Fulfilment, Logistics & Supply chain services

Dr Amit Mitra

Bristol Business School

Agenda

• Role of order fulfilment• Process of fulfilment• Supply chain and its management• Challenges in managing SCs• Need for integration• Evolution of software support to SCM• Relationship of eC, ERP, and SCM

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Order fulfilment and back office operations• Delivery to customers on time may be a

difficult task, especially in B2C• Fulfilling an order requires several activities

ranging from credit and inventory checks to shipments

• Most of these activities are called back-office operations and they are related to logistics

• Large B2B2C companies like Amazon can create fulfilment standards that then can be rolled out to all sellers in Amazon’s virtual marketplace

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Fulfilment by Amazon

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Generic stages of order fulfilment

• Payment verification• Inventory checking• Shipping arrangement• Insurance• Production (or assembly) plant services• Purchasing• Demand forecasting• Accounting• Customer contacts• Return of products

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Costs of fulfilment• Auctions

– Buyer pays fulfilment costs of packing, shipping and insurance– Implication – Loss of trust when product is delayed in reaching

customer

• Physical store on the high street– Costs of fulfilment included in the retail price– Implication – User participation in personalisation/customisation

irrelevant

• Online retail/etailing– Buyer pays for shipping and insurance, costs of packing paid by seller– Implication – loss of traffic with sub-optimal levels of fulfilment

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What is supply chain?

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Supply chain• Supply chains are a complex system of

organisations, people, business processes, technology, and information, all of which need to work together to produce products efficiently (Global Supply Chain Forum, 2012)

• A supply chain refers to the flow of materials, information, and services, from raw material suppliers through factories and warehouses to the end customers.

• A supply chain also includes the organisations and processes that create and deliver these products, information, and services to the end customers.

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A supply chain

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1st Tier Suppliers

2nd Tier Suppliers

2nd Tier Suppliers

1st Tier Suppliers

1st Tier Suppliers

Assembly/Manufacturing and Packaging

Distribution Centres

Retailers

Customers

Upstream Internal Downstream

A Generic Process

Flow of information

Flow of material

Composition of a supply chain:

• Upstream: Includes suppliers (which can be manufacturers and/or assemblers) and their suppliers. Such a relationship can be extended, to the left, in several tiers, all the way to the origin of the material (e.g., mining ores, growing crops)

• Internal supply chain: Includes all processes used in transforming inputs received from suppliers to outputs, from the time the inputs enter an organisation to the time that the product goes to distribution outside the organisation

• Downstream: Includes all activities involved in delivering product to final customers. (The supply chain actually ends when the product reaches its after use disposal – presumably back to Mother Earth somewhere).

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Value chain vs supply chain• The value chain of a firm is a chain composed of

specific activities that add a margin of value to a firm’s products and services

• The value chain is usually made up of internal processes

• A firm’s supply chain is a network of organisations and business processes for procuring raw materials, transforming these materials into intermediate and finished products, and distributing the finished products to customers

• Materials, information, and payments flow through the supply chain in both directions

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Supply Chain Management • Supply chain management is the integration of business

processes from the end user through original suppliers, that provide products, services, and information that add value for customers.

• It includes many activities, such as purchasing, materials handling, production planning and control, logistics and warehousing, inventory control, and distribution and delivery

• The function of SCM is to plan, organise, and co-ordinate all the supply chain’s activities.

• Efficiency and effectiveness of supply chains in most organisations are critical for the success of eCommerce

• Supply chains may be non-linear in their structures and in the process flow of information and goods can be bi-directional

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Supply chain optimisation techniques

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Benefits of SCM• Reduction in uncertainty and risks along the supply

chain positively affects inventory levels, cycle time, processes, and customer service

• All of these contribute to increased profitability and competitiveness

• The flow of goods, services, information, and other products is usually designed not only to effectively transform raw items to finished products and services, but also to do it in an efficient manner. Specifically the flow must be followed by an increase in value - a major goal of SCM is to increase this value

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Challenges to the supply chain• High inventory costs, quality problems due to misunderstandings, shipments of

wrong material and parts, and high cost of expediting operations or shipments• In eCommerce there is a larger chance of problems emerging as a result of

inadequate infrastructure and/or inappropriate experience– For instance, warehouses of conventional retailers are designed to ship large quantities

to stores; they cannot optimally pack and ship many small packages to customers’

doors • Demand forecast is a major source of uncertainty in eCommerce

– This uncertainty is influenced by several factors such as consumer behaviour, economic conditions, competition, prices, weather conditions, technological developments, customers’ confidence

