Chapter 4 1 Order Management Logistics Information Systems

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Chapter 4 1 Order Management& Logistics Information Systems 1

Chapter 4 1 Order Management& Logistics Information Systems 1

Order Management n Order management is the activities that take place in the period

Order Management n Order management is the activities that take place in the period between the time a firm receives an order and the time a warehouse is notified to ship the goods to fill that order © Pearson Education, Inc. publishing as Prentice Hall 7 -2

Order Management n Order management refers to management of the various activities associated with

Order Management n Order management refers to management of the various activities associated with the order cycle n Order cycle (replenishment cycle or lead time) refers to the time from when a customer places an order to when goods are received n Some organizations include order to cash cycle in their order management model

1 5 Important Trade-off Price Promotion LOGISTICS Place/ customer service levels Inventory carrying costs

1 5 Important Trade-off Price Promotion LOGISTICS Place/ customer service levels Inventory carrying costs Transportation costs Lot quantity costs Warehousing costs MARKETING Product Order processing and information costs Source: Adapted from Douglas M. Lambert, The Development of an Inventory Costing Methodology: A Study of the Costs Associated with Holding Inventory (Chicago, IL: National Council of Physical Distribution Management, 1976), p. 7.

Order Cycle: A Customer's Perspective 1. Customer places order 6. Order delivered to customer

Order Cycle: A Customer's Perspective 1. Customer places order 6. Order delivered to customer 5. Order shipped to customer 2. Order received by supplier 3. Order processed 4. Order picked and packed Key: 1. Order preparation and transmittal 2. Order received and entered into system 3. Order processed 4. Order picking/production and packing 5. Transit time 6. Warehouse receiving and placing into storage Total order cycle time 2 days 1 day 5 days 3 days 1 day 13 days 5

Order Cycle: A Customer's Perspective 1. ustomer places order 6. Order delivered to customer

Order Cycle: A Customer's Perspective 1. ustomer places order 6. Order delivered to customer 5. Order shipped to customer 2. Order received by supplier 3. Order processed 4. Order picked and packed Total order cycle time Customer satisfaction 6

Order Cycle: A Customer's Perspective 1. ustomer places order 6. Order delivered to customer

Order Cycle: A Customer's Perspective 1. ustomer places order 6. Order delivered to customer 5. Order shipped to customer 2. Order received by supplier 3. Order processed 4. Order picked and packed Key: 1. Order preparation and transmittal 2 days 2. Order received and entered into system 1 day 3. Order processed 1 day 4. Order picking/production and packing 5 days 5. Transit time 3 days 6. Warehouse receiving and placing into storage 1 day Total order cycle time 13 days Manufacturer’s control 7 days 7

Order Cycle: A Customer's Perspective 1. ustomer places order 6. Order delivered to customer

Order Cycle: A Customer's Perspective 1. ustomer places order 6. Order delivered to customer 5. Order shipped to customer 2. Order received by supplier 3. Order processed 4. Order picked and packed Key: 1. Order preparation and transmittal 2 days 2. Order received and entered into system 1 day 3. Order processed 1 day 4. Order picking/production and packing 5 days 5. Transit time 3 days 6. Warehouse receiving and placing into storage 1 day Total order cycle time 13 days Not directly under the Manufacturer’s control 6 days 8

Total Order Cycle with Variability 1. Order preparation and transmittal 2. Order entry 3.

Total Order Cycle with Variability 1. Order preparation and transmittal 2. Order entry 3. Order processing 4. Order picking or packing production Frequency: 1 2 . 5 3 1 5. Transit time 6. Customer receiving Frequency: 1 3 5 . 5 1 1. 5 1 5 9 TOTAL Frequency: 1. 5 4. 5 days 13 21. 5 days 9

Order Processing n Order processing refers to the time from when the seller receives

Order Processing n Order processing refers to the time from when the seller receives an order until an appropriate location (i. e. warehouse) is authorized to fill the order © Pearson Education, 7 -10 Inc. publishing as

