SCM - Order Fulfilment Process
Managing material flow
How does it create value?
- Time: Buffering time between production and
consumption - Distance: Spanning the location of production and
consumption - Quantity/Assortment:
Producers specialize in large quantities
of a limited assortment
Consumers seek small quantities and
wide assortment
Order fulfillment
Three functions are responsible:
- Purchasing or Materials Management – acquires the
inputs used to support production (or other value-adding
activities) - Production or Operations Management – converts inputs
into outputs that customers value - Logistics Management – stores and transports goods
between stages
Different production strategies
Bullwhip effect
Three characteristics
- amplification of orders through the chain,
- time lag in response and
- oscillation of order pattern.
Causes
- Demand forecast error
- Order batching
- Price fluctuation
- Rationing and shortage gaming
Combating
- Eliminate all time delays
- Remove intermediate echelons
- Share sales, capacity and inventory data with upstream members
- Reallocate roles in the supply chain
Vendor Managed Inventory (VMI)
Continuous Replenishment (CRP) - Eliminate order batching by reducing order costs
Use EDI/internet and standardize ordering processes
Innovative transportation (3PL) – combined truck loads - Avoid price discounting and volume discounting
Every day low prices (EDLP) - Eliminate shortage gaming in shortage situations
Allocate product based on past sales not on current orders
Long term contracting to allow vendors to adjust capacity
Eliminate generous return and order cancellation policies
Factors that determine position CODP
- Market characteristics
Requirements on lead time, product quality, flexibility
Demand uncertainty, Assortment - Product characteristics
Options for modular products
Perishability of products - Production and distribution characteristics
Production time, distribution time, frequency, flexibility
Supply uncertainty, transport unit & mode
Logistics decision making
Inventory management
Purpose of holding inventory
- To maintain independence of operations
- To meet variation in product demand
- To allow flexibility in production scheduling
- To provide a safeguard for variation in raw material delivery time
- To take advantage of economic purchase-order size
- Anticipation inventory for future demand
Types of inventory
- Cycle inventory results when, in order to reduce unit purchase costs (or increase production efficiency), the number of units purchased (or produced) is greater than the firm’s immediate needs.
- Safety inventory is to deal with the variability in the experienced consumer demand or potential transport delays.
- In-transit (pipeline) inventory is created by materials moving
forward through the value chain; these are products that are ordered but not yet received. - Seasonal (or anticipatory) inventory is used to help the supply
chain deal with predictable variability in demand - Decoupling inventory is required between adjacent processes or operations whose production rates cannot be synchronised; it allows each process to operate as planned.
- Inventory Management involves 2 questions:
- How much inventory should be ordered?
- When should orders be placed?
- Two basic models address these questions:
- Fixed order quantity – orders the same quantity at different intervals
- Fixed order interval – orders different quantities at fixed intervals
Distribution management
Activities in DC
- Packaging
- Material handling
- Warehousing
- Inventory control
- Order processing and transportation
Transportation management
Factors affecting transportation
- Geography (e.g., distance, accessibility)
- Type of product (e.g., perishability)
- Economies of scale (e.g., shipment size)
- Infrastructure availability (e.g., availability of ports or inland waterways)
- Competition and regulation (e.g., tariffs,
security regulations)