Order Processing and Information Systems

The difference between mediocre and excellent logistics is often the firms information technology capabilities. Dale S. Rogers Richard L. Dawe Patrick Guerra

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Order Processing and Information Systems in Planning Triangle

Inventory Strategy Forecasting Inventory decisions Purchasing and supply scheduling decisions Storage fundamentals Storage decisions Transport Strategy Transport fundamentals Transport decisions

ORGANIZING

Location Strategy Location decisions The network planning process

CONTROLLING
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PLANNING

Customer service goals The product Logistics service Ord . Proc. proc. & & info. info. sys. sys . Ord.

Order processing
Order processing include
Order preparation Order transmittal Order entry Order filling Order status reporting

Order preparation refers to activity gathering the information needed abut the products & services desired & formally requesting the products to be purchased. It may involve determining
appropriate vendor Filling out an order form Determining stock availability Communicating order information by telephone to sales clerk Making selection from website menu.

Examples
Bar code scanning at supermarkets Website providing information about products & allow order to be placed from web Industrial Purchase orders generated directly from companys computer & send to vendors by Electronic data interchange. paper less transactions lowers order preparation costs & reduce order replenishment times.

Order Transmittal
After order preparation it involves transferring the order request from its point of origin to place where order entry can be handled. It is accomplished by two ways either manually or electronically. Manual transmission includes mailing the orders or physically carrying the orders by sales staff to the point of order entry. Electronic transmission of orders I snow very popular with the wide use f Toll free numbers , data phones , websites on internet , EDI ,FAX M/Cs & satellite communications. The almost instantaneous transfer of orders with its high degree of reliability & accuracy , increasing security , and .decreasing cost has replaces manual order transmittal methods. EDI is costly than internet but it is secured. ORDER ENTRY - It refers to tasks that take place prior to actual filling the orders, These include
Check accuracy of order information such as item description , number ,qty , price. Availability of requested items. Preparing back order or cancellation of documents if necessary. Checking customer credit status. Transcribing the order information as necessary. Billing The above tasks are necessary as order request information is not always in the form needed for further processing. It may not be represented accurately or additional paper work may be needed before order can be released for filling.

Typical Elements of Order Processing

Sales order

Order Preparation Requesting products or services

Order Transmittal Transferring order information

Order Entry Stock checking Accuracy checking Credit checking Back ordering/ order canceling Transcription Billing

Order Status Reporting Tracing and tracking Communicating with customer on order status

Order Filling Product retrieval, production, or purchase Packing for shipment Scheduling for delivery Shipping document preparation
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Order Entry & order filling

Order Entry it has greatly benefited from technological improvements. Bar coding , optical scanners , computer have substantially increased the productivity of this activity. Bar coding & scanning are important for entering order information accurately , quickly , & low cost compare to computer key board data entry. This has become popular in retailing , manufacturing ,& service industries. Computer are also used in order entry activity replacing manual stock & credit checking & transcription activities with more automated procedures. Order Filling - It is represented by the physical activities required to
acquire the items through stock retrieval , production ,or purchasing Pack the items for shipment Schedule the shipment for delivery Prepare the shipping documents Many times firms have not established any formalized rules by which orders to be entered & dealt during initial stages of order filling. One company experienced significant delays in filling Important customers orders when order clerks ,during busy periods ,would handle the less complicated order first.

Order filling
order fulfillment as the complete process from point of sales inquiry to delivery of a product to the customer. That is to say, it refers to those activities that take place from the moment a buyer places an order to the moment the order is delivered in full. Here is a look at the activities involved in the order fulfillment process. Product Inquiry : It refers to the initial inquiry about offerings through visit to the website or catalog request. Order Booking: It stands for the formal placement of the order. Order Acknowledgment / Confirmation: It refers to the confirmation of the order. Invoicing / Billing: It refers to the providing of commercial invoice / bill to the customer. Order Sourcing / Planning: It is the process of determining the source / location of item(s) to be shipped. Order Changes: The customer can make changes to orders, if any. Order Processing: It refers to the processing of the orders. It involves receiving and stocking inventory, picking, packing and shipping orders. Shipment: It refers to the shipment and transportation of the goods. Delivery: It stands for the delivery of the goods to the consignee / customer. Settlement: It is the payment of the charges for goods / services / delivery. Returns: It refers to the process of returning goods in case the goods are unacceptable / not required.

