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CHAPTER 4 Order Processing and Information Systems

CHAPTER 4 Order Processing and Information Systems. Customer Order Cycle. Six components of order cycle time (see next two slides) Order processing system initiates logistics activities Determining transportation mode, carrier, loading sequence

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CHAPTER 4 Order Processing and Information Systems

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  1. CHAPTER 4 Order Processing and Information Systems

  2. Customer Order Cycle • Six components of order cycle time (see next two slides) • Order processing system initiates logistics activities • Determining transportation mode, carrier, loading sequence • Assigning inventory and preparing pick/pack lists • Updating inventory file • Establishing replenishment lists • Preparing shipping documents • Shipping product to customer • Order entry and processing provides important information to the MIS

  3. 6. Orderdelivered tocustomer 1. Customerplaces order 5. Ordershipped tocustomer 2. Orderreceived 4. Order pickedand packed 3. Orderprocessed Key: 1. Order preparation and transmittal 1 days 2. Order received and entered into system 1 day 3. Order processed 1 day 4. Order picking/production and packing 1 days 5. Transit time 3 days 6. Warehouse receiving and placing into storage 1 day Total order cycle time 8 days Total Order Cycle: A Customer's Perspective

  4. Ship Customer Customer customer delivery order order Order transmittal Back Invoice order Inventory available Enter Inventory Check Warehouse Process customer file credit withdrawal order order Production schedule Shipping Transportation Production documentation scheduling The Path of a Customer’s Order

  5. Customers’ perspective (total) vs. suppliers’ perspective (internal to firm) • The importance of cycle time variability (next slide) – value of reduction in order cycle time vs. reduction in order cycle time variability

  6. 2. Order entry and processing 1. Order preparation and transmittal 3. Order picking or production Frequency: Frequency: Frequency: 1 9 0.5 1 1.53 1 2 3 6. Customer receiving 5. Transportation TOTAL Frequency: Frequency: Frequency: 3.5 days 8 20 days .5 1 1.5 1 3 5 Total Order Cycle with Variability

  7. Methods of Order Entry • Telephone customer service representative who has access to inventory data • Electronic Data Interchange (see next two slides) • Reduced paperwork • Improved order accuracy • Increased speed of transmission of order and other data • Reduced clerical/admin. effort in data entry, filing, mailing, etc.

  8. Definition of EDI Interorganizational exchange of business documentation in structured, machine-processable form. Unstructured Structured Fax EDI E-Mail Order entry Person-to-person Computer-to-computer

  9. P O POST OFFICE ORDER P O BUYER'S SELLER'S ENTRY COMPUTER COMPUTER EDI FLOW PURCHASING PURCHASING BUYER'S PURCHASING SELLER'S ORDER APPLICATION ENTRY APPLICATION EDI Versus Traditional Methods Source: Margaret A. Emmelhainz, Electronic Data Interchange: A Total Management Guide (New York: Van Nostrand Reinhold, 1990), p. 5.

  10. EDI • Protocols (standards): company; industry association; universal (e.g., ANSI X 12) • Proprietary Systems vs. Value-Added Networks (see next slide) • Volume/cost considerations • EDI via the Internet • Logistics transactions: ASN, bill of lading, freight tender, shipment information, etc. • Failure to integrate with internal systems

  11. Typical EDI Configurations Proprietary system Supplier Manufacturer Supplier Supplier Value-added network (VAN) Manufacturer Supplier Third-partyvendor Manufacturer Supplier Manufacturer Supplier SOURCE: GE Information Service, as reported in Lisa H. Harrington, "The ABC's of EDI," Traffic Management 29, no. 8 (August 1990), p. 51.

  12. Integrating Order Processing and Firm’s Logistics Information Systems • Technologies • Bar Coding • RFID • Point-of-Sale Data Gathering • Artificial Intelligence and Expert Systems • Enterprise Resource Planning • Trading Exchanges

  13. The Role of Trading Exchanges • Trading exchanges enable electronic collaboration among partners and customers who can share information about products from sales trends to design information. • Trading exchanges will use the concept of community to go beyond the simple buying and selling of direct materials and services to offering a full range of services that complement the commercial transactions. Example: MetalSite, a trading exchange for steel products, also offers logistics, banking, and credit services.

  14. Trading Exchanges as Applications Suites • Trading exchanges will replace ERP systems as the applications suites of the future. • ERP systems can achieve a high level of information integration and fast information retrieval by utilizing a single data model and set of rules for accessing data within a single company. • ERP systems often failed to deliver because they proved to be inflexible in the face of changing business models and technologies.

  15. ERP systems are characterized by a degree of rigidity that is nearly impossible to coordinate across today’s complex supply chains. • Trading exchanges offer collaboration within an entire trading community. • Trading exchanges will act as the hub for business community integration – adding supply chain execution functionality is one of the first steps in broadening community offerings.

  16. Trading Exchange Models • Independent Vertical Exchanges (IVX): an independent intermediary that connects many buyers to many suppliers within a vertical market segment (e-Chemicals, e-Steele, e-Food) • Independent Horizontal Exchanges (IHX): similar to IVX except that focus is not aimed at a single industry (GroupTrade.com – marketplace for procurement of office supplies, equipment, and services telecoms; exchange.com – marketplace for the procurement of high tech products; mondus – offers procurement services for small and midsize businesses)

  17. Consortium Trading Exchange (CTX): a consortium of major industry players, often representing a significant percentage of the commercial transactions in a single industry – operates primarily to reduce transaction and product costs to make the market more efficient for its users.

  18. Private Trading Exchanges (PTX): owned and maintained by a single company to more effectively manage interactions with its trading partners; a one-to-many environment with the owner a participant in each deal. • PTX will be the software applications platform on which an individual company will build its trading interface to the outside world via the Internet. • PTX will serve as the interface between internal systems and the plethora of exchanges with which a company will interact.

  19. Logistics Exchanges (LX) • Identifies carriers and service providers • Initiates a RFQ process that will qualify partners based on cost and service requirements • Establishes a contract that will be monitored for compliance throughout its entire life • Transmits replenishment orders to suppliers • Schedules transportation arrangements for each shipment • Provides documentation required for international trade • Gives buyer and seller full visibility to key events as product makes its way from supplier’s dock to the buyer

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