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E Service Operations E Service Operations Presentation Transcript

  • MD850: E-Service Operations Order Fulfillment and Forward Supply Chain Processes
  • Agenda
    • Background
    • Order Fulfillment in e-Services
    • Supply Chains
      • Supply Chain Components
      • Supply Chain Problems
      • Supply Chain Design
      • Extending SCM Concepts to E-Services
      • Supply Chain Modeling & Evaluation
      • Supply Chain Technology
    • SCM Perspective on Li & Fung Case
  • Background
    • Competition is changing
      • Old: “Firm vs. Firm”
      • New: “Supply Chain vs. Supply Chain”
    View slide
  • Background
    • Supply Chain
      • Concept of a “supply chain” is relatively new
      • Prior to 1996, very few management or engineering schools had courses on supply chain management (SCM)
      • Previous “stumbling blocks” that impeded SC integration
        • high transaction costs between partners
        • poor information availability
        • challenges of managing complex interfaces between functional organizations
    View slide
  • Background
    • Scope of Supply Chain Topics
      • Customer Facing & Internal
        • Customer Value and SCM
        • Web-centric product design
        • Forecasting and inventory management in B2C
        • Order fulfillment and returns management in B2C
  • Background
    • Scope of Supply Chain Topics
      • Supplier Facing
        • Coordinated product design and supply chain design
        • Integration of supply chain planning and procurement
        • Logistics network configuration
        • Order fulfillment and returns management in B2B
        • Distribution strategies
        • Strategic alliances
        • Models for B2B exchanges
        • Auctions & analysis of auction properties
  • Background
    • Scope of Supply Chain Topics
      • IT Related
        • Information technology for SCM
        • Decision Support Systems (DSS) for SCM
        • Web services: frameworks and technologies
          • Microsoft’s .NET technology
          • Sun’s J2EE technology
          • Open Source technologies
  • Order Fulfillment in e-Services
  • Order Fulfillment in e-Services
    • Goals of customer care applications are simple
      • What do online shoppers want? (BCG)
        • Free delivery – 95%
        • Free returns if I am unhappy with product – 91%
        • Guaranteed delivery time – 75%
        • Quicker delivery – 69%
        • Site has a store located near me – 46%
      • “ Proper fulfillment is whatever serves the customer best while preserving adequate profit margins to continue in business at a high level of customer satisfaction”
  • Order Fulfillment in e-Services
    • Designing and implementing customer care applications can be another matter
      • Central problems
        • Enterprise information and customer information must be integrated into a unified whole
        • New kinds of customer behavioral information must be captured and processed
        • Customers and employees must share a common knowledge base
      • All organizational functions must have access to a consistent picture of the customer relationship
  • Order Fulfillment in e-Services
    • E-Fulfillment Processes (Bayles, 2001)
      • Notification Process
        • Acknowledgement and confirmation
          • Instantaneous after purchase
        • Information fulfillment of digital service-product attributes
          • Low cost delivery of information
          • Instant gratification for customer
      • Picking and Packing
      • Delivery
      • Reconciliation/settlement of credit card payment request
      • Post-delivery activities that ensure customer satisfaction
        • Returns
        • Exchanges
  • Order Fulfillment in e-Services
    • Fulfillment Recommendations ( e-Service , Chap. 8)
      • Build an order confirmation system into your service process to ease customer worries
      • Grant customers online access to production order process and shipping data
      • Build (or outsource) warehouse, fulfillment, and product delivery chains that create as much customer contentment on the back end of your service process as on the front end
      • Focus on fast, efficient fulfillment
      • Shipping charges …
        • Probably don’t want to make them free
        • Perhaps free for …
          • Large purchase size above some dollar amount
          • Loyal, high-value customers
          • In-store pickup
  • Order Fulfillment in e-Services
    • Fulfillment Recommendations ( e-Service , Chap. 8)
      • Integrate online bill payment into the fulfillment process
      • Return policies … make the return process as easy as the process for buying
        • Synchronize returns between digital and physical storefronts
        • Supply on-the-spot return authorization numbers
      • Be careful with using purchase information for permission marketing
