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Order fulfillment (in
modular product
Broadly speaking, modularity is the degree to which a system's components may be separated and recombined, often with the benefit of flexibility and variety in use. The concept of modularity is used primarily to reduce complexity by breaking a sy ...
architecture that allows for the final product to be configured in this way; a typical example for this approach is
Order fulfillment (in British English
British English (BrE, en-GB, or BE) is, according to Lexico, Oxford Dictionaries, "English language, English as used in Great Britain, as distinct from that used elsewhere". More narrowly, it can refer specifically to the English language in ...
: order fulfilment) is in the most general sense the complete process from point of sale
The point of sale (POS) or point of purchase (POP) is the time and place at which a retail transaction is completed. At the point of sale, the merchant calculates the amount owed by the customer, indicates that amount, may prepare an invoice f ...
s inquiry to delivery of a product to the customer. Sometimes, it describes the more narrow act of distribution Distribution may refer to:
Mathematics
*Distribution (mathematics), generalized functions used to formulate solutions of partial differential equations
* Probability distribution, the probability of a particular value or value range of a vari ...
or the logistics function. In the broader sense, it refers to the way firms respond to customer orders.
Classification
The first research towards defining order fulfillment strategies was published byHans Wortmann
Johannes Casper (Hans) Wortmann (20 September 1950 – 6 July 2022) was a Dutch computer scientist and professor of Information Management at the University of Groningen, known for his contributions in the field of risk management and Industry ...
, and was continued by Hal MatherHal Mather, Competitive manufacturing, Prentice Hall 1988 in his discussion of the P:D ratio, whereby P is defined as the production lead time
A lead time is the latency between the initiation and completion of a process. For example, the lead time between the placement of an order and delivery of new cars by a given manufacturer might be between 2 weeks and 6 months, depending on vari ...
, i.e. how long it takes to manufacture a product, and D is the demand lead time. D can be viewed as:
# The lead time quoted by the firm to the customer
# The lead time the customer wishes it was
# The competitive lead time
Based on comparing P and D, a firm has several basic strategic order fulfillment options:
* Engineer-to-order (ETO) - (D>>P) Here, the product is designed and built to customer specifications; this approach is most common for large construction projects and one-off products, such as Formula 1
Formula One (also known as Formula 1 or F1) is the highest class of international racing for open-wheel single-seater formula racing cars sanctioned by the Fédération Internationale de l'Automobile (FIA). The World Drivers' Championship, ...
cars.
* Build-to-order (BTO); syn: Make-to-Order (MTO) - (D>P) Here, the product is based on a standard design, but component production and manufacture of the final product is linked to the order placed by the final customer's specifications; this strategy is typical for high-end motor vehicle
A motor vehicle, also known as motorized vehicle or automotive vehicle, is a self-propelled land vehicle, commonly wheeled, that does not operate on Track (rail transport), rails (such as trains or trams) and is used for the transportation of pe ...
s and aircraft
An aircraft is a vehicle that is able to fly by gaining support from the air. It counters the force of gravity by using either static lift or by using the dynamic lift of an airfoil, or in a few cases the downward thrust from jet engines ...
.
* Assemble-to-order (ATO); syn: Assemble-to-request - (DDell
Dell is an American based technology company. It develops, sells, repairs, and supports computers and related products and services. Dell is owned by its parent company, Dell Technologies.
Dell sells personal computers (PCs), servers, data ...
's approach to customizing its computers.
* Make-to-stock (MTS); syn: Build-to-Forecast (BTF) - (D=0) Here, the product is built against a sales forecast, and sold to the customer from finished goods stock; this approach is common in the grocery
A grocery store ( AE), grocery shop ( BE) or simply grocery is a store that primarily retails a general range of food products, which may be fresh or packaged. In everyday U.S. usage, however, "grocery store" is a synonym for supermarket, an ...
and retail
Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, and t ...
sectors.
* Digital copy
A digital copy is a commercially distributed computer file containing a media product such as a film or music album. The term contrasts this computer file with the physical copy (typically a DVD, Blu-ray, Blu-ray 3D, or Ultra HD Blu-ray disc) with ...
(DC) - (D=0, P=0) Where products are digital assets
A digital asset is anything that exists only in digital form and comes with a distinct usage right. Data that do not possess that right are not considered assets.
''Digital assets'' include but are not exclusive to: digital documents, audible ...
and inventory is maintained with a single digital master. Copies are created on-demand, downloaded and saved on customers' storage devices, such as research papers
Academic publishing is the subfield of publishing which distributes academic research and scholarship. Most academic work is published in academic journal articles, books or theses. The part of academic written output that is not formally publ ...
.
Processes
In the broader sense, the possible processes in a logistic-production system are: # Product inquiry – Initial inquiry about offerings, visit to the web-site, catalog request #Sales quote
A sales quote allows a prospective buyer to see the costs that will be involved for desired work. Many businesses provide services that cannot have an upfront price because the costs involved can vary. This can be due to the materials used, which c ...
– Budgetary or availability quote
# Order configuration – Where ordered items need selection of options or order lines need to be compatible with each other
# Order booking – The formal order placement or closing of the deal (issuing by the customer of a Purchase Order
A purchase order is a commercial document and first official offer issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services. It is used to control the purchasing of products and services from externa ...
