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
 Late delivery
 Delays costs low satisfaction
 In-land and overseas delivery
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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
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Figure 15-1
Push vs. Pull Supply Chains
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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
 Inventory
Packaging
Logistics
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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
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Figure 15-2
Order Fulfillment and Logistics Systems
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The Steps of Order Fulfillment
1. Payment Clearance
2. In-stock availability
3. Packaging, shipment
4. Insuring
5. Production
(planning, execution)
6. Plant services
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7. Purchasing,
warehousing
8. Customer contacts
9. Returns
(Reverse logistics)
10. Demand forecast
11. Accounting, billing
12. Reverse logistics
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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?
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Supply Chain Management
 SCM:
 Definition:
 Integration of the
 Flow of material,
business processes
information, money,
along the chain,
etc. from raw material
Planning, Organizing,
suppliers through
control of many
factories to customers
activities
 It includes:
 Activities:
 organizations,
 Purchasing, delivery,
procedures, people
packaging, checking,
warehousing, etc.
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Figure 15-3
An Automotive Supply Chain
Source: Modified from Handfield and Nichols (1999), p. 3.
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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)
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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
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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
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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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The Bullwhip Effect
propagation
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Bullwhip Effect and
Information 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
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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
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Avoiding the Sting
of 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
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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
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Areas of Opportunities
 Manufacturing
processes
 Warehousing operation
 Packaging and delivery
 Material
inspection/receiving
 Inbound and outbound
transportation
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 Reverse logistics
(return)
 In-plant material
handling
 Vendor management
program
 Customer order
processing
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Areas of Opportunities (cont.)
 Use of teams and
 Invoicing, auditing and
empowerment
of
other accounting activities
employees
 Collaboration procedures
 Automation of
with partners
processes
 Employee training and
 Use of software for
deployments
facilitating all the
above
 Labor scheduling
 Inventory management
and control
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Using Inventories
 The classical MAGIC
 Insurance against stock out
 Can be in several places
 Can be excessive
 Can be insufficient
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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
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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
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Littlewoods Stores (cont.)
 Use a Web-Based performance reporting
system that analyzes daily:




Marketing and financial data
Merchandising
Space planning
Purchasing data
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Littlewoods Stores (cont.)
 Using data warehouse, DSS and other enduser 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
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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
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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
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Proper SCM (cont.)
 Information flow is a  Support is needed
key: communications
to ensure this
between business
communication and
partners should be:
is enabled by:
 Effective
 Efficient
 IT support
 EC support
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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
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EC Solutions Along
the Supply Chain (cont.)
 Collaborative commerce
 Digitization of
among members of the
products—instant order
supply chain
fulfillment
 Shortens cycle time
 Back-office interface
 Minimizes delays
 Shortens cycle time
 Eliminates errors
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and work
interruptions
 Lower inventories
 Lower
administrative costs
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Innovative Solutions to
Order 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
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Innovative Solutions to
Order 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%
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Innovative Solutions to
Order 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
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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
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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
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Figure 15-4
Proposed Order Fulfillment for
Groceryworks
Source: Steinert-Threlkeld (January 31, 2000). Originally published in Interactive
Week, www.xplane.com
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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”
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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
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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
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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
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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
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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
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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
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Supply Chain Components (cont.)
 Downstream: all activities in distribution
and delivery to end customers
 Sales
 Customer billing
 Delivery scheduling
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Software Support
SCM Activities
Type of Software
Upstream activities
Supplier management
Ordering systems
Order tracking systems
Internal supply
chain activities
Inventory management
Purchasing order management
Budgeting, cost control
Human resource information
Downstream
activities
Salesperson productivity tools
Online telemarketing
Ad management etc.
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Integration-Benefits
Automation of segments useful, but integration brings:
 Tangible benefits
 Intangible benefits
 Inventory reduction
 Personnel reduction
 Productivity
improvement
 Order management
improvement
 Financial cycle
improvements
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 Information visibility
 New/improved
processes
 Customer
responsiveness
 Standardization
 Flexibility
 Globalization
 Business performance
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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)
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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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Evolution of
Software Integration
 Completely Independent of each other
 MRP= Material Requirements Planning:
 Inventory
 Production
 MRPII=Manufacturing Requirements
Planning
 more integrated
 MRP+Finance+Labor
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Evolution of
Software Integration (cont.)
 Completely Independent of each other
 ERP=Enterprise Resources Planning
 All functional areas
 Extended ERP includes
 Suppliers
 Customers
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From SAP to mySAP.com
 SAP = Traditional ERP = Automate and Integrate
transactions
 MySAP.com = 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
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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
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ERP Implementation
 Need to interface with EC order taking
system
 Manages 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 capabilities
 APS function: advanced planning and scheduling
 Other added functionalities: CRM, KM
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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)
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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
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Managerial Issues (cont.)
 It is necessary to integrate it with EC frontoffice 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
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