      • Where possible, employ online post-sale self-help
      • Use post-transaction web surveys to gather customer feedback and continually improve service performance
  • Order Fulfillment in e-Services
    • Fulfillment Tasks for e-Businesses
      • GOAL: Achieve total end-to-end visibility throughout the supply chain
      • Must deal with international pricing/taxation and shipping issues
        • Pricing customized to location of customer
        • Shipping agents to deal with tax issues
        • Local fulfillment center
      • Provide online shipping tools
      • Link web site to package carriers’ host systems
        • FedEx, UPS – online tracking tools with APIs
        • USPS – eventually will have tracking tools
      • Integrate shipping, tracking and distribution systems with ERP systems
        • FedEx, UPS – systems with APIs for doing so
  • Order Fulfillment in e-Services
    • Fulfillment Outsourcing
      • Potential benefits
        • Speed to market
          • Deploy e-Service quickly
          • No capital investment in fulfillment
          • Level of service provided by outsourcer may be better than a start-up’s fulfillment service
        • Scalability
          • Higher when using an large fulfillment service
        • Focus
          • On business competencies, not on shipping
        • Lower costs
          • No need to hire shipping staff
        • Focus on the customer
        • Capitalize on efficiencies
  • Supply Chains
  • Supply Chains What is a Supply Chain? Porter’s “Value Chain” Firm Infrastructure Human Resources Management Technology Development Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Profit Margin
  • Supply Chains What is a Supply Chain? Value Chain of Supplier Value Chain of Buyer
  • Supply Chains What is a Supply Chain? Value Chain of Buyer Buyer’s Virtual Value Chain Value Chain of Supplier Supplier’s Virtual Value Chain Profit Margin Profit Margin Profit Margin Profit Margin Information Flow Information Flow
  • Supply Chain Components
  • Supply Chain Components Components of a Supply Chain? Value Chain of Buyer Buyer’s Virtual Value Chain Value Chain of Supplier Supplier’s Virtual Value Chain Digital Content Networks Digital Content Networks Networks of Physical Objects Networks of Service Providers Networks of Physical Objects Networks of Service Providers
  • Supply Chain Components Components of a Supply Chain?
    • Supply chain is a “network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate customer.” (Christopher, 1998)
    • Supply chain components
      • Two or more legally separated organizations
      • Material, information, and financial flows
      • Firms producing objects
      • Logistics service providers
      • Ultimate customer
  • Supply Chain Problems
  • Supply Chain Problems
    • Supply Chain Problems
      • Inventory
        • Work of the devil
        • Holding costs
        • Risk of obsolescense
        • Quality problems hidden
      • The Bullwhip Effect
  • Retailer Distributor Wholesaler Manufacturer “ The Bullwhip Effect” Supply Chain Problems The Bullwhip Effect A Small Demand Shift Leads To Huge Variation in Orders and Inventories Huge Variation in On-Hand Inventory and Manufacturing
  • Supply Chain Problems Historical Inventory Management
    • Inventories
      • Independent demand
        • Multiple Period Demands
          • Assume demand pattern. Forecast when you will stock out. At the appropriate time, order some order quantity (or up to some quantity), so that with the amount you receive at a future date -- plus the buffer inventory (“safety stock”) -- you will have a small probability of stocking out
          • Single Period Demand -- “paperboy problem”; “fashion goods”
          • Order to balance costs of “overage” against costs of “underage” -- giving maximum profit
        • A/B/C -- some inventories more important or costly than others
          • Monitor costly inventories closely
          • Don’t monitor cheap inventories, just hold lots of buffer stock
      • Dependent demands
        • MRP/MRP II
        • ERP/Extended ERP
  • Supply Chain Problems Drawbacks of Inventory Methods
    • Inventories
      • Independent demand
        • Multiple Period Demands, Single Period Demand, A/B/C
          • Paper orders
          • Misplaced products
          • Inaccurate inventories
          • Human errors
          • Cycle Counting -- strategies to count everything in warehouse (e.g., 1/N of warehouse at a time, over N periods); facilitates balancing the objectives of different inventory methods
          • Dependent demands
        • MRP/MRP II/ERP/Extended ERP
          • Stacks of paper production schedules
          • Paper order releases
          • Change reports -- to previous schedules
          • System nervousness -- when allowing updating of schedules
  • Supply Chain Problems What “The Experts” Now Suggest
