Chapter 13
Order Fulfillment, Logistics,
Supply Chain Management
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Learning Objectives
1. Understand the role of order fulfillment and back-office
operations in EC
2. Describe the process of order fulfillment
3. Understand the concept of the supply chain, its
importance and management
4. Describe the problems of managing the supply chain
and the use of innovative solutions there
5. Describe the need for integrating information systems of
front office and back office
6. Trace the evolution of software that support activities
along the supply chain and their management
7. Understand the relationship among ERP, SCM and EC. 2
The Y2K Order Fulfillment
Problem
In Dec. 1999 Competition among E-Tailers
increases
Special area: Toys; Big promotions, coupons
Demand: very high, not anticipated
Retailers: were unable to meet demand
Customers: very unhappy
Similar problems in gifts, book, etc.
Also: online retailers has warehousing and
logistics problems
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Order Fulfillment
Taking orders may be the easiest part
Difficulties in groceries and fresh food
One reason: Customized products
Second: Pull type manufacturing
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The Pull vs. Push Model
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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, inventor, packaging, logistics
Logistics: Managing the flow of goods,
information and money along the supply
chain
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The Process of Order
Fulfillment
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The Steps of Order
Fulfillment
1.
2.
3.
4.
5.
Payment Clearance
In-stock availability
Packaging, shipment
Insuring
Production (planning,
execution)
6. Plant services
7. Purchasing,
warehousing
8. Demand forecast
9. Accounting, billing
10. Customer contacts
11. Returns (Reverse
logistics)
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Shipping a Tropical Fish
1. Placing order, payment
2. Transfer order to petstore.com, check stock
3. Use an wholesaler to get the fish
4. Supplier finds fish, ships to wholesalers
5. Wholesalers rushes 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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Why Intermediaries?
1. Wholesaler and deliveries in the Petstore
case
2. Wholesalers as an aggregators; between
many sellers and buyers
3. Can a virtual store replace a retailer?
4. Direct sales for large items
5. Example: The Lego Co. case
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Channel Conflict
Elimination of Intermediary many create a
conflict
Conflict between online and offline
distribution
This may impact order fulfillment and returns
What if a manufacturer sells both wholesale
and retail? (Microsoft)
Customized product by manufacturers: ideal
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for direct sale
Supply Chain Management
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,
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checking, warehousing, etc.
Components of the Supply
Chain
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Components-Description
Upstream: Suppliers, their suppliers
(several tiers). From Raw material to the
company
Internal: All internal process that add
value, conversion to find products
Downstream: All activities in distribution
and delivery to end customers
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Complex-nonlinear Supply
Chain
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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-broader problems
Need information technology support of:
communication and collaboration
Possible delays due to: customs, tax,
translations, politics
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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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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
Reverse logistics (return)
In-plant material handling
Vendor management program
Customer order processing
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Areas of Opportunities
(cont’d)
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
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Using Inventories
An insurance against stock out
Can be in several places
Can be excessive
Can be insufficient
Example: Littlewoods stores; UK
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Proper SCN
Coordination is needed
Understanding of the causes/problems
Information flow is a key
Communication is important
IT is needed
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Information Technology for SCM
Links that enable
communication/collaboration
Links the partners
Provide effective and efficient solutions
Extremely important
Need for information sharing
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IT as problem solver
Supply Chain
Problem
IT solution
Linear sequence of
processing – too slow
Waiting times between
chain segments –
excessive
Parallel processing, using workflow s/w
Existence of non-valued
added activities
Slow delivery of paper
documents
Repeat process activities
Value analysis (SCM s/w), simulation s/w
Identify reason (DSS s/w) and expedite
communication and collaboration (Intranets,
GroupWare)
Electronic documents and communication
system (e.g. EDI, email)
Electronic verifications (s/w agents),
automation; eliminating human errors 26
The bullwhip effect
Slight changes in actual demand create
problems
Partners build “just in case” inventories
Lack of trust among partners
Stockpilling result in huge cost
The manufacturers can not plan
production
Cannot order material from suppliers
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Avoiding the sting of the
bullwhip
Information sharing is a must
Trust and agreements
How to do it?
$30 billion/year just in the grocery
industry
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IT solutions
Automate order taking
Use EDI/Internet
Web based ordering; intelligent agents
Electronic payments
Make-to-order (JIT)
Tracking systems
Supplier monitor and manage inventories
Information from POS to suppliers
Electronic trading markets and exchanges
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Electronic trading
markets/exchanges
One company with many suppliers
(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
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Non-supply Chain
Partnerships
Starbucks: Coffee to retailers, customers
Needed fast service; less expensive
Kozmo delivers in cities 30-60 minutes
Kozmo.com: Had a problem with drop
boxes for returns
Partnership: Place Kozmo’s drop boxes
inside starbuck coffee houses (open long
hours) solve both problems
Amazon uses Kozmo for fast deliveries 31
The 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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The role of FedEx &
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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Software Support
SCM activities
Type of software
Upstream activities
Suppliers’ management,
ordering systems, order
tracking systems
Internal supply chain - Inventory management
activities
- Purchasing and order
management
- Budgeting, cost control
- Human resources information
Downstream
Saleperson productivity tools,
activities
online telemarketing, ad.
Management etc.
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Integration-Benefits
Automation of segments useful, but…
Tangible benefits
Inventory reduction, personnel reduction,
productivity improvement, order management
improvement, financial cycle improvements.
Intangible benefits
Information visibility, new / improved processes,
customer responsiveness, standardization,
flexibility, globalization, and 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 Lamber and Wal*Mart
(Box 13.5)
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Areas of Integration
Order taking - production inventory levels
Payment info in B2B - Visa, Master Card, 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
ERP=Enterprise Resources Planning
All functional areas
Extended ERP=Include 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
professional to collaborate
Business Scenarios - products for the Internet and
intranet
Application-hosing - hosting Web applications for
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SMEs
Enterprise Resource
Planning (ERP)
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
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
Other added functionalities: CRM, KM
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ASP
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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