1. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 1 Chapter 11: Logistics and Order Fulfillment Process Management: Creating Value Along the Supply Chain (1 st edition) Wisner and Stanley

2. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 2 Chapter Outline Introduction Setting Logistics Customer Service Goals Transportation Planning and Selection The Order Fulfillment Process Warehouse Management Planning the Logistics Network Developing a Logistics Strategy Order Fulfillment and Logistics Concerns Summary

3. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 3 Learning Objectives After completing this chapter, you should be able to: Describe the elements of customer service from a logistics standpoint. Explain the role of transportation in the logistics and order fulfillment process. Identify the key activities in the order fulfillment process. Understand the importance of order cycle time to the customer.

4. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 4 Learning Objectives (cont.) After completing this chapter, you should be able to: Define the storage and handling activities that take place in a warehouse. Recognize the attributes of an effective logistics network. Describe the strategic planning process for logistics. Understand some of the concerns logistics managers face today.

5. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 5 Introduction One of the biggest opportunities for a company to create goodwill with the customer According to the Council of Supply Chain Management Professionals (CSCMP), a professional organization for Logistics and SCM professionals, logistics is defined as:Council of Supply Chain Management Professionals (CSCMP) “the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from point of origin to point of consumption for the purpose of conforming to customer requirements” The goal of logistics is to support procurement, manufacturing and customer accommodation operational requirements

6. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 6 Introduction Logistics process Transportation management: the movement of materials, and parts to a warehouse or storage facility within a manufacturing site as well as movement of finished goods to distribution centers and retails sites Order management: procurement of SKUs and processing customer orders Warehouse management: Locating and designing facilities to meet customer service levels Inventory management: Balancing inventory levels to achieve high customer service levels

7. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 7 Setting Logistics Customer Service Goals Logistics customer service: the speed and dependability with which items ordered can be made available Customer service represents logistics’ role in fulfilling the marketing concept Adds value for the seller when customers’ needs are met while minimizing costs Backorders-when customer is kept from receiving at least part of the order, requires additional tracking

8. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 8 Setting Logistics Customer Service Goals (cont’d) Availability: the capacity to have inventory when desired by a customer The traditional practice is to stock inventory in anticipation of customer orders, based on forecasted demand for products Measures of inventory management Order fill rate / line order fill rate: measures the percentage of units available to fill a specific order (being out of stock does not effect service performance until a customer demands a product) Stockouts and service level: the probability that a firm will not have inventory available to meet customer order Orders shipped complete: the most exacting measure of performance

9. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 9 Setting Logistics Customer Service Goals (cont.) Order lead time: Order cycle begins with the order placement and ends when the customer receives the order Just-in-time Customers are looking for suppliers who are flexible in meeting emergency, unexpected or unusual requests

10. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 10 Setting Logistics Customer Service Goals (cont.) Reliability: involves the combined attributes of logistics and concerns a firm’s ability to perform all order-related activities as well as provide customers with critical information regarding logistical operations and status

11. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 11 Transportation Planning and Selection Very visible elements of logistics Wide range of transportation alternatives are available A mode identifies a basic transportation method or form Modes of transportation: air, truck, pipeline, rail and water carriers Intermodal transportation: combination of two modes Piggyback: integrated rail and motor service, birdyback: cargo airplanes carry specially designed containers between airports Transit time: measured from the point where an order leaves the shipper’s dock until the time it arrives its destination Air is the fastest mode of transportation Freight rates: related to time, distance and density.

12. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 12 Transportation Planning and Selection (cont.) Carrier selection Transportation carriers: Private carriers: use of the firm’s own carriers Public carriers: use of public, for-profit transportation companies Third-party logistics providers (3PLs): provide a range of logistics services including warehousing, customs clearance, packaging, labeling Core carrier strategy: developing good working relationships with a smaller number of transportation carriers

13. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 13 Transportation Planning and Selection (cont.) Transportation routing and scheduling Important to improve the routes that vehicles travel between the network of facilities Several techniques are used to analyze the problem including linear programming simulation, heuristic approaches Day-to-day management Monitoring the performance of the carriers Transportation carrier performance metrics: rates, billing accuracy, reliable pickup/delivery, consistent service, carrier reliability, damages/loss, carrier flexibility, equipment availability, safety, special services

14. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 14 The Order Fulfillment Process Important to understand the path a customer order might take once it is placed Any interruptions during the transmittal of an order or miscommunication will increase order fulfillment time

15. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 15 The Order Fulfillment Process Customer order transmitted Customer order entered Process order Cred it OK? Cancel order No Yes In stoc k? No Backorder InvoiceShipping docs a a Pick and pack order Schedule transportation Ship order to customer Yes Figure 11.2

16. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 16 The Order Fulfillment Process Order cycle time: the elapsed time between when a customer places a purchase order and when the product is received by the customer Late orders are not considered acceptable Transportation times are the most variable in the order cycle time Causes of variability: The choice and design of the order transmittal system Inventory management policies Procedures to process orders Selection of transportation modes Priority rules: creating rules to determine the sequence in which customer orders are processed and shipped (i.e. process smaller, simpler orders first) Packaging standards: additional packaging may result in lower overall logistics costs Drop shipping: selling products to customers and then shipping the product directly to the customer, common for Internet companies Non-asset-based 3PLs: specialize in providing comprehensive information services that facilitate supply chain arrangements Asset-based 3PLs: logistics firm that owns many or all of the assets necessary to run a client's supply chain. These assets include trucks, warehouses and distribution centers, among others.

17. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 17 Warehouse Management Storage has always been an important aspect of economic development Important part of lean production and replenishment Distribution centers: serving as a point to form outbound specific product assortments which are then shipped to the customer Cross-docking Postponement : postponing the final manufacturing, labeling, or packaging of product until it is needed by the customer Reverse logistics: may be used for getting rid of damaged inventory and goods don’t sell, performing light manufacturing of recalled products and refurbishing returned items

18. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 18 Warehouse Management (cont.) Warehouse planning Warehouse vs. distribution center: Warehouse is for storage of inventory whereas DC is to keep finished product moving towards its destination Number and location of warehouses: trade-off between customer service level and number of warehouses Company should identify how many customers they have, in which locations, the service levels, and the forecasts of their buying habits Criteria in site selection: transportation costs, site costs, access to major shipping nodes, facility/operation costs, availability of workforce, potential tax incentives, impact on the environment/local community Automated storage and retrieval systems (AS/AR): moves inventory located in warehouse using robotics, conveyor belts, bar code scanning systems Warehouse management systems (WMS): computer software designed for warehousing Main uses: Order picking, receiving, put-away, stock location, work order management

19. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 19 Warehouse Management (cont.) Warehouse activities After planning managers must determine the location of inventory, stock the shelves, hire staff to work in the warehouse, setup work procedures, implement a warehouse management system Employee training Break-bulk warehousing and consolidation Three stages of warehouse material handling Receiving incoming shipments Handling while in storage Shipping

20. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 20 Planning the Logistics Network Companies must have a good understanding of their supply chains to design a logistics network that will meet their customer service goals. Logistical needs can change fairly regularly, requiring network adjustments Public warehouses: space rented for short periods of time from for-profit warehousing companies Private warehouses: companies own their own warehouses Logistics network planning involves a process of decision making in three areas: Location planning Product flow planning Transportation service planning

21. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 21 Planning the Logistics Network (cont.) Location planning making decisions with regards to the size, location and number of fixed facilities (warehouses, manufacturing plants, retail outlets, service centers) Site selection factors: land/construction costs, tax/regulations/laws, quality of life

22. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 22 Planning the Logistics Network (cont.) Product flow planning Determination of how products will be moved from the points of origination to demand points Includes reverse logistics Companies analyze product/service flows by developing flowcharts Transportation service planning Important to know the modes and carriers available at each potential location

23. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 23 Developing a Logistics Strategy Integrating logistics with marketing into the strategic planning process can be a means to improve customer service and increase sales. Two strategic orientations: Process orientation: creating a system of only value-adding logistics activities Information / channel orientation: focus on coordination and control within supply chain by synchronizing logistics activities with related information Important questions to ask: who are our customers how do we segment them; what do our customers need; what are our customer service goals for the upcoming year; what are our current capabilities Logistics vision includes what the organization hopes to accomplish in the future Each option to achieve the vision should be weighed and compared using a cost/benefit analysis Logistics value proposition is a unique commitment of a firm to an individual or selected customer groups.

24. COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. 24 Order Fulfillment and Logistics Concerns Legal and physical security Increasing customer service requirements Congestion at ports