Order Processing n Order processing includes: – Checking for completeness and accuracy – A

Order Processing n Order processing includes: – Checking for completeness and accuracy – A customer credit check – Order entry into the computer system – Marketing department credits salesperson – Accounting department records transaction – Inventory department locates nearest warehouse to customer and advises them to pick the order – Transportation department arranges for shipment © Pearson Education, 7 -11 Inc. publishing as

Typical Elements of Order Processing Order Preparation • Requesting product and services Order Transmission

Typical Elements of Order Processing Order Preparation • Requesting product and services Order Transmission Order Entry • Transfer order information • Stock checking • Accuracy checking • Credit checking • Back ordering/order cancelling • Transcripting • Billing to supplier Order Delivery Order Status Reporting • Tracing and tracking • Communicating with customer on order status. Order Shipment Order Filling • Product retrieval, production or purchase • Packing • Scheduling for delivery • Shipping document preparation 12

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Flowchart of Order Processing System © Pearson Education, 7 -14 Inc. publishing as

Flowchart of Order Processing System © Pearson Education, 7 -14 Inc. publishing as

Order Preparation § § § Products and services information Determining vendor Filling out an

Order Preparation § § § Products and services information Determining vendor Filling out an order form Determining stock availability Communicating order information 15

Order Transmission § Transfering the order request from origin to the destination. § Order

Order Transmission § Transfering the order request from origin to the destination. § Order transmission is the series of events that occur between the time a customer places or sends an order and the time the seller receives the order § Methods of order transmittal (manually or electronically) § In person, Mail, Telephone, FAX, EDI 16

Order Entry § § § Checking the accuracy of the order information Checking the

Order Entry § § § Checking the accuracy of the order information Checking the availability of the requested items Preparing back-order or cancellation order Checking customer’s credit status Billing 17

Order Picking and Assembly n n Order picking and assembly includes all activities from

Order Picking and Assembly n n Order picking and assembly includes all activities from when an appropriate location is authorized to fill the order until goods are loaded aboard an outbound carrier Often represents the best opportunity to improve the effectiveness and efficiency of an order cycle Can account for up to 2/3 of a facility’s operating cost and time Examples of Order Picking and Assembly technology: Handheld scanners, RFID, Voice-based order picking, pick-to-light

The 800, 000 sq ft DC is one the largest of Amazon's six in

The 800, 000 sq ft DC is one the largest of Amazon's six in the UK Amazon distribution center in Swansea, south Wales 19

Monday will be the UK's busiest online shopping day of the year with over

Monday will be the UK's busiest online shopping day of the year with over 2 million orders expected to be made 20

Order Status Reporting § Ensures good customer services § Customer informated of any delay

Order Status Reporting § Ensures good customer services § Customer informated of any delay or delivery of the order § Tracing and tracking the order § Communicating with the customer about where the order may be in the order cycle and when it may be delivered. 21

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Order Delivery n Order delivery is the time from when a carrier picks up

Order Delivery n Order delivery is the time from when a carrier picks up the shipment until it is received by the customer.

Main Flows • • Materials Services Information (Cash-Payment) Not main but supporting) 24

Main Flows • • Materials Services Information (Cash-Payment) Not main but supporting) 24

Supply Chain Supplier Manufacturers Wholesalers/ Distributors Retailers Customers Materials and Services Payments Information 25

Supply Chain Supplier Manufacturers Wholesalers/ Distributors Retailers Customers Materials and Services Payments Information 25

The Five Major Supply Chain Drivers 2. INVENTORY 1. PRODUCTION How much to make

The Five Major Supply Chain Drivers 2. INVENTORY 1. PRODUCTION How much to make and how much to store What, how, and when to produce 5. INFORMATION The bests for making these decisions. 4. TRANSPORTATION 3. LOCATION How, and when to move product Where best to do what activity 26

Information about. . . • Purchasing order information • Forecast/POS data • Advance ship