)
# Order acknowledgment/confirmation – Confirmation that the order is booked and/or received
# Invoicing
An invoice, bill or tab is a commercial document issued by a seller to a buyer relating to a sale transaction and indicating the products, quantities, and agreed-upon prices for products or services the seller had provided the buyer.
Payment ...
/billing – The presentment of the commercial invoice/bill to the customer
# Order sourcing/planning – Determining the source/location of item(s) to be shipped
# Order changes – Changes to orders, if needed
# Order processing
Order processing is the process or work-flow associated with the picking, packing and delivery of the packed items to a shipping carrier and is a key element of order fulfillment. Order processing operations or facilities are commonly called "dis ...
– Process step where the distribution center
A distribution center for a set of products is a warehouse or other specialized building, often with refrigeration or air conditioning, which is stocked with products (goods) to be redistributed to retailers, to wholesalers, or directly to con ...
or warehouse is responsible to fill order (receive and stock inventory, pick, pack and ship orders).
# Shipment
Freight transport, also referred as ''Freight Forwarding'', is the physical process of transporting commodities and merchandise goods and cargo. The term shipping originally referred to transport by sea but in American English, it has been ext ...
– The shipment and transportation of the goods
# Track and trace
In the distribution and logistics of many types of products, track and trace or tracking and tracing concerns a process of determining the current and past locations (and other information) of a unique item or property.
This concept can be s ...
– Determine the current and past locations of the goods during transit
# Delivery – The delivery of the goods to the consignee/customer
# Settlement – The payment of the charges for goods/services/delivery
# Return
Return may refer to:
In business, economics, and finance
* Return on investment (ROI), the financial gain after an expense.
* Rate of return, the financial term for the profit or loss derived from an investment
* Tax return, a blank document or t ...
s – In case the goods are unacceptable/are not required
Strategic importance
The order fulfillment strategy also determines the de-coupling point in the supply chain, which describes the point in the system where the "push" (or forecast-driven) and "pull" (or demand-driven seeDemand chain management
Demand-chain management (DCM) is the management of relationships between suppliers and customers to deliver the best value to the customer at the least cost to the demand chain as a whole. Demand-chain management is similar to supply-chain mana ...
) elements of the supply chain meet. The decoupling point always is an inventory buffer that is needed to cater for the discrepancy between the sales forecast and the actual demand (i.e. the forecast error
In statistics, a forecast error is the difference between the actual or real and the predicted or forecast value of a time series or any other phenomenon of interest. Since the forecast error is derived from the same scale of data, comparisons bet ...
). Typically, the higher the P:D ratio, the more the firm relies on forecasts and inventories. Hal Mather suggests three ways to tackle this "planning dilemma":
#Improve forecasting accuracy
Forecasting is the process of making predictions based on past and present data. Later these can be compared (resolved) against what happens. For example, a company might estimate their revenue in the next year, then compare it against the actual ...
#Provide for flexibility
Stiffness is the extent to which an object resists deformation in response to an applied force.
The complementary concept is flexibility or pliability: the more flexible an object is, the less stiff it is.
Calculations
The stiffness, k, of a bo ...
#Build a process to recognize forecasting errors and quickly correct production planning
Production planning is the planning of production and manufacturing modules in a company or industry. It utilizes the resource allocation of activities of employees, materials and production capacity, in order to serve different customers.Farghe ...
It has become increasingly necessary to move the de-coupling point in the supply chain to minimize the dependence on the forecast and to maximize the reactionary or demand-driven supply chain elements. This initiative in the distribution elements of the supply chain corresponds to the Just-in-time initiatives pioneered by Toyota
is a Japanese multinational automotive manufacturer headquartered in Toyota City, Aichi, Japan. It was founded by Kiichiro Toyoda and incorporated on . Toyota is one of the largest automobile manufacturers in the world, producing about 10 ...
.
The order fulfillment strategy has also strong implications on how firms customize their products and deal with product variety. Strategies that can be used to mitigate the impact of product variety include modularity
Broadly speaking, modularity is the degree to which a system's components may be separated and recombined, often with the benefit of flexibility and variety in use. The concept of modularity is used primarily to reduce complexity by breaking a sy ...
, option bundling, late configuration, and build to order
Build to Order (BTO: sometimes referred to as Make to Order or Made to Order (MTO)) is a production approach where products are not built until a confirmed order for products is received. Thus, the end consumer determines the time and number of ...
(BTO) strategies—all of which are generally referred as mass customization
In marketing, manufacturing, call centre operations, and management, mass customization makes use of flexible computer-aided systems to produce custom output. Such systems combine the low unit costs of mass production processes with the flexibility ...
strategies. The decoupling point can place a much stronger emphasis on the supply chain based on the process as well as the nature of supply chain configurations.Guven-Uslu, P., Chan, H.K., Ijaz, S., Bak, O., Whitlow, B. and Kumar, V., 2014. In-depth study of ‘decoupling point’as a reference model: an application for health service supply chain. Production Planning & Control, 25(13-14), pp.1107-1117.
References
{{DEFAULTSORT:Order Fulfillment Freight transport Inventory Supply chain management