Ecommerce Chap 13

Chapter 13

Order Fulfillment, Logistics,
Supply Chain Management

1

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 3

Order Fulfillment

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

4

The Pull vs. Push Model

5

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 6

The Process of Order
Fulfillment

7

The Steps of Order
Fulfillment

1. Payment Clearance 7. Purchasing,
2. In-stock availability warehousing
3. Packaging, shipment 8. Demand forecast
4. Insuring 9. Accounting, billing
5. Production (planning, 10. Customer contacts
execution) 11. Returns (Reverse
6. Plant services logistics)

8

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?
9

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

10

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
for direct sale 11

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,
12
packaging, checking, warehousing, etc.

Components of the Supply
Chain

13

Components-Description

Upstream: Suppliers, their suppliers
Upstream
(several tiers). From Raw material to the
company
Internal: All internal process that add
Internal
value, conversion to find products
Downstream: All activities in distribution
Downstream
and delivery to end customers

14

Complex-nonlinear Supply
Chain

15

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)
16

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

17

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
18

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
19

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
20

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 21

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 22

Using Inventories

An insurance against stock out
Can be in several places
Can be excessive
Can be insufficient

Example: Littlewoods stores; UK

23

Proper SCN

Coordination is needed
Understanding of the causes/problems
Information flow is a key
Communication is important
IT is needed

24

Information Technology for SCM

Links that enable
communication/collaboration
Links the partners
Provide effective and efficient solutions
Extremely important
Need for information sharing

25

IT as problem solver
Supply Chain I T solut ion
Problem
Linear sequence of Parallel processing, using workflow s/w
processing – too slow
Waiting times between Identify reason (DSS s/w) and expedite
chain segments – communication and collaboration (Intranets,
excessive GroupWare)
Existence of non-valued Value analysis (SCM s/w), simulation s/w
added activities
Slow delivery of paper Electronic documents and communication
documents system (e.g. EDI, email)
Repeat process activities 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
27

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

28

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
29

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

30

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%

32

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

33

Software Support

SCM act ivit ies Type of sof t w are

Upstream activities Suppliers’ management,
ordering systems, order
tracking systems
I nternal supply chain - I nventory management
activities - Purchasing and order
management
- Budgeting, cost control
- Human resources information
Downstream Saleperson productivity tools,
activities online telemarketing, ad.
Management etc. 34

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. 35

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)

36

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
37
Tracking systems - available to customers

Evolution of Software
Integration
Completely Independent of each other
MRP= Material Requirements Planning:
MRP
Inventory, production
MRPII=Manufacturing Requirements
MRPII
Planning
more integrated, MRP+Finance+labor
ERP=Enterprise Resources Planning
All functional areas
Extended ERP=Include suppliers, customers
ERP 38

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
39
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
40

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

41

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
42

ASP

Leasing information systems application
Back to the days of “time sharing”
A risk prevention strategy
Very popular with ERP (expensive,
cumbersome)

43

Ecommerce Chap 13

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