Chapter 11:
Logistics and Order Fulfillment
Process Management: Creating Value Along the Supply Chain
(1st edition)
Wisner and Stanley
1
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Chapter Outline
 Introduction
 Setting Logistics Customer Service Goals
 Transportation Planning and Selection
 The Order Fulfillment Process
 Warehouse Management
 Planning the Logistics Network
 Developing a Logistics Strategy
 Order Fulfillment and Logistics Concerns
 Summary
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Learning Objectives
After completing this chapter, you should be
able to:
 Describe the elements of customer service
from a logistics standpoint.
 Explain the role of transportation in the
logistics and order fulfillment process.
 Identify the key activities in the order
fulfillment process.
 Understand the importance of order cycle
time to the customer.
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Learning Objectives (cont.)
After completing this chapter, you should be
able to:
 Define the storage and handling activities that
take place in a warehouse.
 Recognize the attributes of an effective
logistics network.
 Describe the strategic planning process for
logistics.
 Understand some of the concerns logistics
managers face today.
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Introduction
 One of the biggest opportunities for a company to create
goodwill with the customer
 According to the Council of Supply Chain Management
Professionals (CSCMP), a professional organization for
Logistics and SCM professionals, logistics is defined as:
 “the process of planning, implementing and controlling the
efficient, effective flow and storage of goods, services and
related information from point of origin to point of consumption
for the purpose of conforming to customer requirements”
 The goal of logistics is to support procurement, manufacturing
and customer accommodation operational requirements
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Introduction
 Logistics process
 Transportation management: the movement of
materials, and parts to a warehouse or storage
facility within a manufacturing site as well as
movement of finished goods to distribution centers
and retails sites
 Order management: procurement of SKUs and
processing customer orders
 Warehouse management: Locating and designing
facilities to meet customer service levels
 Inventory management: Balancing inventory levels to
achieve high customer service levels
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Setting Logistics Customer Service
Goals
 Logistics customer service: the speed and
dependability with which items ordered can
be made available
 Customer service represents logistics’ role in
fulfilling the marketing concept
 Adds value for the seller when customers’
needs are met while minimizing costs
 Backorders-when customer is kept from
receiving at least part of the order, requires
additional tracking
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Setting Logistics Customer Service
Goals (cont’d)
 Availability: the capacity to have inventory when
desired by a customer
 The traditional practice is to stock inventory in
anticipation of customer orders, based on forecasted
demand for products
 Measures of inventory management
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Order fill rate / line order fill rate: measures the
percentage of units available to fill a specific order
(being out of stock does not effect service
performance until a customer demands a product)
Stockouts and service level: the probability that a firm
will not have inventory available to meet customer
order
Orders shipped complete: the most exacting measure
of performance
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Setting Logistics Customer Service
Goals (cont.)
 Order lead time:
 Order cycle begins with the order
placement and ends when the customer
receives the order
 Just-in-time
 Customers
are looking for suppliers who
are flexible in meeting emergency,
unexpected or unusual requests
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Setting Logistics Customer Service
Goals (cont.)
 Reliability: involves the combined
attributes of logistics and concerns a
firm’s ability to perform all order-related
activities as well as provide customers
with critical information regarding
logistical operations and status
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Transportation Planning and Selection
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Very visible elements of logistics
Wide range of transportation alternatives are available
A mode identifies a basic transportation method or form
Modes of transportation: air, truck, pipeline, rail and water
carriers
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Intermodal transportation: combination of two modes
Piggyback: integrated rail and motor service, birdyback: cargo
airplanes carry specially designed containers between airports
Transit time: measured from the point where an order leaves
the shipper’s dock until the time it arrives its destination
Air is the fastest mode of transportation
 Freight rates: related to time, distance and density.
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Transportation Planning and Selection
(cont.)
 Carrier selection
 Transportation carriers:
 Private carriers: use of the firm’s own carriers
 Public carriers: use of public, for-profit
transportation companies
 Third-party logistics providers (3PLs): provide
a range of logistics services including
warehousing, customs clearance, packaging,
labeling
 Core carrier strategy: developing good
working relationships with a smaller number of
transportation carriers
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Transportation Planning and Selection
(cont.)
 Transportation routing and scheduling
Important to improve the routes that vehicles travel
between the network of facilities
 Several techniques are used to analyze the
problem including linear programming simulation,
heuristic approaches
 Day-to-day management
 Monitoring the performance of the carriers
 Transportation carrier performance metrics: rates,
billing accuracy, reliable pickup/delivery,
consistent service, carrier reliability,
damages/loss, carrier flexibility, equipment
availability, safety, special services

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The Order Fulfillment Process
 Important to understand the path a
customer order might take once it is
placed
 Any interruptions during the transmittal
of an order or miscommunication will
increase order fulfillment time
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The Order Fulfillment Process
Customer
order
transmitted
a
Process
order
Customer
order
entered
Pick and
pack order
Schedule
transportation
Invoice
Shipping
docs
Cancel
order
Backorder
No
No
Cred
it
OK?
