Chapter 15

Order Fulfillment, Logistics, and Supply Chain Management
Prentice Hall, 2002 1

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
Prentice Hall, 2002 2

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
Prentice Hall, 2002 3

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 weak Toysrus.com and other toy e-tailers had the most critical problems Prentice Hall. 2002 4 .

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 holidays so they gave out $100 coupons Amazon. 2002 5 .com had to ship orders for several products in several shipments instead of one raising the delivery cost Prentice Hall.

2002 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 Prentice Hall.

2002 7 . Pull Supply Chains Prentice Hall.Figure 15-1 Push vs.

2002 8 .Major Concepts Order fulfillment: Deliver right order on time Front office operations: Order taking Advertisement CRM Back office operations Accounting Finance Inventory Packaging Logistics Prentice Hall.

information and money along the supply chain Aspect of military science dealing with procurement.) Definitions of logistics: Managing the flow of goods. 2002 9 .Major Concepts (cont. maintenance. and transportation Management of details of an operation All activities involved in management of product movement Right product Right place Right time Prentice Hall.

Figure 15-2 Order Fulfillment and Logistics Systems Prentice Hall. 2002 10 .

billing 12.The Steps of Order Fulfillment 1. 5. 4. Demand forecast 11. shipment Insuring Production (planning. warehousing 8. 2002 11 . Accounting. Reverse logistics Prentice Hall. Customer contacts 9. 2. execution) 6. Plant services 7. 3. Payment Clearance In-stock availability Packaging. Purchasing. Returns (Reverse logistics) 10.

ships to wholesalers Wholesalers rush to Petstore Petstore uses FedEx to ship to customer with copy of credit card payment Discussion: What is the contribution of EC? Prentice Hall. payment Transfer order to Petstore. Placing order. 6. check stock Use a wholesaler to get the fish Supplier finds fish. 4.com. 5. 2002 12 . 3.Shipping a Tropical Fish 1. 2.

etc. 2002 13 . delivery. warehousing. from raw material suppliers through factories to customers It includes: organizations. checking. information. control of many activities Activities: Purchasing. people SCM: Integration of the business processes along the chain. Organizing. money. Planning.Supply Chain Management Definition: Flow of material. packaging. etc. procedures. Prentice Hall.

Figure 15-3 An Automotive Supply Chain Source: Modified from Handfield and Nichols (1999). 3. p. 2002 14 . Prentice Hall.

2002 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) Prentice Hall.

translations.Global Supply Chain Can be very long Possible cross-border problems Need information technology support of: Communication Collaboration Possible delays due to: customs. tax. 2002 16 . politics Prentice Hall.

2002 17 . etc. distribution. Expensive Inventories Lack of partners coordination Uncertainties in deliveries Poor demand forecast Interference with production Poor quality Prentice Hall.Typical Problems Along the Supply Chain Delays in production.

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 Prentice Hall. 2002 18 .

Bullwhip Effect and Information 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 Prentice Hall. 2002 19 .

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 Prentice Hall. 2002 20 .

extranets.Avoiding the Sting of the Bullwhip How to do it? Information sharing is a must and is facilitated by EDI. 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 Prentice Hall. 2002 21 .

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 People s relationships are a must Prentice Hall. 2002 22 .

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 Prentice Hall. 2002 23 .

) Invoicing. 2002 .Areas of Opportunities (cont. 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 24 Prentice Hall.

UK Prentice Hall.Using Inventories Insurance against stock out Can be in several places Can be excessive Can be insufficient Example: Littlewoods stores. 2002 25 .

2002 26 .Using Inventories Using inventories to solve supply chain shortages: Building inventories as insurance against uncertainty products 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 Prentice Hall.

to deal with the overstocking problem Prentice Hall. UK Retail clothing industry is very competitive Littlewoods instituted an IT-supported initiative to support supply chain efficiency. 2002 27 . specifically.) Example: Littlewoods Stores.Using Inventories (cont.

Littlewoods Stores (cont. 2002 28 .) Use a Web-Based performance reporting system that analyzes daily: Marketing and financial data Merchandising Space planning Purchasing data Prentice Hall.

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 Prentice Hall.) Using data warehouse.Littlewoods Stores (cont. 2002 29 .

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 Prentice Hall. 2002 30 .

2002 31 .Proper SCM (cont.) Coordination is needed because: Supply chain partners depend on each other Partners don t 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 Prentice Hall.

) Information flow is a key: communications between business partners should be: Effective Efficient Support is needed to ensure this communication and is enabled by: IT support EC support Prentice Hall.Proper SCM (cont. 2002 32 .

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 Prentice Hall. 2002 33 .

2002 34 .) Digitization of products instant 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 Prentice Hall.EC Solutions Along the Supply Chain (cont.

