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Chapter 15

Chapter 15. Order Fulfillment, Logistics, and Supply Chain Management. Learning Objectives. Understand the role of order fulfillment and back-office operations in EC Describe the order fulfillment process Understand the concept of the supply chain, its importance and management

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Chapter 15

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  1. Chapter 15 Order Fulfillment, Logistics, and Supply Chain Management Prentice Hall, 2002

  2. Learning Objectives • Understand the role of order fulfillment and back-office operations in EC • Describe the order fulfillment process • Understand the concept of the supply chain, its importance and management • Describe the problems of managing the supply chain and the use of innovative solutions Prentice Hall, 2002

  3. Learning Objectives (cont.) • Describe the need for integrating information systems of front office and back office • Trace the evolution of software that supports activities along the supply chain and their management • Understand the relationship among ERP, SCM and EC Prentice Hall, 2002

  4. The Toy OrderFulfillment Problem • Overall satisfaction with online purchasing declined significantly in December 1999 and January 2000 • Order fulfillment infrastructure shown to be very weak • Toysrus.com and other toy e-tailers had the most critical problems Prentice Hall, 2002

  5. The Toy OrderFulfillment Problem (cont.) • Fierce competition in the toy industry caused inventory deficiencies • Offered free delivery • Offered $20 discount • Orders could not be met in time for the holidays—so they gave out $100 coupons • Amazon.com had to ship orders for several products in several shipments instead of one—raising the delivery cost Prentice Hall, 2002

  6. 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 Prentice Hall, 2002

  7. Figure 15-1Push vs. Pull Supply Chains Prentice Hall, 2002

  8. Major Concepts • Order fulfillment: Deliver right order on time • Front office operations: • Order taking • Advertisement • CRM • Back office operations • Accounting Packaging • Finance Logistics • Inventory Prentice Hall, 2002

  9. 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 Prentice Hall, 2002

  10. Figure 15-2Order Fulfillment and Logistics Systems Prentice Hall, 2002

  11. 1. Payment Clearance 2. In-stock availability 3. Packaging, shipment 4. Insuring 5. Production (planning, execution) 6. Plant services 7. Purchasing, warehousing 8. Customer contacts 9. Returns (Reverse logistics) 10. Demand forecast 11. Accounting, billing 12. Reverse logistics The Steps of Order Fulfillment Prentice Hall, 2002

  12. 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? Prentice Hall, 2002

  13. Definition: Flow of material, information, money, etc. from raw material suppliers through factories to customers It includes: organizations, procedures, people 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 Prentice Hall, 2002

  14. Figure 15-3An Automotive Supply Chain Source: Modified from Handfield and Nichols (1999), p. 3. Prentice Hall, 2002

  15. 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) Prentice Hall, 2002

  16. Global Supply Chain • Can be very long • Possible cross-border problems • Need information technology support of: • Communication • Collaboration • Possible delays due to: customs, tax, translations, politics Prentice Hall, 2002

  17. Typical Problems Alongthe Supply Chain • Delays in production, distribution, etc. • Expensive Inventories • Lack of partners’ coordination • Uncertainties in deliveries • Poor demand forecast • Interference with production • Poor quality Prentice Hall, 2002

  18. 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 Prentice Hall, 2002

  19. 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 Prentice Hall, 2002

  20. 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 Prentice Hall, 2002

  21. 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 Prentice Hall, 2002

  22. 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 Prentice Hall, 2002

  23. Manufacturing processes Warehousing operation Packaging and delivery Material inspection/receiving Inbound and outbound transportation Reverse logistics (return) In-plant material handling Vendor management program Customer order processing Areas of Opportunities Prentice Hall, 2002

  24. Invoicing, auditing and other accounting activities Collaboration procedures with partners Employee training and deployments Labor scheduling 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.) Prentice Hall, 2002

  25. Using Inventories • Insurance against stock out • Can be in several places • Can be excessive • Can be insufficient • Example: Littlewoods stores; UK Prentice Hall, 2002

  26. 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 Prentice Hall, 2002

  27. 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 Prentice Hall, 2002

  28. Littlewoods Stores (cont.) • Use a Web-Based performance reporting system that analyzes daily: • Marketing and financial data • Merchandising • Space planning • Purchasing data Prentice Hall, 2002

  29. 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 Prentice Hall, 2002

  30. 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 Prentice Hall, 2002

  31. 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 Prentice Hall, 2002

  32. Information flow is a key: communications between business partners should be: Effective Efficient Support is needed to ensure this communication and is enabled by: IT support EC support Proper SCM (cont.) Prentice Hall, 2002

  33. EC Solutions Along the Supply Chain • Automate order taking • Use EDI/Internet • Web-based ordering; intelligent agents • Electronic payments • Inventory reduction (made-to-order pull process) • Improved inventory management • Decreased administrative costs Prentice Hall, 2002

  34. Digitization of products—instant order fulfillment Back-office interface Shortens cycle time Eliminates errors 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.) Prentice Hall, 2002

  35. 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 Prentice Hall, 2002

  36. 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% Prentice Hall, 2002

  37. 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 Prentice Hall, 2002

  38. 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 Prentice Hall, 2002

  39. 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 Prentice Hall, 2002

  40. E-Markets and Exchanges • Types: • One company with many suppliers (RFQ) • Catalogs, auctions • One company with many buyers (RFQ) • Exchanges controlled by few large companies (e.g., ANX) • 3rd-party managed exchanges • Vertical vs. Horizontal portals Prentice Hall, 2002

  41. Figure 15-4Proposed Order Fulfillment for Groceryworks Source: Steinert-Threlkeld (January 31, 2000). Originally published in Interactive Week, www.xplane.com Prentice Hall, 2002

  42. 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” Prentice Hall, 2002

  43. 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 Prentice Hall, 2002

  44. 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 Prentice Hall, 2002

  45. Outsourcing Logistics: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 Prentice Hall, 2002

  46. 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 Prentice Hall, 2002

  47. 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 Prentice Hall, 2002

  48. 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 Prentice Hall, 2002

  49. Supply Supply Chain Components (cont.) • Downstream: all activities in distribution and delivery to end customers • Sales • Customer billing • Delivery scheduling Prentice Hall, 2002

  50. Software Support Prentice Hall, 2002

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