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Chapter 13

Order Fulfillment, Logistics,


Supply Chain Management

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

Order Fulfillment
Taking orders may be the easiest part
Difficulties in groceries and fresh food
One reason: Customized products
Second: Pull type manufacturing

The Pull vs. Push Model

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

The Process of Order


Fulfillment

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)

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, checking, warehousing, etc.

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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
Peoples 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
(contd)

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 Kozmos 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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