Fulfilling a Customers Order

Prof. Rushen Chahal

Introduction to e-Business

Prof. Rushen Chahal

Lesson Objectives
To list the steps for fulfilling a customers 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
y
Prof. Rushen Chahal

Order Fulfillment and Logistics: An Overview

y

Overview of Order Fulfillment

order fulfillment All of the activities needed to provide customers with ordered goods and services, including related customer services back-office operations The activities that support fulfillment of sales, such as accounting and logistics front-office operations The business processes, such as sales and advertising, that are visible to customers
Prof. Rushen Chahal

I - Order Fulfillment = Logistics

y

Logistics the planning of the process of moving product from vendor to customer. Order fulfillment is part of logistics and is often used interchangeably. In the case of etailing, it is called e-logistics.

Prof. Rushen Chahal

II - Order Fulfillment Process

Once a customer decides to purchase a product using e-services, the process is switched to back-office operations 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
y
Prof. Rushen Chahal

9 Steps of e-logistics e1 Arrange a method of payment y 2 Check product availability y 3 Arrange shipments y 4 Insurance y 5 Replenishment y 6 In-house production y 7 Suppliers y 8 Contact with customers y 9 Returns
y
Prof. Rushen Chahal

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

For electronic payments, a system of verification of payment is needed before shipping

Prof. Rushen Chahal

Step 2: Check product availability

If possible, inform customer of availability before order is placed. y If out of stock or the product will take time to manufacture, inform customer of the delay.
y
Prof. Rushen Chahal

Step 3: Arrange shipments

Electronic shipping quick and immediate y Physical product determine best shipping method for level of service y Logistics for shipping is the step that pure etailers need to focus on. This step can eat into profits quickly if the shipping process is not efficient. y It is the biggest daily activity (labor, energy, money, etc.) for e-tailers. E.g. Amazon.com Majority of 17,000 employees work in the fulfillment process. On its busiest day of 2007, Amazon shipped almost 4 million items.
y
Prof. Rushen Chahal

Step 4: Insurance
y

This option needs to be available for customers since product can be lost or damaged in the shipping process.

Prof. Rushen Chahal

Step 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 product sitting on shelves or material to manufacture product Non-product shipping materials, parts for machines in process, items that are part of the shipping process (scanners, totes, carts, etc.)

Prof. Rushen Chahal

Step 6: In-house production Iny y y

Pure e-tailers (e.g. taobao.com) dont have in-house production. They order from other suppliers. Manufacturing e-tailers need to focus most on this step of logistics to insure the highest profitability. If shipped from manufacturing site, the e-tailer should keep stock low and aim for just-in-time production. If shipped from another site, the e-tailer should follow traditional logistic model.

Prof. Rushen Chahal

Step 7: Suppliers
y

All e-tailers use suppliers:

Manufacturers get raw material or partially assembled product Retailers get product from manufacturers

E-tailers may or may not store product

High run items are best kept in stock Low run items are best provided from supplier as needed

Prof. Rushen Chahal

Step 8: Contact with customer

With an invisible process (back-door operations), the customer needs to be informed as much as possible. y Most common types of communication:
y

Order confirmation Payment success Shipping confirmation Tracking information Any problems in the process
Prof. Rushen Chahal

Step 9: Returns
The flow of product from customer back to the vendor is called reverse logistics. y Possible reasons for customers to return or exchange product:
y

Damaged Doesnt work Dont like it Wrong product/type/color

Prof. Rushen Chahal

Where planning each step is active

y y y y

Before customer starts shopping

Steps 6, 7

While customer shops online

Steps 1-4, 8

After customer is done shopping

Steps 8, 9

At all times
Step 5

Prof. Rushen Chahal

III Differences with traditional logistics

Traditional
Product availability Immediate

E-logistics
Immediate downloadable product & some services Delay physical products Many anonymous/ unknown customers Pull Small, individual parcel directly to consumer

Customers

A few loyal/repeat customers to the same store Push Bulk, large, volume to retail outlets

Demand type Distribution

Prof. Rushen Chahal

Differences with traditional logistics contd.

Traditional
Nature of demand Stable with mild fluctuations for holidays Unidirectional, from start to finish

e-logistics
Seasonal, fragmented

Communication inventory & accountability Transporter

Bidirectional, each step is informing previous and next -Outsourced (FedEx, UPS, etc.) or -Special delivery service (Kozmo.com, Groceryworks)

The company

Prof. Rushen Chahal

IV Problems with e-logistics ey

Problems that are inherent with traditional logistics are magnified with e-logistics since most businesses are organized for traditional bulk delivery
Inventory costs Quality problems, inspections Wrong product received, shipped out Wrong type of material (for manufacturing) Cost for next-day delivery

Demand forecasting guessing how much will be ordered at a certain time and stocking appropriately
Prof. Rushen Chahal

Problems with e-logistics contd. ey

Reasons for trouble with demand forecasting

Growth a growing business is harder to predict that a stable one Global market product is offered to the world, so anyone can
order. May have unexpected rush

Economic conditions Many other influences

Variable delivery times y Third-party logistic suppliers (3PL)

y
Expensive Might be unfamiliar with e-business
Prof. Rushen Chahal

V Solutions for e-logistics ey

Warehouse management system (WMS) 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

Prof. Rushen Chahal

Solutions for e-logistics contd ey

WMS contd
RFID Radio frequency identification:Wireless scanners can track product anywhere in warehouse

Prof. Rushen Chahal

Solutions for e-logistics contd ey

Delivery solutions
FedEx, UPS Self delivery

Third-party logistic suppliers

Outsourced logistics can be switched to a different company if first one is bad Easier for small companies (most people in the company are unfamiliar with forecasting)

Prof. Rushen Chahal

VI Solutions for e-logistics Returns ey

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)
Prof. Rushen Chahal

Solutions for e-logistics Returns contd eOptions Advantages Disadvantages

Customer unhappy (time & money) Company unhappy (sell at loss, spend time checking item) Customer still unhappy (same amount of work and hassle)

Return item to Works with small place where companies and purchased expensive items. Similar to brickand-mortar store Separate the Easy for company, logistics of independent returns and internal unit delivery handles
Prof. Rushen Chahal

Solutions for e-logistics Returns contd eOptions

Outsource returns

Advantages
Company doesnt deal with problem

Disadvantages
Customer still unhappy Company doesnt have control of product Requires contracts with other companies Extra logistics to get product back

Physical Easy for customer, drop location saves them money for customer Co. may have physical location, e.g. Wal-Mart
Prof. Rushen Chahal