fulfilling a customers order
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Fulfilling a Customer·s OrderFulfilling a Customer·s Order
Prof. Rushen Chahal
Introduction to e-Business
Prof. Rushen Chahal
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Lesson ObjectivesLesson Objectives
y To list the steps for fulfilling a customer·s
order
y To understand and use logistics/e-logistics
y To compare and contrast e-logistics with
the traditional retail model
y To identify key areas of profitability for
different types of e-tailers
y To understand and solve logistic problems
unique to e-tailers
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Order Fulfillment and Logistics:Order Fulfillment and Logistics:
An OverviewAn Overview
y Overview of Order Fulfillmentorder fulfillment
All of the activities needed to provide customers
with ordered goods and services, including relatedcustomer services
back-office operations
The activities that support fulfillment of sales, such
as accounting and logisticsfront-office operations
The business processes, such as sales andadvertising, that are visible to customers
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II -- Order Fulfillment = LogisticsOrder Fulfillment = Logistics
y Logistics ² the planning of the process of
moving product from vendor to customer.
Order fulfillment is part of logistics and isoften used interchangeably. In the case of e-
tailing, it is called ́ e-logistics.µ
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IIII -- Order Fulfillment ProcessOrder Fulfillment Process
y Once a customer decides to purchase a
product using e-services, the process is
switched to ́ back-office operationsµ
y Each step of the process is not always
dependent on the previous step, but can
be simultaneous with or occurring before
a previous step.y Only a few logistical plans will include all
9 steps
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9 Steps of e9 Steps of e--logisticslogistics
y 1 ² Arrange a method of payment
y 2 ² Check product availability
y 3 ² Arrange shipments
y 4 ² Insurance
y 5 ² Replenishment
y 6 ² In-house production
y 7 ² Suppliersy 8 ² Contact with customers
y 9 ² Returns
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Step 1: Arrange a method of payment.Step 1: Arrange a method of payment.
y Possible payment methods:
At the time of order: e-payment (e.g. PayPal,
Alipay), credit card
At the time of delivery: COD
Chinese e-tailer payment troubles
y For electronic payments, a system of
verification of payment is needed beforeshipping
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Step 2: Check product availabilityStep 2: Check product availability
y If possible, inform
customer of
availability beforeorder is placed.
y If out of stock or the
product will take
time to manufacture,inform customer of
the delay.
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Step 3: Arrange shipmentsStep 3: Arrange shipments
y Electronic shipping ² quick and immediate
y Physical product ² determine best shippingmethod for level of service
y Logistics for shipping is the step that pure e-tailers need to focus on. This step can eat into
profits quickly if the shipping process is notefficient.
y It is the biggest daily activity (labor, energy, money,
etc.) for e-tailers. E.g. Amazon.com ² Majority of 17,000 employees work in the fulfillment process.On its busiest day of 2007, Amazon shippedalmost 4 million items.
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Step 4: InsuranceStep 4: Insurance
y This option needs to be available for
customers since product can be lost or
damaged in the shipping process.
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Step 5: ReplenishmentStep 5: Replenishment
y This is an overview step. It should be
examining all aspects of physical inventory
at a location and reordering as needed:
Product ² product sitting on shelves or
material to manufacture product
Non-product ² shipping materials, parts for
machines in process, items that are part of theshipping process (scanners, totes, carts, etc.)
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Step 6: InStep 6: In--house productionhouse production
y Pure e-tailers (e.g. taobao.com) don·t have in-house
production. They order from other suppliers.
y Manufacturing e-tailers need to focus most on this
step of logistics to insure the highest profitability.y If shipped from manufacturing site, the e-tailer
should keep stock low and aim for ́ just-in-timeµ
production.
y
If shipped from another site, the e-tailer shouldfollow traditional logistic model.