    • Rocket Science Retailing (Fisher et al., HBR, July/Aug 2000)
      • Retailer objective: “right product, right place, right time, right price”
      • Historically, the opposite has happened
        • most inventory planning is for long life-cycle products
        • online and offline stockouts
        • increasing markdowns
        • supply chain lead times often are so long, that forecasts of demand only confirm that the product will tank, and nothing can be done about it
      • Rocket Science Retailing
        • “ create a high-tech forecasting system supported by a flexible supply chain”
  • Supply Chain Problems What “The Experts” Now Suggest
    • Rocket Science Retailing (Fisher et al., HBR, July/Aug 2000)
      • Forecasting
        • Update forecasts based on early sales data
        • Track and predict forecasting accuracy
        • Get product testing right -- make it scientific
        • Use a variety of forecasting approaches
      • Supply Chain Speed
        • Work with supply chain partners
        • Reserve production capacity; hold generic raw-material inventories that can later be developed into finished product
        • Troubleshoot production problems, design for easy manufacturability
        • Make decision making flexible; empower employees
  • Supply Chain Problems What “The Experts” Now Suggest
    • Rocket Science Retailing (Fisher et al., HBR, July/Aug 2000)
      • Inventories
        • Need to track stockouts
        • UNFORTUNATELY, no commercial software available to track stockouts
      • Accurate, Available Data
        • Most retailing data inaccurate and inaccessible to employees
        • Store-level sales data usually incorrect
          • Why: (1) clerk scanning one item multiple times to ring up multiple slightly different items, (2) like-for-like returns, without scanning in return and exchange
          • Inventory counts usually off
          • warehouse ships wrong item, supplier shorts, case-pack dimensions change without changing in inventory system
        • Most companies don’t keep enough data
          • kills their ability to forecast time-series of demand accurately
          • aggregation of data kills knowledge at SKU level
          • lack of SKU kills ability to customize supply chain and shipments
  • Supply Chain Problems What “The Experts” Now Suggest
    • Manufacturing for Lean Retailing (Abernathy et al., HBR, Nov/Dec 2000)
      • Historical
        • large order at beginning of period
        • manufacturers treated SKUs within a product line all the same
      • Lean Retailing
        • Manufacturers must replenish retailers stocks on an ongoing basis ; tend to accomplish by holding extra inventory; get stuck with inventory if styles change ; risk of getting stuck increases with product proliferation
        • Solution
          • Need to differentiate between SKUs -- think of product lines as portfolios of distinct goods
          • Need to rethink sourcing strategies, reallocating manufacturing across
            • off-shore sources (high volume, low-variance demands)
            • close-to-market sources (low volume, high-variance demand)
  • Supply Chain Problems IT to the Rescue
    • “ The Wearable Warehouse”, Business 2.0
      • VISION
        • “ Turn the supply chain into the warehouse”
          • reliable inventory numbers
          • better order fulfillment
          • security: reducing in-transit theft … (in turn, improving on-hand data)
          • accurate tracking of goods
      • Humans (networked objects) provide services to the system
        • Essentially automated Cycle Counting
        • Wireless IS implements strategy for what item should be counted when
      • Distributed, heterogeneous objects [inventory containers] report what they contain and where they are , to update system information
  • Supply Chain Design
  • Supply Chain Design
    • Research in Supply Chain Design and Management
      • Stretches back to 1940s/1950s
      • Prior to 1990s, most SCM research was for “simple” material flows and transportation
        • Most complex: optimal policy for a single-product, single-stage, capacitated SC with a stationary demand process
      • Simple multi-stage and/or multi-product supply chain models were computationally intractable
      • First mathematical modeling papers with computational results were published in 1991
        • Start of modern supply chain management research
  • Supply Chain Design Conceptual Approaches
    • Research in Supply Chain Design and Management
      • Conceptual SCM Research
        • Porter’s Value Chain Model (1985)
        • Fine’s Clockspeed (1998) Approach
  • Supply Chains Conceptual Frameworks
    • Clockspeed (Charles Fine, MIT)
      • “ Biologists study fruit flies because their fast rates of evolution permit rapid learning that can then be applied to understanding the genetics of slower-clockspeed species -- like humans.”
