Topic 3 (Fulfilling Orders)

Fulfilling Orders
Topic 3
Fulfilling Orders
• “In retailing, the biggest single customer-service complaint is not
having the item. If Kohl’s is promoting Dockers at 25% off this week,
you’d better believe the pants will be in stock. Otherwise, it’s like
inviting someone into your house and not offering him a seat.”
• Kohl’s Executive
The Deliverables of an Order Fulfillment
System
• Product availability (stockout frequency, fill rate, order shipped
complete)
• Timely (fast, consistent, flexible)
• Transparent, reliable service
• Service recovery
• Efficient operations
The Complete Order Cycle
• 1) Recognition of need
• 2) Order preparation
• 3) Order transmittal
• 4) Order receipt
• 5) Order processing
• 6) Order preparation
• 7) Order shipment
• 8) Order receipt
Mapping the order delivery cycle: The SCOR
model.
• The SCOR model defines four distinct delivery process:

• D1 – Deliver stocked product
• D2 – Deliver made to order product
• D3 – Deliver engineered to order product
• D4 – Deliver retail product
D1 – Deliver Stocked Product
• D1.1 – Process inquiry and quote
• D1.2 – Receive, enter and validate order
• D1.3 – Reserve inventory and determine delivery date
• D1.4 – Consolidate order
• D1.5 – Plan and build loads
• D1.6 – Route shipments
• D1.7 – Select carriers and rate shipments
• D1.8 – Receive product from source or make
D1 – Deliver Stocked Product….
• D1.9 – Pick product
• D1.10 – Pack product
• D1.11 – Load product and generate shipping documents
• D1.12 – Ship product
• D1.13 – Receive and verify product by customer
• D1.14 – Install product
• D1.15 – Invoice
Components of Order Processing
• The components of order processing may be broken down into three
groups:
• 1) Operational elements, such as order entry / editing, scheduling,
order shipping set preparation, and invoicing;
• 2) Communication elements, such as order modification, order status
inquiries, tracing and expediting, error correction, and product
information requests; and
• 3) Credit and collection elements, including credit checking and
accounts receivable processing / collecting.
Automation in Order Processing
• In many case, orders can be transmitted from a buyer’s computer directly
to a seller’s computer; this is referred to as electronic data interchange
(EDI) such as “Quari”. Order can also be placed via other electronic
means such as the Internet or fax machine.
• Computerized systems, although initially expensive to the company, can
substantially improve both order-processing accuracy and response time.
• Frequently, saving in other logistics expense (e.g. inventory,
transportation, warehousing) or increased sales from improved customer
service will justify the cost of the computerized order-processing system.
How do customer order enter the firm’s order
processing function?
• Methods of order entry – traditionally, customer wrote down order

and gave them to salespeople or mailed them to supplier.
• Electronic methods of order entry – companies are making it possible
for customer to place their orders using internet. There is a direct
trade-off between inventory carrying costs and communications cost.
The Communications Function
• Advance order processing systems

• Inside sales/telemarketing
• Electronics data interchange
Advance order processing systems
• At one level of advanced order processing systems, customers and
salespeople transmit order to distribution centers or corporate
headquarters via a toll-free number.
• The order clerk is equipped with a data terminal and can both enter
and access information in real time.
• As soon as order clerk enters the customer code, the order format
including the customer’s name, billing address, credit code and
shipping address is displayed on the screen.
• The clerk receives the rest of the order information verbally and enters
it on the terminal; it is displayed along with the header information.
Inside sales/telemarketing
• It enable the firm to

• 1) maintain contact with existing customers who are not large enough
to justify frequent sales visits;
• 2) increase contact with large, profitable customers; and
• 3) efficiently explore new market opportunities
Electronics data interchange (EDI)
• EDI can be defined as “the inter-organizational exchange of business

documentation in structured, machine processable form” or simply one
computer communicating directly with another computer.
• Since EDI transmissions are computer to computer, fax transmissions do not
qualify. Also, the transmission is of standard business documents or forms.
Thus, sending informal e-mail messages does not fit the definition od EDI.
• EDI transmission allow a document to be directly processed and acted on
by the receiving organization. Depending on the sophistication of the
system, there may be no human intervention at receiving end. EDI
specifically replaces more traditional transmission of documents, such as
mail, telephone and fax.
Integrating Order Processing and the Company’s
Logistics Management Information System
• The order processing system initiates such logistics activities as:-
• 1) Determine the transportation mode, carrier and loading sequence.
• 2) Assigning inventory and preparing picking and packing lists.
• 3) Carrying out a warehouse picking and packing lists.
• 4) Updating the inventory file, subtracting actual products picked
• 5) Automatically printing replenishment lists
• 6) Preparing shipping documents (b/ls)
• 7) Shipping the product to the customer
Consumer Reaction to Stock-outs
• Consumers possible reactions to a stock-out at the retail level.
• For example, a consumer enters a retail store to purchase Ivory
shampoo for normal hair in a 1.5 lit bottle. If the item is unavailable,
the customer can go to another store to purchase the product. It may
not worth making such a trip for a bottle of shampoo, but there are a
number of products for which customer are willing to switch stores.
Providing post-sales Customer Service
• 1) Technical information
• 2) Product support
• 3) Warranty
• 4) Spare parts
• 5) Returns
The Cost of Order Fulfillment Failures
• The cost of Stock-outs

• The cost of Supply Chain Glitches
The Cost of Stock-outs
• Back order (you ship whatever your have and the rest send later,
customer still like to deal with company)
• Lost sales (customer switch to competitor to buy selected product)
• Lost customer (customer completely don’t want to deal with
company)
Stock-out Cost
• What is the true stock-out cost? To figure this out, follow this three
steps process:
• Step 1: Estimate customer response
• Step 2: Estimate consequence costs
• Step 3: Calculate the expected stock-out cost
The cost of supply chain glitches
• Supply chain glitches, including order fulfillment failures, can incur
more wide-ranging costs than those described previously.
• Perhaps more important, glitches influence stock price valuations.
• Put simply, it doesn’t matter where the problem occurs or what the
cause is, supply chain failures that undermine reliable delivery
damage reputation and undermine stock price.
The End
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Fulfilling Orders

• The SCOR model defines four distinct delivery process:

• Methods of order entry – traditionally, customer wrote down order

• Advance order processing systems

• It enable the firm to

• EDI can be defined as “the inter-organizational exchange of business

• The cost of Stock-outs

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