:
Delivery statusExpected time of arrival of incoming packages
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The UPS Strategy (cont.)
Representative tools7 transportation and delivery applications
Track packagesAnalyze shipping historyCalculate exact time-in-transit
Downloadable toolsProof of deliveryOptimal routing features
Delivery of digital documentsWireless access to UPS system
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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 schedulingCostingInventory control
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Supply Chain Components (cont.)
Downstream: all activities in distribution and delivery to end customers
SalesCustomer billingDelivery scheduling
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Software Support
SCM Activities Type of Software
Upstream activities
Supplier managementOrdering systemsOrder tracking systems
Internal supply chain activities
Inventory managementPurchasing order managementBudgeting, cost controlHuman resource information
Downstream activities
Salesperson productivity toolsOnline telemarketingAd management etc.
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Integration-Benefits
Tangible benefitsInventory reductionPersonnel reductionProductivity improvementOrder management improvementFinancial cycle improvements
Intangible benefitsInformation visibilityNew/improved processesCustomer responsivenessStandardizationFlexibilityGlobalizationBusiness performance
Automation of segments useful, but integration brings:
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Integration Along the Supply Chain
Need to streamline operationsNew business modelsNew organizational relationships (virtual companies)Examples Warner Lambert and Wal-Mart (Box 15.6)
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Areas of Integration
Order taking - production inventory levelsPayment info in B2B - Visa, MasterCard, etc.Low inventory levels - automatic orderingOrder to manufacturing - generate a list of needed resources & their availabilityChanges in an order - transmit to suppliers and their suppliersTracking systems - available to customers
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Evolution of Software Integration
Completely Independent of each otherMRP= Material Requirements Planning:
InventoryProduction
MRPII=Manufacturing Requirements Planning
more integratedMRP+Finance+Labor
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Evolution of Software Integration (cont.)
Completely Independent of each otherERP=Enterprise Resources Planning
All functional areas
Extended ERP includesSuppliersCustomers
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From SAP to mySAP.com
SAP=Traditional ERP=Automate and Integrate transactionsMySAP.com = Web-based comprehensive system
Workplace - a personalized, role-based interfaceMarketplace - one stop destination for business professionals to collaborateBusiness Scenarios - products for the Internet and intranetApplication-hosing - hosting Web applications for SMEs
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ERP Benefits
ERP = Integrating business processes and activities in real timeSolves many supply chain problemsNecessary for medium to large corporationsHelpful also for some SMEs
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ERP Implementation
Need to interface with EC order taking systemManages all routine transactions in the enterprise Recently extended to suppliers and customers
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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 softwareRent in from ASP service
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Post-ERP (2nd Generation)
1st generation - transaction processing orientation2nd generation
Including decision-making capabilitiesEC requires decision supportEC requires business intelligence
SCM software: Production Planning, Manpower utilization, Profitability models, market analysis Integration of SCM capabilitiesOther added functionalities: CRM, KM
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ASP and ERP Outsourcing
Why ASP or lease?Leasing information systems applicationBack to the days of “time-sharing”A risk prevention strategyVery popular with ERP (expensive, cumbersome)
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Managerial Issues
Planning for order fulfillment is a critical task, especially for virtual EC vendorsDealing with returns can be a complex issuePartnerships and alliances can improve logistics and alleviate supply chain problemsMany software products are available to improve SCM and logisticsEC must be tightly connected with back-office operations
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Managerial Issues (cont.)
It is necessary to integrate it with EC front-office operationsImportance of creation of logistics system for EC and how to use EC applications to improve the supply chainSoftware integration may require considerable time and money