      • Managers should study industrial equivalents of fruit flies
        • Fast clockspeed industries
          • Internet services
          • personal computers
          • multimedia entertainment
  • Supply Chains Conceptual Frameworks
    • Clockspeed (Charles Fine, MIT)
      • “ The ultimate core competency of an organization is “supply chain design,” which I define as choosing what capabilities along the value chain to invest in and develop internally, and which to allocate for development by suppliers.”
      • “ Fast-clockspeed” supply chain characteristics
          • rapidly evolving world
          • designing and redesigning firm’s chain of capabilities
          • objective is a series of competitive advantages -- often quite temporary
  • Supply Chains Conceptual Frameworks
    • Clockspeed (Charles Fine, MIT)
      • Computer-industry motivated principles about the design and evolution of supply chains
        • “ Beware of Intel Inside ”
          • IBM employed modular supply chain design (Intel, MS DOS)
          • power in the chain, and financial rewards, had shifted upstream
          • since most modern products are largely computer components and electronics, they potentially fall prey to same forces
        • Supply Chain Double Helix
          • oscillation of supply chain structure
        • Three-Dimensional Concurrent Engineering
          • concurrent design of capabilities (product, process, supply chain)
  • Supply Chains Conceptual Frameworks Integral Product, Vertical Industry Modular Product, Horizontal Industry Niche Competitors High-Dimensional Complexity Organizational Rigities Pressure to Dis-Integrate Technical Advances Supplier Market Power Proprietary System Profitability Pressure to Integrate Supply Chain Double Helix (Charles Fine, Clockspeed , 1998)
  • Supply Chains Conceptual Frameworks 3-D C. E.: Supply Chain Overlapping Responsibilities PRODUCT PROCESS SUPPLY CHAIN Performance Specifications Technology, & Process Planning Time, Space, & Availability Recipe, Unit Process Details, Strategy Manufacturing System, Make/Buy Product Architecture, & Make/Buy (Charles Fine, Clockspeed , 1998)
  • Supply Chains Conceptual Frameworks 3-D C. E.: Supply Chain Concurrency Model (Charles Fine, Clockspeed , 1998) PRODUCT PROCESS SUPPLY CHAIN Design Detailed Performance Specific’s and Functions Architecture Modular vs. Integral Unit Processes Technology & Equipment Manufact. System Functional Cellular Supply Chain Architect. Set of Organizations and Allocation of Tasks Logistics & Coord. System Autonomous vs. Integrated Technology Architecture Focus
  • Supply Chains Conceptual Frameworks
    • Clockspeed (Charles Fine, MIT)
      • Prediction:
        • “ supply chain design as a strategic precursor to supply chain management will only increase in the decade to come as industry clockspeeds continue to accelerate, and the half-lives of many capabilities in our existing supply chains need replacement and/or upgrading”
  • Extending Supply Chain Concepts to e-Service Operations
  • Supply Chains Conceptual Frameworks Service-Product Process Control Static Dynamic Niche Need Broad Need Static; Mechanization Dynamic; Intelligence Unique Items Common Items (Heim and Sinha, 2001) (Jaikumar, 1994) ?
  • Supply Chains Conceptual Frameworks (Schonberger, World Class Manufacturing: The Next Decade , 1996) Past: Many suppliers/customer flows Flow volumes small and sporadic Coming: Stable, selective supply chain relationships Few suppliers/customer flows (Reliable suppliers, Loyal customers) Large, steady flow volumes Geographic proximity Evolution
  • Supply Chains Conceptual Frameworks Supply Chain Control Static Dynamic Unique Items (MD850, 2001) Common Items Covisint Li & Fung Relationship Relationship + Speedy e-Service Communication Relationship + Speedy e-Service Communication + Network Design, Control & Management
  • Supply Chains Conceptual Frameworks
    • Business 2.0, Kalakota & Robinson, 2001
      • First Generation: Communities, Storefronts, and RFP/RFQ Facilitators
      • Second Generation: Virtual Distributors and Auction Hubs
      • Third Generation: Collaborative Trading Hubs
        • end-to-end management of their supply chains
      • Industry Consortiums: Joint-Venture Procurement Hubs
        • Covisint -- automotives
        • Orbitz.com -- airlines
  • Supply Chains Conceptual Frameworks Service-Product Process Control Static Dynamic Niche Need Broad Need Static; Mechanization Dynamic; Intelligence Unique Items Common Items Supply Chain Control Static Dynamic Unique Items Common Items
  • Goods Services Digital Content e-Service 4 9 = 262,144 possible design positions
  • Guiding Principles
  • Supply Chain Some Guiding Principles
    • Align ( a la 3-D Concurrent Engineering)
      • Product
      • Process
      • Supply Chain
    • Reasonable Question: Yes, but how?
