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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

Chapter 15

Order Fulfillment,

Logistics, and

Supply Chain Management

order fulfillment problems
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
order fulfillment overview
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
major concepts
Major Concepts
  • Order fulfillment: Deliver right order on time
  • Front office operations:
    • Order taking
    • Advertisement
    • CRM
  • Back office operations
    • Accounting Packaging
    • Finance Logistics
    • Inventory
major concepts cont
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
the steps of order fulfillment
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

shipping a tropical fish
Shipping a Tropical Fish

1. Placing order, payment

2. Transfer order to, 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?

supply chain management

Integration of the business processes along the chain, Planning, Organizing, control of many 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
figure 15 3 an automotive supply chain
Figure 15-3An Automotive Supply Chain

Source: Modified from Handfield and Nichols (1999), p. 3.

benefits of scm
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)
global supply chain
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
typical problems along the supply chain
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
more difficulties
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
bullwhip effect and information sharing
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
the bullwhip effect18
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
avoiding the sting of the bullwhip
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
preliminary activities
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
areas of opportunities
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
areas of opportunities cont
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
using inventories
Using Inventories
  • The classical MAGIC
  • Insurance against stock out
  • Can be in several places
  • Can be excessive
  • Can be insufficient
using inventories24
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
using inventories cont
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
littlewoods stores cont
Littlewoods Stores (cont.)
  • Use a Web-Based performance reporting system that analyzes daily:
    • Marketing and financial data
    • Merchandising
    • Space planning
    • Purchasing data
littlewoods stores cont27
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
proper scm
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
proper scm cont
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
proper scm cont30
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
ec solutions along the supply chain
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
ec solutions along the supply chain cont
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
innovative solutions to order fulfillment problem
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
innovative solutions to order fulfillment problem cont
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%
innovative solutions to order fulfillment problem cont35
Innovative Solutions toOrder Fulfillment Problem (cont.)
  • helps find:
    • “Forwarders”—intermediaries that prepare goods for shipping for companies
  • also helps:
    • Forwarders find the best prices on air carriers
    • Carriers fill up empty cargo space by bidding it up
same day even same hour delivery
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
same day even same hour delivery cont
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
figure 15 4 proposed order fulfillment for groceryworks
Figure 15-4Proposed Order Fulfillment for Groceryworks

Source: Steinert-Threlkeld (January 31, 2000). Originally published in Interactive Week,

automated warehouses
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”
automated warehouses cont
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
handling returns
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
outsourcing logistics 3pl the ups strategy
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
the ups strategy cont
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
the ups strategy cont44
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
supply chain components
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
supply chain components cont


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

Information visibility

New/improved processes

Customer responsiveness




Business performance


Automation of segments useful, but integration brings:

  • Tangible benefits
    • Inventory reduction
    • Personnel reduction
    • Productivity improvement
    • Order management improvement
    • Financial cycle improvements
integration along the supply chain
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)
areas of integration
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
evolution of software integration
Evolution of Software Integration
  • Completely Independent of each other
    • MRP= Material Requirements Planning:
      • Inventory
      • Production
    • MRPII=Manufacturing Requirements Planning
      • more integrated
      • MRP+Finance+Labor
evolution of software integration cont
Evolution of Software Integration (cont.)
  • Completely Independent of each other
    • ERP=Enterprise Resources Planning
      • All functional areas
    • Extended ERP includes
      • Suppliers
      • Customers
from sap to mysap com
From SAP to
  • SAP = Traditional ERP = Automate and Integrate transactions
  • = Web-based comprehensive system
    • Workplace - a personalized, role-based interface
    • Marketplace - one stop destination for business professionals to collaborate
    • Business Scenarios - products for the Internet and intranet
    • Application-hosing - hosting Web applications for SMEs
erp benefits
ERP Benefits
  • ERP = Integrating business processes and activities in real time
  • Solves many supply chain problems
  • Necessary for medium to large corporations
  • Helpful also for some SMEs
erp implementation
ERP Implementation
  • Need to interface with EC order taking system
  • Manages all routine transactions in the enterprise
  • Recently extended to suppliers and customers
developing erp systems
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
post erp 2nd generation
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 capabilities
  • APS function: advanced planning and scheduling
  • Other added functionalities: CRM, KM
asp and erp outsourcing
ASP and ERP Outsourcing
  • Why ASP or lease?
    • Leasing information systems application
    • Back to the days of “time-sharing”
    • A risk prevention strategy
    • Very popular with ERP (expensive, cumbersome)
managerial issues
Managerial Issues
  • Planning for order fulfillment is a critical task, especially for virtual EC vendors
  • Dealing with returns can be a complex issue
  • Partnerships and alliances can improve logistics and alleviate supply chain problems
  • Many software products are available to improve SCM and logistics
  • EC must be tightly connected with back-office operations
managerial issues cont
Managerial Issues (cont.)
  • It is necessary to integrate it with EC front-office operations
  • Importance of creation of logistics system for EC and how to use EC applications to improve the supply chain
  • Software integration may require considerable time and money