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1Chapter 4

Order Management&Logistics Information Systems

Order Management

Order management is the activities that take place in the period between the time a firm receives an order and the time a warehouse is notified to ship the goods to fill that order

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Order Management

Order management refers to management of the various activities associated with the order cycle

Order cycle (replenishment cycle or lead time) refers to the time from when a customer places an order to when goods are received

Some organizations include order to cash cycle in their order management model

15 Important Trade-off

Place/customer service

levels

Product

PromotionPrice

Order processing and information

costs

Warehousingcosts

Transportationcosts

Inventorycarrying costs

Lot quantitycosts

LO

GIS

TIC

S

MA

RK

ET

ING

Source: Adapted from Douglas M. Lambert, The Development of an Inventory Costing Methodology: A Study of the Costs Associated with Holding Inventory (Chicago, IL: National Council of Physical Distribution Management, 1976), p. 7.

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Order Cycle: A Customer's Perspective

Key: 1. Order preparation and transmittal 2 days2. Order received and entered into system 1 day3. Order processed 1 day4. Order picking/production and packing 5 days5. Transit time 3 days6. Warehouse receiving and placing into storage 1 day

Total order cycle time 13 days

1. Customerplaces order

6. Orderdelivered to

customer

5. Ordershipped tocustomer

2. Orderreceived by

supplier

3. Orderprocessed

4. Order pickedand packed

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Order Cycle: A Customer's Perspective

1.ustomerplaces order

6. Orderdelivered tocustomer

5. Ordershipped tocustomer

2. Orderreceived by

supplier

3. Orderprocessed

4. Order picked

and packed

Total order cycle time

Customer satisfaction

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Order Cycle: A Customer's Perspective

1.ustomerplaces order

6. Orderdelivered

tocustomer

5. Ordershipped tocustomer

2. Orderreceived

bysupplier

3. Orderprocessed

4. Order picked

and packed

Key: 1. Order preparation and transmittal 2 days2. Order received and entered into system 1 day3. Order processed 1 day4. Order picking/production and packing 5 days5. Transit time 3 days6. Warehouse receiving and placing into storage 1 day

Total order cycle time 13 days

7 days

Manufacturer’s control

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Order Cycle: A Customer's Perspective

1.ustomerplaces order

6. Orderdelivered tocustomer

5. Ordershipped tocustomer

2. Orderreceived by

supplier

3. Orderprocessed

4. Order picked

and packed

Not directly under the Manufacturer’s control

Key: 1. Order preparation and transmittal 2 days2. Order received and entered into system 1 day3. Order processed 1 day4. Order picking/production and packing 5 days5. Transit time 3 days6. Warehouse receiving and placing into storage 1 day

Total order cycle time 13 days

6 days

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Total Order Cycle with Variability

2. Order entry

Frequency:

.5 1 1.5

1. Order preparation and transmittal

Frequency:

1 2 3

3. Order processing

Frequency:

.5 1 1.5

4. Order picking or packing production

Frequency:

1 5 9

Frequency:

TOTAL

4.5 days 13 21.5 days

5. Transit time

Frequency:

1 3 5

6. Customer receiving

Frequency:

.5 1 1.5

Order Processing

Order processing refers to the time from when the seller receives an order until an appropriate location (i.e. warehouse) is authorized to fill the order

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7-10

Order Processing

Order processing includes:– Checking for completeness and accuracy– A customer credit check– Order entry into the computer system– Marketing department credits salesperson– Accounting department records transaction– Inventory department locates nearest warehouse to

customer and advises them to pick the order– Transportation department arranges for shipment

© Pearson Education, Inc. publishing as Prentice Hall

7-11

Typical Elements of Order Processing

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Order Preparation• Requesting

product and services

Order Transmission• Transfer order

information to supplier

Order Entry• Stock checking• Accuracy checking• Credit checking• Back ordering/order

cancelling• Transcripting• Billing

Order Filling• Product retrieval, production or purchase• Packing• Scheduling for delivery• Shipping document preparation

Order ShipmentOrder Status Reporting• Tracing and tracking• Communicating with customer on order status.

Order Delivery

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Flowchart of Order Processing System

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Order Preparation

Products and services information Determining vendor Filling out an order form Determining stock availability Communicating order information

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Order Transmission

Transfering the order request from origin to the destination.

Order transmission is the series of events that occur between the time a customer places or sends an order and the time the seller receives the order

Methods of order transmittal (manually or electronically)

In person, Mail, Telephone, FAX, EDI

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Order Entry

Checking the accuracy of the order information Checking the availability of the requested items Preparing back-order or cancellation order Checking customer’s credit status Billing

Order Picking and Assembly Order picking and assembly includes all activities from

when an appropriate location is authorized to fill the order until goods are loaded aboard an outbound carrier

Often represents the best opportunity to improve the effectiveness and efficiency of an order cycle

Can account for up to 2/3 of a facility’s operating cost and time

Examples of Order Picking and Assembly technology: Handheld scanners, RFID, Voice-based order picking, pick-to-light

19Amazon distribution center in Swansea, south Wales

The 800,000 sq ft DC is one the largest of Amazon's six in the UK

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Monday will be the UK's busiest online shopping day of the year with over 2 million orders expected to be made

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Order Status Reporting

Ensures good customer services Customer informated of any delay or delivery

of the order Tracing and tracking the order Communicating with the customer about where

the order may be in the order cycle and when it may be delivered.

