Order fulfillment

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Business logistics
Distribution methods
Management systems
Industry classification
Delivery lead time is the blue bar, manufacturing time is the whole bar, the green bar is the difference between the two.

Order fulfilment (in

distribution
or the logistics function. In the broader sense, it refers to the way firms respond to customer orders.

Classification

The first research towards defining order fulfilment strategies was published by Hans Wortmann,[1] and was continued by Hal Mather[2] in his discussion of the P:D ratio, whereby P is defined as the production lead time, i.e. how long it takes to manufacture a product, and D is the demand lead time. D can be viewed as:

  1. The lead time quoted by the firm to the customer
  2. The lead time the customer wishes it was
  3. The competitive lead time

Based on comparing P and D, a firm has several basic strategic order fulfilment options:[3]

  • Formula 1
    cars.
  • Build-to-order (BTO); syn: Make-to-Order (MTO) - (D>P) Here, the product is based on a standard design, but component production and manufacture of the final product is linked to the order placed by the final customer's specifications; this strategy is typical for high-end motor vehicles and aircraft.
  • Assemble-to-order (ATO); syn: Assemble-to-request - (D<P) Here, the product is built to customer specifications from a stock of existing components. This assumes a modular product architecture that allows for the final product to be configured in this way; a typical example for this approach is Dell's approach to customizing its computers.
  • grocery and retail
    sectors.
  • research papers
    .

Processes

In the broader sense, the possible processes in a logistic-production system are:[4]

  1. Product enquiry – Initial enquiry about offerings, visit to the web-site, catalogue request
  2. Sales quote
     – Budgetary or availability quote
  3. Order configuration – Where ordered items need selection of options or order lines need to be compatible with each other
  4. Order booking – The formal order placement or closing of the deal (issuing by the customer of a
    Purchase Order
    )
  5. Order acknowledgment/confirmation – Confirmation that the order is booked and/or received
  6. Invoicing
    /billing     – The presentment of the commercial invoice/bill to the customer
  7. Order sourcing/planning – Determining the source/location of item(s) to be shipped
  8. Order changes – Changes to orders, if needed
  9. Order processing – Process step where the distribution center or warehouse is responsible to fill order (receive and stock inventory, pick, pack and ship orders).
  10. Shipment
     – The shipment and transportation of the goods
  11. Track and trace – Determine the current and past locations of the goods during transit
  12. Delivery – The delivery of the goods to the consignee/customer
  13. Settlement – The payment of the charges for goods/services/delivery
  14. Returns
     – In case the goods are unacceptable/are not required

Strategic importance

The order fulfilment strategy also determines the de-coupling point in the supply chain,

Demand chain management) elements of the supply chain meet. The decoupling point always is an inventory buffer that is needed to cater for the discrepancy between the sales forecast and the actual demand (i.e. the forecast error). Typically, the higher the P:D ratio, the more the firm relies on forecasts and inventories. Hal Mather suggests three ways to tackle this "planning dilemma":[2]

  1. Improve
    forecasting accuracy
  2. Provide for flexibility
  3. Build a process to recognize forecasting errors and quickly correct production planning

It has become increasingly necessary to move the de-coupling point in the supply chain to minimise the dependence on the forecast and to maximise the reactionary or demand-driven supply chain elements. This initiative in the distribution elements of the supply chain corresponds to the

Just-in-time initiatives pioneered by Toyota.[2]

The order fulfilment strategy has also strong implications on how firms customize their products and deal with product variety.

mass customisation strategies. The decoupling point can place a much stronger emphasis on the supply chain based on the process as well as the nature of supply chain configurations.[7]

See also

References

  1. ^ J.C. Wortmann, Chapter: "A classification scheme for master production schedule", in Efficiency of Manufacturing Systems, C. Berg, D. French and B. Wilson (eds) New York, Plenum Press 1983
  2. ^ a b c Hal Mather, Competitive manufacturing, Prentice Hall 1988
  3. ISBN 0-538-07461-2
  4. ^ Keely L. Croxton. (2003) "The Order Fulfillment Process", International Journal of Logistics Management, The, Vol. 14 Iss: 1, pp.19 - 32
  5. ^ Oden, H. W., Langenwalter, G. A., Lucier, R. A. (1993) Handbook of material and capacity requirements planning McGraw-Hill, Inc.
  6. ^ Holweg, M. and Pil, F.K. (2001) "Successful build-to-order strategies start with the customer." MIT Sloan Management Review, 43. pg 74-83
  7. ^ Guven-Uslu, P., Chan, H.K., Ijaz, S., Bak, O., Whitlow, B. and Kumar, V., 2014. In-depth study of ‘decoupling point’as a reference model: an application for health service supply chain. Production Planning & Control, 25(13-14), pp.1107-1117.
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