Information about. . . • Purchasing order information • Forecast/POS data • Advance ship notice • Bill of lading • Shipment status • Invoice • Freight details • • Production planning Customers Return goods Parts, service and support • Packaging • Transportation • Purchasing all logistical activities 27

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Data Raw facts about people, places, events, and things that are of importance in

Data Raw facts about people, places, events, and things that are of importance in an organization. Each fact is, by itself, relatively meaningless. 29

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IT & Logistics § IT will affect the growth and development of logistics §

IT & Logistics § IT will affect the growth and development of logistics § Computers are used to support logistics activities 31

Data Quality Factors § Accuracy § Whether the value of each item of data

Data Quality Factors § Accuracy § Whether the value of each item of data is correct § Timeliness § Whether the data are up-to-date § Consistency § Whether the data in one part of the database have a common, appropriate set of controls to related concepts stored elsewhere 32

Data Quality Factors § Transparency of meaning § Whether the context for the data

Data Quality Factors § Transparency of meaning § Whether the context for the data is clearly and commonly understood by all those with a legitimate interest § Availability § Whether the people who need the data can actually access it 33

Information § Data that has been processed or reorganized into a more meaningful form

Information § Data that has been processed or reorganized into a more meaningful form for someone. § Information is formed from combinations of data that hopefully have meaning to the recipient. 34

Sources of Information 35

Sources of Information 35

System § A set of elements considered to act as a single goal-oriented entity.

System § A set of elements considered to act as a single goal-oriented entity. § Components § Boundary § Purpose § Environment § Interfaces § Constraints § Input § Output 36

System Environment Vendors Input Processes Outputs Raw materials Costs Resources Procedures Programs Tools Activities

System Environment Vendors Input Processes Outputs Raw materials Costs Resources Procedures Programs Tools Activities Decisions Performances Consequences Finished products Services delivered Decision Maker System boundary Goverment Stockholders Banks Weather Conditions Supplier Customers Feedback Competitors The System and Its Environment Turban, Decision Support Systems and Intelligent Systems, 7/E 37

Decision Support System (DSS) DSS is an integrative system of subsystems that has the

Decision Support System (DSS) DSS is an integrative system of subsystems that has the purpose of providing information to aid a decision maker in making better choices than would otherwise possible 38

Decision Support Systems in Logistics § To assist logistics executives in their decision process.

Decision Support Systems in Logistics § To assist logistics executives in their decision process. § To support, but not replace, managerial judgment. § To improve the effectiveness of logistics decision. 39

Logistics Information System An interacting structure of people, equipment, and procedures which together make

Logistics Information System An interacting structure of people, equipment, and procedures which together make relevant information available to the logistics manager for the purposes of planing, implementing and control. Information flow makes a logistical system dynamic. Quality and timeliness of information are key factors in logistical operations. Bowersox and Closs 40

How Information Systems Facilitate Logistics Management • • • Decide when, what to produce,

How Information Systems Facilitate Logistics Management • • • Decide when, what to produce, store, move Rapidly communicate orders Communicate orders, track order status Check inventory availability, monitor levels Track shipments Plan production based on actual demand Rapidly communicate product design change Provide product specifications Share information about defect rates, returns 41

Logistics Information System LIS combine hardware and software to manage, control, and measure logistics

Logistics Information System LIS combine hardware and software to manage, control, and measure logistics activities. Computers Servers Internet technologies Input and output devices Communication channels Barcode, RF, storage media System and application programs 42

Logistics Information System § LIS perform three vital roles in business firms. – Logistics

Logistics Information System § LIS perform three vital roles in business firms. – Logistics processes and operations, – Logistics decision making; and – Strategic competitive advantage § Major application categories of information systems include: – Operations Support Systems; and – Management Support Systems 43

Logistics Information System § LIS Benefits § Increased product visibility and control § Improved

Logistics Information System § LIS Benefits § Increased product visibility and control § Improved knowledge of key logistics network component capabilities and capacity § Enhanced economic value § Cost reductions § Sales increases § Creation of competitive advantage § Direct linkages to customers 44