• Delivery times are another source of uncertainties that depend on factors ranging from machine failures to road conditions

• A symptom of poor SCM is poor customer service – people do not get the product or service when and where needed, or get it in poor quality– Other symptoms are high inventory costs, interferences with production or operation, loss of

revenues, and extra costs for special and expedited shipments

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Impact of eCommerce on supply chain

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Electronic Hub

Consultant

Bank payment

TechnologyOther services

Support

Manufacturer

Logistics delivery

Buyer

Logistics

Hub and spoke system

Altered structure of the marketplace

• eCommerce usually alters the linear relationships that exist between intermediaries in the traditional supply chain by an electronic hub

• The hub or marketplace is managed by an infomediary [an electronic intermediary]

• As one to one relationships disappear co-ordination of communications and synchronous connections between different players become critical for success of electronic channels

• Although discrimination between client needs disappears yet chances of losing competitive advantage increases as information, supply and logistics need to be co-ordinated efficiently

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Future supply chain

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Digital supply chain• Digitisation of the market mechanism reduces search costs [money,

time, and effort used to gather product price, quality, and feature information] for consumers – [First phase]– Searching reduces the likelihood that sellers will be able to charge

significantly higher prices than their competitors as consumers would be aware of competitor prices.

• Digitisation of the product itself as well as its distribution is usually part of the second phase of changes that comes about– Digitised products involve a cost structure with increasing returns and low

marginal reproduction costs.

• A wide range of seller and customer activities, including marketing, order processing, distribution, payments, and even product development processes involving several separate firms to converge into one place gets enabled through the electronic market and distribution network

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Supply chain management systems

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Manufacturer’s Enterprise System

Supplier’s Enterprise System

Production System

Warehouse System

Financial System

Production System

Warehouse System

Financial System

Order Entry System

Customer

Website

Distribution

Orders

Product Shipment

Source: Adapted from Laudon and Traver (2012)

Need for integration

• Processes and activities along the supply chain must be co-ordinated to minimise delays

• Co-ordination is best attained in integrated systems

• Integrated systems speed up cycle times and reduce errors by automating activities and providing monitoring, checking, and controls

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Evolution of software support for SCM

• Software development for isolated activities along segments of supply chain

• MRP first generic software in 1960s• MRP II integrated an additional range of activities• ERP added a further range of activities• Extended ERP covers most routine activities along the

supply chain, including suppliers and customers• Latest developments in ERP packages is the inclusion of

decision making tools along with CRM capabilities

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Relationship of eC, ERP, and SCM

• eC can support various activities along the supply chain such as order taking, order tracking, and communication

• eC implies taking an order and fulfilling it. To do so– Interface between inventory, scheduling, billing, and other

systems are necessary– Back office operations in most large or medium sized

companies are managed with ERP

• SCM software helps in making decisions about how much to produce, how much inventory to stock, and how best to schedule shipments

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New trends in eC 2013

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Supply chain implications for new developments in eC• Touch commerce• Location based commerce• Online to offline integration• Demand side signalling• Customisation of product & curation of

customer experience

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References:• Laudon, K.C., and Traver, C.G. (2015). E-commerce 2015: business, technology, society,

Pearson• Turban, E., King, D., Lee, J., Warkentin, M., and Chung, H.M. (2002). Electronic Commerce:

A Managerial Perspective, Prentice Hall• Croom, S.R. (2005). ‘The impact of e-business on supply chain management’, International

Journal of Operations & Production Management, 25(1), 55-73• Prajogo, D., & Olhager, J. (2012). ‘Supply chain integration and performance: The effects of

long term relationships, information technology and sharing, and logistics integration,’ International Journal of Production Economics, 135(1), 514-522

• Yan, T., Rabinovich, E., Dooley, K., & Evers, P.T. (2010). ‘Managing backlog variation in order fulfilment: The case of Internet retailers’, International Journal of Production Economics, 128(1), 261-268

• Muffato, M., & Payaro, A. (2004). ‘Integration of web-based procurement and fulfilment: A comparison of case studies’, International Journal of Information Management, 24, 295-311

• Subramani, M. (2004). ‘How do suppliers benefit from IT use in supply chain relationships’, MIS Quarterly, 28(1), 45-73

• Chopra, S., & van Mieghem, J.A. (2000). ‘Which e-Business is right for your supply chain?’, Supply Chain Management Review, 4(3), 32-40

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