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Chapter 13

Order Fulfillment, Logistics, Supply Chain Management

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Learning Objectives

1. Understand the role of order fulfillment and back-office operations in EC

2. Describe the process of order fulfillment3. Understand the concept of the supply chain, its

importance and management4. Describe the problems of managing the supply chain and

the use of innovative solutions there5. Describe the need for integrating information systems of

front office and back office6. Trace the evolution of software that support activities

along the supply chain and their management7. Understand the relationship among ERP, SCM and EC.

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The Y2K Order Fulfillment Problem

In Dec. 1999 Competition among E-Tailers increases

Special area: Toys; Big promotions, couponsDemand: very high, not anticipatedRetailers: were unable to meet demandCustomers: very unhappySimilar problems in gifts, book, etc.

Also: online retailers has warehousing and logistics problems

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Order Fulfillment

Taking orders may be the easiest part

Difficulties in groceries and fresh food

One reason: Customized productsSecond: Pull type manufacturing

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The Pull vs. Push Model

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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, inventor, packaging, logistics

Logistics: Managing the flow of goods, information and money along the supply chain

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The Process of Order Fulfillment

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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. Demand forecast9. Accounting, billing10. Customer

contacts11. Returns (Reverse

logistics)

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Shipping a Tropical Fish

1. Placing order, payment2. Transfer order to petstore.com, check stock3. Use an wholesaler to get the fish4. Supplier finds fish, ships to wholesalers5. Wholesalers rushes 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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Why Intermediaries?

1. Wholesaler and deliveries in the Petstore case

2. Wholesalers as an aggregators; between many sellers and buyers

3. Can a virtual store replace a retailer?4. Direct sales for large items5. Example: The Lego Co. case

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Channel Conflict

Elimination of Intermediary many create a conflict

Conflict between online and offline distribution

This may impact order fulfillment and returnsWhat if a manufacturer sells both wholesale

and retail? (Microsoft)Customized product by manufacturers: ideal

for direct sale

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Supply Chain ManagementDefinition: Flow of material, information,

money, etc. from raw material suppliers through factories to customers

It includes: organizations, procedures, peopleSCM: Integration of the business processes

along the chain, Planning, Organizing, control of many activities

Activities: Purchasing, delivery, packaging, checking, warehousing, etc.

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Components of the Supply Chain

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Components-Description

UpstreamUpstream: Suppliers, their suppliers (several tiers). From Raw material to the company

InternalInternal: All internal process that add value, conversion to find products

DownstreamDownstream: All activities in distribution and delivery to end customers

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Complex-nonlinear Supply Chain

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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-broader problemsNeed information technology support

of: communication and collaboration

Possible delays due to: customs, tax, translations, politics

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Problems along the 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 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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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 transportationReverse logistics (return)In-plant material handlingVendor management programCustomer order processing

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Areas of Opportunities (cont’d)Invoicing, auditing and other accounting

activitiesCollaboration procedures with partnersEmployee training and deploymentsLabor schedulingUse of teams and empowerment of employeesAutomation of processesUse of software for facilitating all the aboveInventory management and control

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Using Inventories

An insurance against stock outCan be in several placesCan be excessiveCan be insufficient

Example: Littlewoods stores; UK

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Proper SCN

Coordination is neededUnderstanding of the

causes/problemsInformation flow is a keyCommunication is importantIT is needed

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Information Technology for SCM

Links that enable communication/collaboration

Links the partnersProvide effective and efficient

solutionsExtremely importantNeed for information sharing

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IT as problem solver

Supply ChainProblem

IT solution

Linear sequence ofprocessing – too slow

Parallel processing, using workflow s/w

Waiting times betweenchain segments –excessive

Identify reason (DSS s/w) and expeditecommunication and collaboration (Intranets,GroupWare)

Existence of non-valuedadded activities

Value analysis (SCM s/w), simulation s/w

Slow delivery of paperdocuments

Electronic documents and communicationsystem (e.g. EDI, email)

Repeat process activities Electronic verifications (s/w agents),automation; eliminating human errors

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The bullwhip effect

Slight changes in actual demand create problems

Partners build “just in case” inventoriesLack of trust among partnersStockpilling result in huge costThe manufacturers can not plan

productionCannot order material from suppliers

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Avoiding the sting of the bullwhip

Information sharing is a mustTrust and agreementsHow to do it?$30 billion/year just in the grocery

industry

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IT solutionsAutomate order takingUse EDI/InternetWeb based ordering; intelligent agentsElectronic paymentsMake-to-order (JIT)Tracking systemsSupplier monitor and manage inventoriesInformation from POS to suppliersElectronic trading markets and exchanges

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Electronic trading markets/exchanges

One company with many suppliers (catalogs, auctions)

One 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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Non-supply Chain Partnerships

Starbucks: Coffee to retailers, customers Needed fast service; less expensive

Kozmo delivers in cities 30-60 minutesKozmo.com: Had a problem with drop boxes

for returnsPartnership: Place Kozmo’s drop boxes

inside starbuck coffee houses (open long hours) solve both problems

Amazon uses Kozmo for fast deliveries

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The Role of 7-Eleven & Convenience Stores

Can be used as a collection point for returns

Can 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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The role of FedEx & Similar Shippers

From a delivery to all-logisticsMany services (see Box 13.4)Complete inventory controlPackaging, warehousing, reordering

etc.Tracking services to customers

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Software Support

SCM activities Type of software

Upstream activities Suppliers’ management,ordering systems, ordertracking systems

Internal supply chainactivities

- Inventory management- Purchasing and order

management- Budgeting, cost control- Human resources information

Downstreamactivities

Saleperson productivity tools,online telemarketing, ad.Management etc.

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Integration-BenefitsAutomation of segments useful, but…Tangible benefitsInventory reduction, personnel reduction,

productivity improvement, order management improvement, financial cycle improvements.

Intangible benefits Information visibility, new / improved processes,

customer responsiveness, standardization, flexibility, globalization, and business performance.

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Integration along the Supply Chain

Need to streamline operationsNew business modelsNew organizational relationships

(virtual companies)Examples Warner Lamber and

Wal*Mart (Box 13.5)

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Areas of Integration

Order taking - production inventory levelsPayment info in B2B - Visa, Master Card, 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 IntegrationCompletely Independent of each otherMRPMRP= Material Requirements Planning:

Inventory, productionMRPIIMRPII=Manufacturing Requirements Planning

more integrated, MRP+Finance+laborERP=Enterprise Resources Planning

All functional areasExtended ERPExtended ERP=Include suppliers, customers

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From SAP to mySAP.comSAP=Traditional ERP=Automate and Integrate

transactionsMySAP.com = web based comprehensive system

Workplace - a personalized, role-based interface Marketplace - one stop destination for business

professional to collaborate Business Scenarios - products for the Internet and

intranet Application-hosing - hosting Web applications for SMEs

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Enterprise Resource Planning (ERP)

ERPERP = Integrating business processes and activities in real time

Solves many supply chain problemsNecessary for medium to large corporationsHelpful also for some SMEsNeed 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 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 capabilitiesOther added functionalities: CRM, KM

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ASP

Leasing information systems application

Back to the days of “time sharing”A risk prevention strategyVery popular with ERP (expensive,

cumbersome)