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Order Delivery

Order delivery is the time from when a carrier picks up the shipment until it is received by the customer.

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• Materials• Services• Information• (Cash-Payment) Not main

but supporting)

Main Flows

Supply Chain

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Manufacturers CustomersRetailersWholesalers/Distributors

Supplier

Materials and ServicesPayments

Information

The Five Major Supply Chain Drivers

1.PRODUCTION

What, how, and when to produce

4.TRANSPORTATIONHow, and when to move

product

3.LOCATION

Where best to do what activity

2.INVENTORY

How much to make and how much to store

5.INFORMATIONThe bests for making

these decisions.

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Information about ...

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• Purchasing order information

• Forecast/POS data• Advance ship notice• Bill of lading• Shipment status• Invoice• Freight details

• Production planning• Customers • Return goods• Parts, service and

support• Packaging• Transportation• Purchasing

all logistical activities

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Data

Raw facts about people, places, events, and things that are of importance in an organization. Each fact is, by itself, relatively meaningless.

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30

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IT will affect the growth and development of logistics

Computers are used to support logistics activities

IT & Logistics

Accuracy Whether the value of each item of data is correct

Timeliness Whether the data are up-to-date

Consistency Whether the data in one part of the database have a

common, appropriate set of controls to related concepts stored elsewhere

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Data Quality Factors

Transparency of meaning Whether the context for the data is clearly and

commonly understood by all those with a legitimate interest

Availability Whether the people who need the data can actually

access it

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Data Quality Factors

Information

Data that has been processed or reorganized into a more meaningful form for someone.

Information is formed from combinations of data that hopefully have meaning to the recipient.

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Sources of Information

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System

A set of elements considered to act as a single goal-oriented entity.

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Components Boundary Purpose Environment Interfaces Constraints Input Output

The System and Its Environment

Environment

Input

Raw materials

CostsResources

Outputs

PerformancesConsequences

Finished productsServices delivered

Processes

ProceduresPrograms

ToolsActivitiesDecisions

FeedbackDecision Maker

Customers

CompetitorsStockholders

Vendors Goverment

Banks

Su

pp

lier

Weath

er C

on

ditio

ns

System boundary

Turban, Decision Support Systems and Intelligent Systems, 7/E 37

System

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Decision Support System (DSS)

DSS is an integrative system of subsystems that has the purpose of providing

information to aid a decision maker in making better choices than would

otherwise possible

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Decision Support Systems in Logistics

To assist logistics executives in their decision process.

To support, but not replace, managerial judgment.

To improve the effectiveness of logistics decision.

Logistics Information System

An interacting structure of people, equipment, and procedures which together make relevant information available to the logistics manager for the purposes of planing, implementing and control.

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Information flow makes a logistical system dynamic. Quality and timeliness of information are key factors in logistical operations.

Bowersox and Closs

How Information Systems Facilitate Logistics Management

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• Decide when, what to produce, store, move• Rapidly communicate orders • Communicate orders, track order status• Check inventory availability, monitor levels• Track shipments • Plan production based on actual demand • Rapidly communicate product design change• Provide product specifications• Share information about defect rates, returns

Logistics Information System

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ComputersServersInternet technologiesInput and output devicesCommunication channelsBarcode, RF, storage media

System and application programs

LIS combine hardware and software to manage, control, and measure logistics activities.

LIS perform three vital roles in business firms. – Logistics processes and operations,– Logistics decision making; and– Strategic competitive advantage

Major application categories of information systems include:– Operations Support Systems; and– Management Support Systems

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Logistics Information System

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Logistics Information System

LIS Benefits Increased product visibility and control Improved knowledge of key logistics network

component capabilities and capacity Enhanced economic value

Cost reductions Sales increases

Creation of competitive advantage Direct linkages to customers

Overview of Logistics Information System

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LIS

InternalFinance/AccountingMarketingLogisticsManufacturingPurchasing

ExternalCustomersVendorsCarriersSupply chain partners

Order ManagementSystem• Contact with customer• Stock availability• Crediting checking• Invoicing• Product allocation to customer• Fulfillment location

Warehouse Management System· Stock level management· Order picking· Picker routing· Picker assignments and work loading· Product availability estimating

TransportationManagement System· Shipment consolidation· Routing and scheduling· Claims· Tracking· Bill payment· Freight bill auditing

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Order processing system• Customer location• Order history• Salesperson• Revenues• Order status

Industry/external data• Market share• Product offering• Demographic trends• Economic trends

Management• Competitive reactions• Sales forecasts• Future trends• New markets

Company records• Cost of capital• Cost of logistics activities• Standart costs

Operating data• Freight payment• Transportation history• Inventory• Credit files• Product movement

Report generation• Order performance• Shipment performance• Damages and returns

Logistics Database

• Product traking and forecasting• Performace and cost reports

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Technologies in LIS

Bar code Point-of-Sale ( POS) EDI RF-RFID

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Bar Coding

barcodes stored data in series of parallel black and white bars of various widths and spacing. They can be read by optical scanners called barcode readers or scanned from an image by special software.

