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Chapter
4
1
Order Management&
Logistics Information Systems
1
Order Management

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
Order Management

Order management refers to management of the
various activities associated with the order cycle

Order cycle (replenishment cycle or lead time)
refers to the time from when a customer places an
order to when goods are received

Some organizations include order to cash cycle in
their order management model
1
5
Important Trade-off
Price
Promotion
LOGISTICS
Place/
customer service
levels
Inventory
carrying costs
Transportation
costs
Lot quantity
costs
Warehousing
costs
MARKETING
Product
Order processing
and information
costs
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.
Order Cycle:
A Customer's Perspective
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
Key:
1. Order preparation and transmittal
2. Order received and entered into system
3. Order processed
4. Order picking/production and packing
5. Transit time
6. Warehouse receiving and placing into storage
Total order cycle time
2 days
1 day
1 day
5 days
3 days
1 day
13 days
5
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
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
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
Manufacturer’s control
7 days
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
Not directly under the Manufacturer’s control
6 days
8
Total Order Cycle with
Variability
1. Order preparation
and transmittal
2. Order entry
3. Order
processing
4. Order picking or
packing production
Frequency:
Frequency:
Frequency:
Frequency:
1
2
3
.5
1
5. Transit time
6. Customer
receiving
Frequency:
Frequency:
1
3
5
.5
1
1.5
.5
1
1.5
1
5
9
TOTAL
Frequency:
1.5
4.5 days
13
21.5 days
9
Order Processing

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,
7-10
Inc. publishing as
Order Processing

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,
7-11
Inc. publishing as
Typical Elements of Order Processing
Order Preparation
• Requesting product
and services
Order Transmission
Order Entry
• Transfer order information
• Stock checking
• Accuracy checking
• Credit checking
• Back ordering/order cancelling
• Transcripting
• Billing
to supplier
Order Delivery
Order Status
Reporting
• Tracing and tracking
• Communicating with
customer on order status.
Order Shipment
Order Filling
• Product retrieval, production or purchase
• Packing
• Scheduling for delivery
• Shipping document preparation
12
13
Flowchart of Order Processing System
© Pearson Education,
7-14
Inc. publishing as
Order Preparation





Products and services information
Determining vendor
Filling out an order form
Determining stock availability
Communicating order information
15
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
16
Order Entry





Checking the accuracy of the order information
Checking the availability of the requested items
Preparing back-order or cancellation order
Checking customer’s credit status
Billing
17
Order Picking and Assembly




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
Often represents the best opportunity to improve the
effectiveness and efficiency of an order cycle
Can account for up to 2/3 of a facility’s operating cost
and time
Examples of Order Picking and Assembly technology:
Handheld scanners, RFID, Voice-based order picking,
pick-to-light
The 800,000 sq ft DC is one the largest of Amazon's six in the UK
Amazon distribution center in
Swansea, south Wales
19
Monday will be the UK's busiest online shopping day of the year
with over 2 million orders expected to be made
20
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.
21
22
Order Delivery