Order filling
Order fulfillment activities are either done in house or outsourced. Outsourcing is a good option especially for large enterprises as it helps the enterprises to focus on their core competencies. Here is a look at the services provided by a best of the breed supply chain solutions provider. Handles one configuration to one customer, low-volume-high mix through high-volume-lowmix orders As it facilitates placing the order for a configured product through a secure link to a global tech page, it allows clients to stay informed at every step of the process with real-time information. This reduces program management time and enables quick management decision making. With an extensive array of test experience and skilled staff, the solution provider can accomplish the highest levels of test and debug on a wide variety of products Their value added distribution services ensure clients are only shipping the most recent products in the quantities that are ordered and no stocking of products with a limited shelf life. The clients products are configured with everything from electro-mechanical assembly (box build) and retail pack out (RF sealing, shrink-wrap, clamshells, etc.) to custom labeling. A skilled quality control management staff oversees all the processes that help to ensure that only highest quality products are delivered to the consumer. Thus, collaboration with the right supply chain solution provider helps enterprises by providing them all operational controls without the day- to-day cost and stress of owning or managing those operations.

Order Filling
Processing rules affect order filling speed First-received, first-processed Shortest processing time first Specified priority number Smaller, less complicated orders first Earliest promised delivery date Orders having the least time before promised delivery date The order filling eithe rfrom available stock or from production adds to order cycle time in proportion to time required for order picking or production. Order picking time is extended by split order processing or freight consolidation.

Order fill rate lower than item fill rate

FR nP i where n number of item on order P in - stock probability of item i i

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Order Filling (Contd)

Question Suppose that an order contains five items, each having a stocking probability of 93%. What is the probability that the order will be filled complete?

Answer

FR (.93)(.93)(.93)(.93)(.93) 0.70, or 70%

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Order status Reporting

This final order processing activity ensures good customer service is provided by keeping the customer informed of any delays in order processing or delivery of order which includes
Tracing & tracking the order through out the entire order cycle Communicating with the customer about where the order may be in order cycle & when it will be delivered. Customers by knowing their order no can check the order progress throughout the entire order cycle from companys website or call on toll free no for customer service.

Commerce Through the Internet

COMMUNICATION NETWORK - INFORMATION SUPERHIGHWAY

Orders: Confirmation Shipment notice Shipment status

Logistics provider Distributor

Orders: Confirmation Shipment arrival Shipment status

Suppliers

Products

Customers

Direct to customer delivery using the Internet

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 Finished goods distributors can us EDI to create a direct from-supplier distribution system. Product need not be stored in distributors warehouse. Order information& products flows through the supply chain in following way. 1. The customers tell the distributor how much of which products are wanted & where via EDI. 2. The distributor tells the suppliers how much of which products must be shipped via EDI. 3. The distributor tells the logistics provider where to pick up the product & how much via EDI. 4. The distributor tells the logistics provider how much of which products to be delivered where & when via EDI. 5. The supplier prepares the product for shipment. 6. The logistics provider picks up the product, and sorts and segregates the product to the Distributors specification. 7. The logistics provider delivers the products to the customers.

Processing priorities Some firms prioritize their customer list on

Factors Affecting Order Processing Time

most profitable orders . In this they will alter order processing priority orders will be given preferential treatment while low order times. Low priority orders may be held for later processing. Parallel versus sequential processing By doing the activities simultaneously processing time can be reduced. Order-filling accuracy Completing order processing cycle without error reduces processing time. Order batching Collecting orders from multiple customers for batch processing reduces processing cost. Lot sizing Customer order may be too large to be filled from the stocks immediately on hand. Rather than waiting for the order to be completely produced small lot sizes of the total order qty may be produced & shipped. Transportation cost are likely to be higher due to shipping several orders of smaller size. Shipment consolidation Consolidating several small orders to build a larger shipping volume reduces transportation costs. Processing time may be increased at the cost of decrease transportation cost. 5-14

The Logistics Information System

LOGISTICS INFORMATION SYSTEM INTERNAL Finance/Accounting Marketing Logistics Manufacturing Purchasing OMS Stock availability Credit checking Invoicing Product allocation to customers Fulfillment location WMS Stock level management Order picking Picker routing Picker assignments and work loading Product availability estimating TMS Shipment consolidation Vehicle routing Mode selection Claims Tracking Bill payment Freight bill auditing
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EXTERNAL Customers Vendors Carriers Supply chain partners

The Logistics Information System

The logistics Information system can be described in terms of its Functionality & internal operations. Function The main purpose of collecting , retaining & manipulating the data within a firm is to make decisions , ranging from strategic to operational & to facilitate the transaction of business. Large computer memory space , faster computing, increase access to information throughout the organization from ERP systems such as SAP,BANN & improved platforms from transmitting information such as EDI & INTERNET have created opportunity for firms to share information continently & inexpensively throughout the supply chain. LIS should be capable & comprehensive enough to allow for communication not only between functional area of firm (Marketing , production , finance , logistics ) but also between the members of supply chain (vendors & customers) . Sharing selected information about sales , shipments , production schedule , stock availability ,order status with vendors & buyers has the value to reduce uncertainties through out the supply chain as users find ways of benefiting from information availability.