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Step 7: SuppliersStep 7: Suppliers
y All e-tailers use suppliers:
Manufacturers get raw material or partially
assembled product
Retailers get product from manufacturers
y E-tailers may or may not store product
High run items are best kept in stock
Low run items are best provided fromsupplier as needed
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Step 8: Contact with customerStep 8: Contact with customer
y With an invisible process (back-door
operations), the customer needs to be
informed as much as possible.
y Most common types of communication:
Order confirmation
Payment success
Shipping confirmation Tracking information
Any problems in the process
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Step 9: ReturnsStep 9: Returns
y The flow of product from customer back
to the vendor is called reverse logistics.
y Possible reasons for customers to return
or exchange product:
Damaged
Doesn·t work
Don·t like it Wrong product/type/color
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Where planning each step is activeWhere planning each step is active
y Before customer starts shopping
Steps 6, 7
y While customer shops online
Steps 1-4, 8
y After customer is done shopping
Steps 8, 9
y At all times
Step 5
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IIIIII ² ² Differences with traditional logisticsDifferences with traditional logistics
Traditional E-logistics
Product availability Immediate Immediate ±
downloadable product
& some services
Delay ± physicalproducts
Customers A few loyal/repeat
customers to the same
store
Many anonymous/
unknown customers
Demand type Push Pull
Distribution Bulk, large, volume to
retail outlets
Small, individual parcel
directly to consumer
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Differences with traditional logisticsDifferences with traditional logistics ² ²
cont·d.cont·d.
Traditional e-logistics
Nature of demand Stable with mild
fluctuations for
holidays
Seasonal, fragmented
Communication ±
inventory &
accountability
Unidirectional, from
start to finish
Bidirectional, each step is
informing previous and
next
Transporter The company -Outsourced (FedEx, UPS,
etc.) or
-Special delivery service
(Kozmo.com,
Groceryworks)
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IVIV ² ² Problems with eProblems with e--logisticslogistics
y Problems that are inherent with traditionallogistics are magnified with e-logistics sincemost businesses are organized for traditionalbulk delivery Inventory costs
Quality problems, inspections
Wrong product received, shipped out
Wrong type of material (for manufacturing)
Cost for next-day delivery
y Demand forecasting ² guessing how much willbe ordered at a certain time and stockingappropriately
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Problems with eProblems with e--logisticslogistics ² ² cont·d.cont·d.
y Reasons for trouble with demandforecasting Growth ² a growing business is harder to predict that a stable one
Global market ² product is offered to the world, so anyone canorder. May have unexpected rush
Economic conditions
Many other influences
y Variable delivery times
y Third-party logistic suppliers (3PL) Expensive
Might be unfamiliar with e-business
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VV ² ² Solutions for eSolutions for e--logisticslogistics
y Warehouse management system (WMS)
² a tool that integrates the entire process
Product handled from arrival in building unto
shipment to the customer
WMS can automate where to place product,
instead a stower spending time searching for a
place
Even non-inventory can be monitored and
restocked automatically
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Solutions for eSolutions for e--logisticslogistics ² ² cont·dcont·d
y WMS ² cont·d
RFID ² Radio frequency identification: Wireless
scanners can track product anywhere in
warehouse
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Solutions for eSolutions for e--logisticslogistics ² ² cont·dcont·d
y Delivery solutions
FedEx, UPS
Self delivery
y Third-party logistic suppliers
Outsourced logistics can be switched to a
different company if first one is bad
Easier for small companies (most people inthe company are unfamiliar with forecasting)
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VIVI ² ² Solutions for eSolutions for e--logisticslogistics ² ² ReturnsReturns
y Lacking a good return mechanism is the
second highest reason on why some
people refuse to purchase on the Web.
Extra hassle of packaging product in a box and
paying for shipping
Product may be lost in shipping
Hard to describe the problem on paper
(versus showing the problem with the
product in person)
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Solutions for eSolutions for e--logisticslogistics ² ² Returns cont·dReturns cont·d
Options Advantages Disadvantages
Return item to
place where
purchased
Works with small
companies and
expensive items.
Similar to brick-
and-mortar store
Customer unhappy
(time & money)
Company unhappy
(sell at loss, spend
time checking item)
Separate the
logistics of returns and
delivery
Easy for company,
independentinternal unit
handles
Customer still
unhappy (sameamount of work and
hassle)
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Solutions for eSolutions for e--logisticslogistics ² ² Returns cont·dReturns cont·d
Options Advantages Disadvantages
Outsource
returns
Company doesn¶t
deal with problem
Customer still
unhappy
Company doesn¶t
have control of
product
Physical
drop locationfor customer
Easy for customer,
saves them money
Co. may have
physical location,
e.g. Wal-Mart
Requires contracts
with other companies
Extra logistics to get
product back
Prof. Rushen Chahal