Transcript Chapter 13
Chapter 15
Order Fulfillment,
Logistics, and
Supply Chain Management
Order Fulfillment Problems
How much do I need?
Delivery: time and cost
Fierce competition
Where are my goods? Track and Trace
One shipment or many, for an order
When will it arrive?
Variability, uncertainty
Late delivery
Delays costs low satisfaction
In-land and overseas delivery
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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
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Figure 15-1
Push vs. Pull Supply Chains
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Major Concepts
Order fulfillment: Deliver right order on time
Front office operations:
Order taking
Advertisement
CRM
Back office operations
Accounting
Finance
Inventory
Packaging
Logistics
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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
movement
Right product
Right place
Right time
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Figure 15-2
Order Fulfillment and Logistics Systems
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The Steps of Order Fulfillment
1. Payment Clearance
2. In-stock availability
3. Packaging, shipment
4. Insuring
5. Production
(planning, execution)
6. Plant services
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7. Purchasing,
warehousing
8. Customer contacts
9. Returns
(Reverse logistics)
10. Demand forecast
11. Accounting, billing
12. Reverse logistics
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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?
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Supply Chain Management
SCM:
Definition:
Integration of the
Flow of material,
business processes
information, money,
along the chain,
etc. from raw material
Planning, Organizing,
suppliers through
control of many
factories to customers
activities
It includes:
Activities:
organizations,
Purchasing, delivery,
procedures, people
packaging, checking,
warehousing, etc.
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Figure 15-3
An Automotive Supply Chain
Source: Modified from Handfield and Nichols (1999), p. 3.
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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)
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Global Supply Chain
Can be very long
Possible cross-border problems
Customs clearance, tax, different regulations
Need information technology support of:
Communication
Collaboration
Possible delays due to: customs, tax,
translations, politics
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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
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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
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The Bullwhip Effect
propagation
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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
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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
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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
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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
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Areas of Opportunities
Manufacturing
processes
Warehousing operation
Packaging and delivery
Material
inspection/receiving
Inbound and outbound
transportation
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Reverse logistics
(return)
In-plant material
handling
Vendor management
program
Customer order
processing
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Areas of Opportunities (cont.)
Use of teams and
Invoicing, auditing and
empowerment
of
other accounting activities
employees
Collaboration procedures
Automation of
with partners
processes
Employee training and
Use of software for
deployments
facilitating all the
above
Labor scheduling
Inventory management
and control
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Using Inventories
The classical MAGIC
Insurance against stock out
Can be in several places
Can be excessive
Can be insufficient
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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
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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
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Littlewoods Stores (cont.)
Use a Web-Based performance reporting
system that analyzes daily:
Marketing and financial data
Merchandising
Space planning
Purchasing data
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Littlewoods Stores (cont.)
Using data warehouse, DSS and other enduser 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
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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
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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
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Proper SCM (cont.)
Information flow is a Support is needed
key: communications
to ensure this
between business
communication and
partners should be:
is enabled by:
Effective
Efficient
IT support
EC support
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EC Solutions Along the Supply Chain
Automate order taking (e-procurement)
Use EDI/Internet
Web-based ordering; intelligent agents
Electronic payments
Inventory reduction (made-to-order pull
process)
Improved inventory management
Decreased administrative costs
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EC Solutions Along
the Supply Chain (cont.)
Collaborative commerce
Digitization of
among members of the
products—instant order
supply chain
fulfillment
Shortens cycle time
Back-office interface
Minimizes delays
Shortens cycle time
Eliminates errors
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and work
interruptions
Lower inventories
Lower
administrative costs
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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
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Innovative Solutions to
Order Fulfillment Problem (cont.)
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%
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Innovative Solutions to
Order 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
carriers
Carriers fill up empty cargo space by bidding
it up
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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
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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
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Figure 15-4
Proposed 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 orders
Step 2: merchandise stored SKU warehouse
Step 3: orders arrive
Step 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
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
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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
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Outsourcing Logistics (3PL):
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
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The UPS Strategy (cont.)
UPS provides broad EC services
Improved inventory management,
warehousing, and delivery
Integration with shipping management
system
Notify customers by e-mail of:
Delivery status
Expected time of arrival of incoming packages
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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
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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 scheduling
Costing
Inventory control
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Supply Chain Components (cont.)
Downstream: all activities in distribution
and delivery to end customers
Sales
Customer billing
Delivery scheduling
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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.
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Integration-Benefits
Automation of segments useful, but integration brings:
Tangible benefits
Intangible benefits
Inventory reduction
Personnel reduction
Productivity
improvement
Order management
improvement
Financial cycle
improvements
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Information visibility
New/improved
processes
Customer
responsiveness
Standardization
Flexibility
Globalization
Business performance
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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)
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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
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Evolution of
Software Integration
Completely Independent of each other
MRP= Material Requirements Planning:
Inventory
Production
MRPII=Manufacturing Requirements
Planning
more integrated
MRP+Finance+Labor
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Evolution of
Software Integration (cont.)
Completely Independent of each other
ERP=Enterprise Resources Planning
All functional areas
Extended ERP includes
Suppliers
Customers
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From SAP to mySAP.com
SAP = Traditional ERP = Automate and Integrate
transactions
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
SMEs
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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
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ERP Implementation
Need to interface with EC order taking
system
Manages 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 software
Rent in from ASP service
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Post-ERP (2nd Generation)
1st generation - transaction processing orientation
2nd generation
Including decision-making capabilities
EC requires decision support
EC requires business intelligence
SCM software: Production Planning, Manpower
utilization, Profitability models, market analysis
Integration of SCM capabilities
APS function: advanced planning and scheduling
Other added functionalities: CRM, KM
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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)
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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
operations
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Managerial Issues (cont.)
It is necessary to integrate it with EC frontoffice 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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