The Logistics Information System

With LIS major systems are Order Management System (OMS) Warehouse Management system ( WMS) Transportation Management system (TMS) Each system contains information for transactional purpose but also decision support tools that assist in planning particular activity. Information flows between them as well as between LIS & firms other information system t create an integrated system. The information systems are typically expressed in the form of computer software packages.

Order Management System Module

Elements Stock availability Credit checking Invoicing Product allocation to customers Fulfillment location

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Order Management System Module

OMS manages the initial contact with the customer at the time of product inquires & order placement. It is front end of system of LIS. OMS communicates with WMS to check product availability , either from inventories or from production schedule. This provides the information about location of the product in supply chain network ,quantity available , & estimated time for delivery. Once product availability is accepted by customer credit checking can be done by OMS communicating with companys financial information system. Once the order is accepted , the OMS will allocate the product to the customer order , assign it to the production location ,decrement the inventory & when shipping is confirmed ,prepare the invoice. There is similar OMS for the purchased orders. OMS will maintain the data of purchase orders. Purchase based OMS will concentrate on vendors , their delivery ratings , costs & terms of sales , capabilities ,availabilities ,financial strength.

Warehouse Management System Module

Elements Receiving Putaway Inventory management Order processing and retrieving Shipment preparation

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Warehouse Management System Module

WMS system may contain OMS or it may be treated as separate entity within the LIS. WMS must at least tie back to the OMS so that sales department knows what is available for sales. It is information subsystem assisting in the management of product flowing through & stored in the facilities of the logistics network. The key elements indentified as receiving , put way , inventory management , order processing , & retrieving , shipment preparation. All these elements will appear in the WMS of atypical distribution warehouse. Receiving This is entry point for the information into the WMS. Product is off-loaded from receiving carrier at warehouse's inbound dock and identified by product code & quantity. Data about the product is entered into the WMS using bar code scanners , radio frequency data communication terminals or manual keyboards , weight , cube , & package configuration of the product are known by matching product code against an internal product file.

Warehouse Management System Module

Putway The incoming product needs to be temporally stored within the warehouse. The WMS retain the space layout within the building & the inventory stored in the locations. Based upon available space & stock layout rules the WMS assigns the incoming product to a specific locations for letter retrieval. If multiple products are to be stored in multiple locations on same trip , The WMS can specify putway sequence & route to minimize travel time. Inventory Management WMS monitors stock level at each stocking location in warehouse. If inventory levels are under control of warehouse then the replenishment quantities & timing are suggested according to the specific rules. The request for replenishment is transmitted to the purchasing department or directly to the vendors or company plants through EDI or internet. Order processing & retrieving Picking the items requested on an order is most laborious & expensive part of warehouse operations.

Warehouse Management System Module

Shipment preparation Among all the orders a subset will be processed at one time. Orders for customers located within the same proximity are picked simultaneously to arrive at shipment dock & truck stall at same time. Estimates are made for volume & weight of multiple customers orders to be place on trucks ,container , or rail car. In case of retail merchandise price tags may be affixed so that items may be placed on the shelves without further handling.

Transportation Management System Module

Elements Mode selection Freight consolidation Routing and scheduling shipments Claims processing Shipment tracking Bill payment and auditing
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Transportation Management System Module

TMS focuses on inbound & outbound transpiration of a firm & is integral part of LIS. It shares information with other LIS components such as order content , item weight & cube , quantity , promised delivery date & vendor shipping schedules. It purpose is to assist planning & controlling firms transportation activity. It involves following
Mode Selection Freight consolidation Routing & scheduling shipments Claims processing Tracking shipments Freight bill payment & auditing

Mode Selection It typically include airfreight, ground package carriers, ocean containers , rail carload movement.TMS can match shipment size with transport service cost & performance requirements. A good TMS will store data on multiple modes , freight rates , expected shipments times , mode availability , service frequency & will suggest best carrier for each shipment. .Freight consolidation TMS suggests the pattern of consolidating small shipments into larger ones.TMS can keep track of shipment sizes , destinations , promised delivery dates , From this information & using internal decision rules , economical loads can be built while considering , delivery service goals.