Overview of Logistics Information System Internal Finance/Accounting Marketing Logistics Manufacturing Purchasing Order Management System

Overview of Logistics Information System Internal Finance/Accounting Marketing Logistics Manufacturing Purchasing Order Management System • Contact with customer • Stock availability • Crediting checking • Invoicing • Product allocation to customer • Fulfillment location LIS Warehouse Management System ·Stock level management ·Order picking ·Picker routing ·Picker assignments and work loading ·Product availability estimating External Customers Vendors Carriers Supply chain partners Transportation Management System ·Shipment consolidation ·Routing and scheduling ·Claims ·Tracking ·Bill payment ·Freight bill auditing 45

Order processing system • Customer location • Order history • Salesperson • Revenues •

Order processing system • Customer location • Order history • Salesperson • Revenues • Order status Management • Competitive reactions • Sales forecasts • Future trends • New markets Operating data • Freight payment • Transportation history • Inventory • Credit files • Product movement Industry/external data • Market share • Product offering • Demographic trends • Economic trends Company records • Cost of capital • Cost of logistics activities • Standart costs Logistics Database Report generation • Order performance • Shipment performance • Damages and returns • Product traking and forecasting • Performace and cost reports 46

Technologies in LIS Bar code n Point-of-Sale ( POS) n EDI n RF-RFID n

Technologies in LIS Bar code n Point-of-Sale ( POS) n EDI n RF-RFID n 47

Contemporary Logistics Information Technologies Bar Coding § barcodes stored data in series of parallel

Contemporary Logistics Information Technologies Bar Coding § barcodes stored data in series of parallel black and white bars of various widths and spacing. They can be read by optical scanners called barcode readers or scanned from an image by special software. 48

Bar Coding § The Universal Product Code (UPC) is a specific type of barcode,

Bar Coding § The Universal Product Code (UPC) is a specific type of barcode, that is widely used in the United States and Canada for tracking trade items in stores. § Turkey code: 869 § Code 128, Code 39 § EAN Code(International Article Number)Europe and Turkey § TOBB, Milli Mal Numaralandırma Merkezi 49

Barcode Types Fundamentals of LOGISTICS MANAGEMENT Lambert Stock Ellram Country code Firm code Product

Barcode Types Fundamentals of LOGISTICS MANAGEMENT Lambert Stock Ellram Country code Firm code Product code Control digit 3 digits 4 digits (can change) 5 digits(can change) 1 digit Exp: 869 9567 90009 4 50

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Contemporary Logistics Information Technologies Point of Sales Data § Technology that allows firms, in

Contemporary Logistics Information Technologies Point of Sales Data § Technology that allows firms, in real time, to know what and where an item is being sold through scanning of individual barcodes when an item purchased at the retail level. § Using this information, product forecasting, make better purchase decision and customization, and reduce the chance that an item will be out of stock. § Zara-POS usage 52

RFID n RFID system consists of an antenna and a transceiver, which read the

RFID n RFID system consists of an antenna and a transceiver, which read the radio frequency and transfer the information to a processing device, and a transponder, or tag, which is an integrated circuit containing the RF circuitry and information to be transmitted. n RFID systems can be used just about anywhere, from clothing tags to missiles to pet tags to food -- anywhere that a unique identification system is needed. 53

Contemporary Logistics Information Technologies Radio Frequency Identification (RFID) § Yard, Warehouse & Factory Management,

Contemporary Logistics Information Technologies Radio Frequency Identification (RFID) § Yard, Warehouse & Factory Management, Transportation Management § Item-level tracking § Automatic Non-Line-of-Sight Scanning 54

n RFID tags come in three general varieties: passive, active, or semi-passive (also known

n RFID tags come in three general varieties: passive, active, or semi-passive (also known as battery-assisted). n Passive tags require no internal power source-only active when a reader is nearby to power them, whereas semipassive and active tags require a power source, usually a small battery. n Passive tags have practical read distances ranging from about 10 cm (4 in. ) 55

Active Tags n Active tags typically have much longer range and larger memories than

Active Tags n Active tags typically have much longer range and larger memories than passive tags, as well as the ability to store additional information sent by the transceiver. n Some active RFID tags include sensors such as temperature logging which have been used to monitor the temperature of fresh produce or certain pharmaceutical products. n Other sensors that have been married with active RFID include humidity, shock/vibration, light, radiation, temperature, and atmospherics like 56 ethylene.

