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Chapter 15

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

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Chapter 15

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  1. Chapter 15 Order Fulfillment, Logistics, and Supply Chain Management

  2. 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

  3. 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

  4. Figure 15-1Push vs. Pull Supply Chains

  5. Major Concepts • Order fulfillment: Deliver right order on time • Front office operations: • Order taking • Advertisement • CRM • Back office operations • Accounting Packaging • Finance Logistics • Inventory

  6. 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

  7. Figure 15-2Order Fulfillment and Logistics Systems

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

  9. 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?

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

  11. Figure 15-3An Automotive Supply Chain Source: Modified from Handfield and Nichols (1999), p. 3.

  12. 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)

  13. 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

  14. 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

  15. 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

  16. The Bullwhip Effect propagation

  17. Bullwhip Effect andInformation 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

  18. 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

  19. Avoiding the Stingof 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

  20. 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

  21. Reverse logistics (return) In-plant material handling Vendor management program Customer order processing Areas of Opportunities • Manufacturing processes • Warehousing operation • Packaging and delivery • Material inspection/receiving • Inbound and outbound transportation

  22. Use of teams and empowerment of employees Automation of processes Use of software for facilitating all the above Inventory management and control Areas of Opportunities (cont.) • Invoicing, auditing and other accounting activities • Collaboration procedures with partners • Employee training and deployments • Labor scheduling

  23. Using Inventories • The classical MAGIC • Insurance against stock out • Can be in several places • Can be excessive • Can be insufficient

  24. 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

  25. 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

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

  27. Littlewoods Stores (cont.) • Using data warehouse, 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

  28. 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

  29. 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

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

  31. 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

  32. Collaborative commerce among members of the supply chain Shortens cycle time Minimizes delays and work interruptions Lower inventories Lower administrative costs EC Solutions Along the Supply Chain (cont.) • Digitization of products—instant order fulfillment • Back-office interface • Shortens cycle time • Eliminates errors

  33. Innovative Solutions toOrder 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

  34. Innovative Solutions toOrder 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%

  35. Innovative Solutions toOrder 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

  36. 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

  37. 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

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

  39. 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”

  40. 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

  41. 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

  42. 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

  43. 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

  44. 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

  45. 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

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

  47. Software Support

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

  49. 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)

  50. 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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