Transportation Management System Module

Routing & scheduling shipments when firm owns or lease fleet of vehicles careful management is required to ensure fleet is operated efficiently. With order information from the OMS and order-processing information from WMS,the TMS assigns loads to the vehicles & suggest the sequence in which vehicle stops should be made, pick up of returning the merchandise from the stop offs points, planning for back hauls , driver restrictions on length of driving & rest breaks , and utilization of the fleets across multiple time periods all need to be considered. The TMS retains the data on stop locations , vehicle type ,number & capacity, stop loading /unloading times, stop line windows & other restrictions on the route. Claims processing in transportation some shipments are damaged. By retaining information such as shipment content ,product value , carrier used , origin & destination , liability limits ,many claims can be processed automatically or with minimum human intervention. Tracking shipments IT has played major role tracking the progress of shipment once it is transferred to transport carriers. Bar coding , radio transmission en route , global positioning systems & on board computers are key information system elements that allows the location of shipments to be known in real time. The small shipment carriers such as DHL , Airborne express , Fedex uses such information system to satisfy their customers. Freight Bill payment & auditing It is labor intensive activity due to large no. of routes & rate combinations. The computer based TMS can quickly search the minimum cost routing & compare the cost with freight bill. Freight bill payment can also be facilited in the TMS.Here the TMS records the shipments has been made & request the financial system to execute the payment to the carrier often electronically.

Operating Components of the LIS

Environment Data input Data base activities 1. Data storage Filing Retrieval File maintenance 2. Data transformation Basic data processing operations Data analysis using statistical and mathematical techniques

Decisions

Output communications

Logistics manager (Decision maker) Limits of the information system

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Exploded View of the LIS

Input Customer data Company records Published information Data Base Data base manager Data analysis Computer files Manual records Management data

Data retrieval

Data processing

Summary reports Output Prepared documents: purchase orders, bills of lading, etc.

Status reports Results of analysis

Exception reports Action reports

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Operating Components of the LIS

Three distinct elements that make up the system are INPUT , THE DATABASE , THE OUTPUT. THE INPUT The first activity associated with the information system is acquiring the data that will assist the decision making processes. The data can acquired from many sources like CUSTOMERS , COMPANY RECORDS , PUBLISHED DATA , MANAGEMENT DATA. Customers through their sales activity indirectly provides useful data for planning. During order entry data is captured that is useful for forecasting & operating decisions such as sales volumes ,its timings , location of sales , order size. Similarly data about shipments & transportation costs are obtained from deliveries made to customers. Fright bills ,purchase orders, invoices are additional sources of data. Company records in the form of accounting reports , status reports ,reports from internal & external studies , & various operating reports provide wealthy data. Published data from external sources like research sponsored by trade associations , data sharing through internet & EDI , Professional journals & trade magazines. Company personnel also provides valuable data like predictions of future sales , actions of competitors , availability of future materials.

Operating Components of the LIS

Data base Management Converting data to information , portraying it in a manner useful , for decision making , & interfacing the information with decision assisting methods is heart of information system. Management of data base involves selection of data to be stored & retrieved , choice of the methods of analysis and choice of the basic data processing procedures to implement. To decide After determining the content of database, the first concern in data base design is to decide what data should be maintained in traditional hard copy form, the data to be retained in computer memory for quick access. Data maintenance can be expensive & data retention should be based on 1. how critical is data for decision making 2. the rapidity of information retrieval 3. the frequency of data aces 4. the effort required for manipulating the data in the form needed. Data Processing It is most popular feature of information system. Preparation of purchase orders, bill of ladings, freight bills is common data processing activity to aid logistician in planning & controlling material flow. Data processing represents conversion of data in the files. Data analysis It contains any no of mathematical & statistical models. such models convert information into problem solutions that provide decision support. Planning picker routing in high turnover warehouse , routing , delivery trucks , & allocating customers to warehouse & plants.

Operating Components of the LIS

THE OUTPUT This is interface with the user of the system. Following are few examples of outputs
Summary report of cost or performance statics Status reports on inventories or order progress Exception report that compares desired performance with actual performance, Reports that initiate actions e.g. purchase orders or production orders Output may be in the form of prepared documents such as transportations bills of lading , fright bills. Finally output may be the result of data analysis from mathematical & statically models. The input , a data base management & output are key features of the internal operation of the LIS . In addition to basic transactional capabilities the major purpose of system is to be decision support tool for planning & operating system,

Information System Examples

A retail system Vendor managed inventory E-commerce A decision support system

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Information System: Indian Examples

Vehicle Tracking Devices (VTDs) Efficient Consumer Response (ECR) Tata AutoComp Systems (TACO) Indian Steel Companies (TISCO & SAIL) Gati Taj Group of Hotels Indian Oil Companies (BPCL and Indian Oil)
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Item sold Sales counter

Bar code item at store Customer credit verification Manual register input

Bar code scanning

Deliveries from supplier

In - store computer Credit data Payroll Accounting Merchandising

Transmission

Regional center main computer Corporate payroll Corporate accounting Corporate credit Inventory management

Corporate sales report

Purchase order

Supplier -- Coffee makers

EDI

Department manager review

LIS for a Large Retailer

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