Semi-passive Tags n Semi-passive tags are similar to active tags in that they have

Semi-passive Tags n Semi-passive tags are similar to active tags in that they have their own power source, but the battery only powers the microchip and does not broadcast a signal. n The RF energy is reflected back to the reader like a passive tag. An alternative use for the battery is to store energy from the reader to emit a response in the future. n Greater sensitivity than passive tags, typically 57 100 times more.

Contemporary Logistics Information Technologies Radio Frequency (RF) § Relay information via electromagnetic energy waves

Contemporary Logistics Information Technologies Radio Frequency (RF) § Relay information via electromagnetic energy waves from a terminal to a base station, which is linked in turn to a host computer. § Typically used in a warehouse or distribution center, RF technologies provide the communications capability between operating personel (e. g. Fork lift drivers, loading dock personnel, etc. ) and centralized computer capabilities. 58

Definition of EDI § Inter organizational, computer-tocomputer exchange of business data in a standard,

Definition of EDI § Inter organizational, computer-tocomputer exchange of business data in a standard, machine-processable format. Unstructured Fax E-Mail Person-to-person Structured EDI Order entry Computer-to-computer 59

Definition of EDI The purpose of EDI is to eliminate dublicate data entry and

Definition of EDI The purpose of EDI is to eliminate dublicate data entry and to improve the speed and accuracy of information flow by linking computer applications between companies. §Levi’s-integrated its customer order processing system using a QR(quick response)-EDI: Levi. Link 60

Definition of EDI Transfer of structured data, by agreed message standards from one computer

Definition of EDI Transfer of structured data, by agreed message standards from one computer system to another without human intervention. n Cheques, bill of lading n 61

Types of EDIs n n n Proprietary Systems (One to Many) involve an EDI

Types of EDIs n n n Proprietary Systems (One to Many) involve an EDI system which is owned, managed, and maintained by a single company Value-added Networks (Many to Many) includes a third party firm that acts as a central clearinghouse Industry Associations have their own EDI standards 62

EDI Standarts § For EDI to function properly, computer language compatibility is required. §

EDI Standarts § For EDI to function properly, computer language compatibility is required. § Users must have common communication standards. § Trading partners must have common definition words, codes and symbols; and a common format and order of transmission. 63

EDI Versus Traditional Methods BUYER'S COMPUTER PO POST OFFICE ORDER ENTRY PO SELLER'S COMPUTER

EDI Versus Traditional Methods BUYER'S COMPUTER PO POST OFFICE ORDER ENTRY PO SELLER'S COMPUTER EDI FLOW PURCHASING BUYER'S PURCHASING APPLICATION SELLER'S ORDER ENTRY APPLICATION 64 Source: Margaret A. Emmelhainz, Electronic Data Interchange: A Total Management Guide (New York: Van Nostrand Reinhold, 1990), p. 5.

The Benefits of EDI Comparing with non-electronic communication § § § § § Quick

The Benefits of EDI Comparing with non-electronic communication § § § § § Quick access to information, Better customer services, Reduced paperwork, Better communications, Increased productivity, Improved tracing and tracing, Cost efficiency, Competitive advantage, Improved billing. 65

DSS Modeling-simulation( what if games) n Artificial intelligence(AI): an comprehensive term that involves voice

DSS Modeling-simulation( what if games) n Artificial intelligence(AI): an comprehensive term that involves voice synthesis and recognition, game playing systems, robotics, natural language translators and expert systems(ES) n Benetton-POS-EDI-AI n 66

n Expert Systems Natural language recognition Neural networks 67

n Expert Systems Natural language recognition Neural networks 67