Order delivery is the time from when a
carrier picks up the shipment until it is
received by the customer.
Main Flows
•
•
•
•
Materials
Services
Information
(Cash-Payment) Not main
but supporting)
24
Supply Chain
Supplier
Manufacturers
Wholesalers/
Distributors
Retailers
Customers
Materials and
Services
Payments
Information
25
The Five Major
Supply Chain Drivers
2.
INVENTORY
1.
PRODUCTION
How much to make and
how much to store
What, how, and when to
produce
5.
INFORMATION
The bests for making
these decisions.
4.
TRANSPORTATION
3.
LOCATION
How, and when to move
product
Where best to do what
activity
26
Information about ...
• 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
27
28
Data
Raw facts about people, places, events,
and things that are of importance in an
organization. Each fact is, by itself,
relatively meaningless.
29
30
IT & Logistics
 IT will affect the growth and
development of logistics
 Computers are used to support logistics
activities
31
Data Quality Factors
 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
 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
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
Sources of Information
35
System
 A set of elements considered to act as a
single goal-oriented entity.
 Components
 Boundary
 Purpose
 Environment
 Interfaces
 Constraints
 Input
 Output
36
System
Environment
Vendors
Input
Processes
Outputs
Raw
materials
Costs
Resources
Procedures
Programs
Tools
Activities
Decisions
Performances
Consequences
Finished products
Services delivered
Decision Maker
System
boundary
Goverment
Stockholders
Banks
Weather Conditions
Supplier
Customers
Feedback
Competitors
The System and Its Environment
Turban, Decision Support Systems and Intelligent Systems, 7/E
37
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
38
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.
39
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.
Information flow makes a logistical system dynamic.
Quality and timeliness of information are key factors
in logistical operations.
Bowersox and Closs
40
How Information Systems
Facilitate Logistics Management
•
•
•
•
•
•
•
•
•
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
41
Logistics Information System
LIS combine hardware and software to
manage, control, and measure logistics activities.
Computers
Servers
Internet technologies
Input and output devices
Communication channels
Barcode, RF, storage media
System and application
programs
42
Logistics Information System
 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
 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
44
Overview of Logistics Information System
Internal
Finance/Accounting
Marketing
Logistics
Manufacturing
Purchasing
Order Management
System
• Contact with customer
• Stock availability
• Crediting checking
• Invoicing
• Product allocation to
customer
• Fulfillment location
LIS
Warehouse Management
System
Stock level management
Order picking
Picker routing
Picker assignments and
work loading
Product availability
estimating
External
Customers
Vendors
Carriers
Supply chain partners
Transportation
Management System
Shipment consolidation
Routing and scheduling
Claims
Tracking
Bill payment
Freight bill auditing
45
Order processing system
• Customer location
• Order history
• Salesperson
• Revenues
• Order status
Management
• Competitive reactions
• Sales forecasts
• Future trends
• New markets
Operating data
• Freight payment
• Transportation history
• Inventory
• Credit files
• Product movement
Industry/external data
• Market share
• Product offering
• Demographic trends
• Economic trends
Company records
• Cost of capital
• Cost of logistics
activities
• Standart costs
Logistics Database
Report generation
• Order performance
• Shipment performance
• Damages and returns
• Product traking and
forecasting
• Performace and cost
reports
46
Technologies in LIS
Bar code
 Point-of-Sale ( POS)
 EDI
 RF-RFID

47
Contemporary Logistics Information Technologies
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.
48
Bar Coding
 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
Barcode Types
Fundamentals of
LOGISTICS MANAGEMENT
Lambert
Stock
Ellram
Country code
Firm code
Product code
Control digit
3 digits
4 digits (can
change)
5 digits(can
change)
1 digit
9567
90009
4
Exp:
869
50
51
Contemporary Logistics Information Technologies
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
52
RFID

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.

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.
53
Contemporary Logistics Information Technologies
Radio Frequency Identification
(RFID)
 Yard, Warehouse & Factory
Management, Transportation
Management
 Item-level tracking
 Automatic Non-Line-of-Sight Scanning
54

RFID tags come in three general
varieties: passive, active, or semi-passive
(also known as battery-assisted).

Passive tags require no internal power
source-only active when a reader is
nearby to power them, whereas semipassive and active tags require a power
source, usually a small battery.

Passive tags have practical read distances
ranging from about 10 cm (4 in.)
55
Active Tags

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.

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.

Other sensors that have been married with active
RFID include humidity, shock/vibration, light,
radiation, temperature, and atmospherics 56like
ethylene.
Semi-passive Tags

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.

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.

Greater sensitivity than passive tags, typically
57
100 times more.
Contemporary Logistics Information Technologies
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.
 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.
58
Definition of EDI
 Inter organizational, computer-tocomputer exchange of business data in a
standard, machine-processable format.
Unstructured
Fax
E-Mail
Person-to-person
Structured
EDI
Order entry
Computer-to-computer
59
Definition of EDI
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.
Levi’s-integrated its customer
order processing system using a
QR(quick response)-EDI:
LeviLink
60
Definition of EDI
Transfer of structured data, by agreed
message standards from one computer
system to another without human
intervention.
 Cheques, bill of lading

61
Types of EDIs



Proprietary Systems (One to Many) involve an
EDI system which is owned, managed, and
maintained by a single company
Value-added Networks (Many to Many)
includes a third party firm that acts as a
central clearinghouse
Industry Associations have their own EDI
standards
62
EDI Standarts
 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.
63
EDI Versus
Traditional Methods
BUYER'S
COMPUTER
PO
POST OFFICE
ORDER
ENTRY
PO
SELLER'S
COMPUTER
EDI FLOW
PURCHASING
PURCHASING
BUYER'S PURCHASING
APPLICATION
SELLER'S ORDER
ENTRY APPLICATION
64
Source: Margaret A. Emmelhainz, Electronic Data Interchange: A Total
Management Guide (New York: Van Nostrand Reinhold, 1990), p. 5.
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.
65
DSS
Modeling-simulation( what if games)
 Artificial intelligence(AI): an
comprehensive term that involves voice
synthesis and recognition, game playing
systems, robotics, natural language
translators and expert systems(ES)
 Benetton-POS-EDI-AI

66
 Expert Systems
Natural language recognition
Neural networks
67