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 York MailBoxes Etc. and Innotrac Corp. Comprehensive system Software connects e-tailers and order management systems Prentice Hall. 2002 35 .

) 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% Prentice Hall. 2002 36 .Innovative Solutions to Order Fulfillment Problem (cont.

) Relysoftware. 2002 37 .Innovative Solutions to Order Fulfillment Problem (cont.com helps find: Forwarders intermediaries 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 Prentice Hall.

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. Tracking services to customers Prentice Hall.Same Day. 2002 38 . etc. warehousing. reordering.

2002 39 .) 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 Prentice Hall. Even Same Hour Delivery (cont.Same Day.

2002 40 . ANX) 3rd-party managed exchanges Vertical vs.g. auctions One company with many buyers (RFQ) Exchanges controlled by few large companies (e..E-Markets and Exchanges Types: One company with many suppliers (RFQ) Catalogs. Horizontal portals Prentice Hall.

Figure 15-4 Proposed Order Fulfillment for Groceryworks Source: Steinert-Threlkeld (January 31. Originally published in Interactive Week. www. 2002 41 .xplane. 2000).com Prentice Hall.

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 orders Step 2: merchandise stored SKU warehouse Step 3: orders arrive Step 4: computer program consolidates orders from all vendors into pick waves Prentice Hall. 2002 42 .

) Step 5: picked items moved by conveyors to packing area. computer configures size and type of packing. moved by conveyer to waiting trucks Step 8: full trucks depart for Post Offices Prentice Hall. 2002 43 . types special packing instructions Step 6: conveyer takes packages to scanning station (weighed) Step 7: scan destination.Automated Warehouses (cont.

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 Prentice Hall. 2002 44 .

2002 45 .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 Prentice Hall.

The UPS Strategy (cont. and delivery Integration with shipping management system Notify customers by e-mail of: Delivery status Expected time of arrival of incoming packages Prentice Hall. 2002 46 .) UPS provides broad EC services Improved inventory management. warehousing.

) 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 Prentice Hall. 2002 47 .The UPS Strategy (cont.

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
Prentice Hall, 2002 48

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

Prentice Hall, 2002

49

Software Support
SCM Activities
Upstream activities

Type of Software 
Supplier management Ordering systems Order tracking systems Inventory management Purchasing order management Budgeting, cost control Human resource information Salesperson productivity tools Online telemarketing Ad management etc.
Prentice Hall, 2002 50

Internal supply chain activities

Downstream activities

Integration-Benefits Automation of segments useful. but integration brings: Tangible benefits Inventory reduction Personnel reduction Productivity improvement Order management improvement Financial cycle improvements Prentice Hall. 2002 Intangible benefits Information visibility New/improved processes Customer responsiveness Standardization Flexibility Globalization Business performance 51 .

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) Prentice Hall. 2002 52 .

MasterCard.Areas of Integration Order taking .transmit to suppliers and their suppliers Tracking systems .production inventory levels Payment info in B2B . Low inventory levels .generate a list of needed resources & their availability Changes in an order . etc. 2002 53 .available to customers Prentice Hall.automatic ordering Order to manufacturing .Visa.

2002 54 .Evolution of Software Integration Completely Independent of each other MRP= Material Requirements Planning: Inventory Production MRPII=Manufacturing Requirements Planning more integrated MRP+Finance+Labor Prentice Hall.

2002 55 .) Completely Independent of each other ERP=Enterprise Resources Planning All functional areas Extended ERP includes Suppliers Customers Prentice Hall.Evolution of Software Integration (cont.

2002 56 .From SAP to mySAP.a personalized.com SAP=Traditional ERP=Automate and Integrate transactions MySAP.hosting Web applications for SMEs Prentice Hall.one stop destination for business professionals to collaborate Business Scenarios .products for the Internet and intranet Application-hosing . role-based interface Marketplace .com = Web-based comprehensive system Workplace .

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 Prentice Hall. 2002 57 .

ERP Implementation Need to interface with EC order taking system Manages all routine transactions in the enterprise Recently extended to suppliers and customers Prentice Hall. 2002 58 .

2002 59 . 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 Prentice Hall.Developing ERP Systems Do-it-yourself.

2002 60 . KM Prentice Hall. Manpower utilization. Profitability models. market analysis Integration of SCM capabilities Other added functionalities: CRM.transaction processing orientation 2nd generation Including decision-making capabilities EC requires decision support EC requires business intelligence SCM software: Production Planning.Post-ERP (2nd Generation) 1st generation .

2002 61 . cumbersome) Prentice Hall.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.

Managerial Issues Planning for order fulfillment is a critical task. 2002 62 . 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 backoffice operations Prentice Hall.

2002 .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 63 Prentice Hall.

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