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:
  1. How much inventory should be ordered?
  2. When should orders be placed?
  • Two basic models address these questions:
  1. Fixed order quantity – orders the same quantity at different intervals
  2. 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)