Contemporary Logistics Information Technologies

The Universal Product Code (UPC) is a specific type of barcode, that is widely used in the United States and Canada for tracking trade items in stores.

Turkey code: 869 Code 128, Code 39 EAN Code(International Article Number)-

Europe and Turkey TOBB, Milli Mal Numaralandırma Merkezi

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Bar Coding

LO

GIS

TIC

S MA

NA

GE

ME

NT

Fu

nd

amen

tals of

Lambert

Stock

Ellram50

Barcode Types

Country code Firm code Product code Control digit

3 digits4 digits (can

change)5 digits(can

change) 1 digit

Exp:      

869 9567 90009 4

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Point of Sales Data

Technology that allows firms, in real time, to know what and where an item is being sold through scanning of individual barcodes when an item purchased at the retail level.

Using this information, product forecasting, make better purchase decision and customization, and reduce the chance that an item will be out of stock.

Zara-POS usage

Contemporary Logistics Information Technologies

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RFID

RFID system consists of an antenna and a transceiver, which read the radio frequency and transfer the information to a processing device, and a transponder, or tag, which is an integrated circuit containing the RF circuitry and information to be transmitted.

RFID systems can be used just about anywhere, from clothing tags to missiles to pet tags to food -- anywhere that a unique identification system is needed.

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Radio Frequency Identification (RFID)

Contemporary Logistics Information Technologies

Yard, Warehouse & Factory Management, Transportation Management

Item-level tracking Automatic Non-Line-of-Sight Scanning

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RFID tags come in three general varieties: passive, active, or semi-passive (also known as battery-assisted).

Passive tags require no internal power source-only active when a reader is nearby to power them, whereas semi-passive and active tags require a power source, usually a small battery.

Passive tags have practical read distances ranging from about 10 cm (4 in.)

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Active Tags Active tags typically have much longer range and

larger memories than passive tags, as well as the ability to store additional information sent by the transceiver.

Some active RFID tags include sensors such as temperature logging which have been used to monitor the temperature of fresh produce or certain pharmaceutical products.

Other sensors that have been married with active RFID include humidity, shock/vibration, light, radiation, temperature, and atmospherics like ethylene.

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Semi-passive Tags Semi-passive tags are similar to active tags in

that they have their own power source, but the battery only powers the microchip and does not broadcast a signal.

The RF energy is reflected back to the reader like a passive tag. An alternative use for the battery is to store energy from the reader to emit a response in the future.

Greater sensitivity than passive tags, typically 100 times more.

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Radio Frequency (RF)

Relay information via electromagnetic energy waves from a terminal to a base station, which is linked in turn to a host computer.

Contemporary Logistics Information Technologies

Typically used in a warehouse or distribution center, RF technologies provide the communications capability between operating personel (e.g. Fork lift drivers, loading dock personnel, etc.) and centralized computer capabilities.

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Definition of EDI Inter organizational, computer-to-

computer exchange of business data in a standard, machine-processable format.

Unstructured Structured

Fax EDIE-Mail Order entryPerson-to-person Computer-to-computer

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The purpose of EDI is to eliminate dublicate data entry and to improve thespeed and accuracy of information flow

by linking computer applications between companies.

Definition of EDI

Levi’s-integrated its customer order processing system using a

QR(quick response)-EDI: LeviLink

Transfer of structured data, by agreed message standards from one computer system to another without human intervention.

Cheques, bill of lading

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Definition of EDI

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Types of EDIs

Proprietary Systems (One to Many) involve an EDI system which is owned, managed, and maintained by a single company

Value-added Networks (Many to Many) includes a third party firm that acts as a central clearinghouse

Industry Associations have their own EDI standards

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For EDI to function properly, computer language compatibility is required.

Users must have common communication standards.

Trading partners must have common definition words, codes and symbols; and a common format and order of transmission.

EDI Standarts

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EDI Versus Traditional Methods

PURCHASING

COMPUTER

Source: Margaret A. Emmelhainz, Electronic Data Interchange: A Total Management Guide (New York: Van Nostrand Reinhold, 1990), p. 5.

BUYER'S PURCHASINGAPPLICATION

SELLER'S ORDERENTRY APPLICATION

PURCHASING

POST OFFICEBUYER'S

EDI FLOW

PO POSELLER'S

COMPUTER

ORDERENTRY

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The Benefits of EDIComparing with non-electronic communication

Quick access to information, Better customer services, Reduced paperwork, Better communications, Increased productivity, Improved tracing and tracing, Cost efficiency, Competitive advantage, Improved billing.

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DSS

Modeling-simulation( what if games) Artificial intelligence(AI): an

comprehensive term that involves voice synthesis and recognition, game playing systems, robotics, natural language translators and expert systems(ES)

Benetton-POS-EDI-AI

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Expert SystemsNatural language recognitionNeural networks