Yes
In
stoc
k?
Yes
a
Ship order
to
customer
Figure 11.2
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The Order Fulfillment Process
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Order cycle time: the elapsed time between when a customer places a purchase
order and when the product is received by the customer
Late orders are not considered acceptable
Transportation times are the most variable in the order cycle time
Causes of variability:
The choice and design of the order transmittal system
Inventory management policies
Procedures to process orders
Selection of transportation modes
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Priority rules: creating rules to determine the sequence in which customer orders
are processed and shipped (i.e. process smaller, simpler orders first)
Packaging standards: additional packaging may result in lower overall logistics
costs
Drop shipping: selling products to customers and then shipping the product
directly to the customer, common for Internet companies
Non-asset-based 3PLs: specialize in providing comprehensive information
services that facilitate supply chain arrangements
Asset-based 3PLs: logistics firm that owns many or all of the assets
necessary to run a client's supply chain. These assets include trucks,
warehouses and distribution centers, among others.
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Warehouse Management
 Storage has always been an important aspect of economic
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development
Important part of lean production and replenishment
Distribution centers: serving as a point to form outbound specific
product assortments which are then shipped to the customer
Cross-docking
Postponement : postponing the final manufacturing, labeling, or
packaging of product until it is needed by the customer
Reverse logistics: may be used for getting rid of damaged
inventory and goods don’t sell, performing light manufacturing of
recalled products and refurbishing returned items
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Warehouse Management (cont.)
 Warehouse planning
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Warehouse vs. distribution center: Warehouse is for storage of
inventory whereas DC is to keep finished product moving towards its
destination
Number and location of warehouses: trade-off between customer
service level and number of warehouses
Company should identify how many customers they have, in which
locations, the service levels, and the forecasts of their buying habits
Criteria in site selection: transportation costs, site costs, access to
major shipping nodes, facility/operation costs, availability of workforce,
potential tax incentives, impact on the environment/local community
Automated storage and retrieval systems (AS/AR): moves inventory
located in warehouse using robotics, conveyor belts, bar code
scanning systems
Warehouse management systems (WMS): computer software
designed for warehousing
Main uses: Order picking, receiving, put-away, stock location, work
order management
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Warehouse Management (cont.)
 Warehouse activities
 After planning managers must determine the
location of inventory, stock the shelves, hire
staff to work in the warehouse, setup work
procedures, implement a warehouse
management system
 Employee training
 Break-bulk warehousing and consolidation
 Three stages of warehouse material handling
 Receiving incoming shipments
 Handling while in storage
 Shipping
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Planning the Logistics Network
 Companies must have a good understanding of their supply
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chains to design a logistics network that will meet their customer
service goals.
Logistical needs can change fairly regularly, requiring network
adjustments
Public warehouses: space rented for short periods of time from
for-profit warehousing companies
Private warehouses: companies own their own warehouses
Logistics network planning involves a process of decision making
in three areas:
Location planning
Product flow planning
Transportation service planning
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Planning the Logistics Network (cont.)
 Location planning making decisions with
regards to the size, location and number of
fixed facilities (warehouses, manufacturing
plants, retail outlets, service centers)
 Site selection factors: land/construction
costs, tax/regulations/laws, quality of life
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Planning the Logistics Network (cont.)
 Product flow planning
 Determination of how products will be moved
from the points of origination to demand
points
 Includes reverse logistics
 Companies analyze product/service flows by
developing flowcharts
 Transportation service planning

Important to know the modes and carriers
available at each potential location
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Developing a Logistics Strategy
 Integrating logistics with marketing into the strategic planning process
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can be a means to improve customer service and increase sales.
Two strategic orientations:
Process orientation: creating a system of only value-adding logistics
activities
Information / channel orientation: focus on coordination and control
within supply chain by synchronizing logistics activities with related
information
Important questions to ask: who are our customers how do we segment
them; what do our customers need; what are our customer service
goals for the upcoming year; what are our current capabilities
Logistics vision includes what the organization hopes to accomplish in
the future
Each option to achieve the vision should be weighed and compared
using a cost/benefit analysis
Logistics value proposition is a unique commitment of a firm to an
individual or selected customer groups.
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Order Fulfillment and Logistics
Concerns
 Legal and physical security
 Increasing customer service
requirements
 Congestion at ports
24
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