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1 1 Chapter 4 Order Management& Logistics Information Systems.

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1 1 1 Chapter 4 Order Management& Logistics Information Systems

2 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

3 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

4 1 5 Important Trade-off Place/ customer service levels Product PromotionPrice Order processing and information costs Warehousing costs Transportation costs Inventory carrying costs Lot quantity costs LOGISTICS MARKETING 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.

5 5 Order Cycle: A Customer's Perspective 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 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

6 6 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

7 7 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 7 days Manufacturers control

8 8 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 Not directly under the Manufacturers control 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 6 days

9 9 Total Order Cycle with Variability 2. Order entry Frequency:.5 1 1.5 1. Order preparation and transmittal Frequency: 1 2 3 3. Order processing Frequency:.5 1 1.5 4. Order picking or packing production Frequency: 1 5 9 Frequency: TOTAL 4.5 days 13 21.5 days 5. Transit time Frequency: 1 3 5 6. Customer receiving Frequency:.5 1 1.5

10 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, Inc. publishing as Prentice Hall 7-10

11 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, Inc. publishing as Prentice Hall 7-11

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

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

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

16 16 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

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

18 Order Picking and Assembly 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 n Often represents the best opportunity to improve the effectiveness and efficiency of an order cycle n Can account for up to 2/3 of a facilitys operating cost and time n Examples of Order Picking and Assembly technology: Handheld scanners, RFID, Voice-based order picking, pick-to-light

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

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

21 21 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.

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

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

25 Supply Chain 25 ManufacturersCustomersRetailers Wholesalers/ Distributors Supplier Materials and Services Payments Information

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

27 Information about... 27 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

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29 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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31 31 IT will affect the growth and development of logistics Computers are used to support logistics activities IT & Logistics

32 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

33 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 Data Quality Factors

34 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

35 Sources of Information 35

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

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

38 38 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

39 39 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.

40 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. 40 Information flow makes a logistical system dynamic. Quality and timeliness of information are key factors in logistical operations. Bowersox and Closs

41 How Information Systems Facilitate Logistics Management 41 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

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

43 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

44 44 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

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

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

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

48 48 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. optical scannersbarcode readers Contemporary Logistics Information Technologies

49 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 Bar Coding

50 L OGISTICS M ANAGEMENT Fundamentals of Lambert Stock Ellram 50 Barcode Types Country codeFirm codeProduct codeControl digit 3 digits 4 digits (can change) 5 digits(can change) 1 digit Exp: 8699567900094

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52 52 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 Contemporary Logistics Information Technologies

53 53 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. transceiver devicetransponder integrated circuit 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.

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

55 55 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 semi- passive 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.)

56 56 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 ethylene.

57 57 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 100 times more.

58 58 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. Contemporary Logistics Information Technologies 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.

59 59 Definition of EDI Inter organizational, computer-to- computer exchange of business data in a standard, machine-processable format. Unstructured Structured FaxEDI E-MailOrder entry Person-to-personComputer-to-computer

60 60 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. Definition of EDI Levis-integrated its customer order processing system using a QR(quick response)-EDI: LeviLink

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

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

63 63 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. EDI Standarts

64 64 EDI Versus Traditional Methods PURCHASING COMPUTER Source: Margaret A. Emmelhainz, Electronic Data Interchange: A Total Management Guide (New York: Van Nostrand Reinhold, 1990), p. 5.

65 65 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.

66 66 DSS n 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

67 67 n Expert Systems Natural language recognition Neural networks

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