  • Conceptual Supply Chain Modeling and Evaluation
  • Supply Chains Supply Chain Structures
    • e-Fulfillment
      • Step #1: Model Supply Chain Process
      • Example: Furniture Industry
    Manufacturing Ship to Retail Inventory at Retail Repair Damage Local Shipping Assembly at Home Traditional Furniture Supply Chain
  • Supply Chains Supply Chain Structures Manufacturing Long Distance Shipping Repair Damage Local Shipping Assembly at Home Pure e-Tailer Furniture Supply Chain Manufacturing Ship to Warehouse Inventory at Warehouse Repair Damage Local Shipping Assembly in Home Pure e-Tailers with Warehouses Furniture Supply Chain
  • Supply Chains Supply Chain Structures Manufacturing Long Distance Shipping Repair Damage Local Shipping Assembly at Home Manufacturer Direct Furniture Supply Chain Retailers On The Web Furniture Supply Chain Manufacturing Ship to Retail Inventory at Retail Repair Damage Local Shipping Assembly at Home
  • Supply Chains Supply Chain Evaluation
    • e-Fulfillment
      • Step #2: Back to the Basics (Cost, Quality, Flexibility, Delivery)
        • Analyze supply chain characteristics -- basic operations strategies -- based on knowledge of product and process characteristics in that industry
        • 3-D Concurrent Engineering
        • Determine if there exists a dominant strategic position compared to existing position(s) of incumbents …
          • (C dom , Q dom , F dom , D dom ) “better than” (C x , Q x , F x , D x ) for all design positions X
  • Supply Chains Supply Chain Evaluation
    • e-Fulfillment
      • Furniture Industry
    Traditional Retailer Pure e-Tailer e-Tailer w/ Warehouse Retailer on the Web Relative Cost of Returns Cost of Inventory Cost of Repair Cost of Shipping Cost of Order Capture Cost of Quality L M L L H L H L H H M H H M M M M M L M L L H M Possibly Better Possibly Worse
  • Supply Chain Management Technology
  • Background Supply Chain Management Technology Procurement Production Distribution Sales Strategic Network Planning Master Planning Material Requirements Planning Production Planning Scheduling Distribution Planning Transport Planning Demand Planning Demand Fulfillment & Available-to-Promise long-term mid-term short-term Advanced Planning System (APS) Software Modules
  • Background Supply Chain Management Technology Procurement Production Distribution Sales Strategic Network Planning Master Planning Material Requirements Planning Production Planning Scheduling Distribution Planning Transport Planning Demand Planning Demand Fulfillment & ATP Forecast Forecast Configuration Simulation Results Purchasing Quantities Capacity Booking Stock Levels Capacity Booking Dist’n Quant./Alloc. Due Dates Due Dates Supply Lot-Sizes Lot Sizes Tranportation Quantity/Modes Current Orders Coordination and Data Flows of APS Modules
  • Supply Chain e-Services Technology
    • SCM Technologies
      • J2EE Technologies
        • SAP re-tooled all of its applications to support the J2EE protocol, in addition to its own ABAP technology standards
        • Many examples of using Java for enhanced SCM
      • .NET Technology
        • Doesn’t support multiple platforms, which will be difficult for integration of supply chain
        • Supply chain vendors have been trying to convince Microsoft to support J2EE, so they could easily integrate enterprise SCM to the desktop, but Microsoft has refused
  • Supply Chain e-Services Technology
    • SCM Technologies
      • OpenAdaptor.org
        • open source supply chain integration system, made open-source on 1/30/2001
        • originally developed for financial services
        • developed by investment bank Dresdner Kleinwort Wasserstein (DrKW)
        • already used in global integration 40 projects by DrKW
        • “ allows the rapid, simple and often code-free integration of any system to any other system, enabling the complete supply chain, plus internal systems, to be integrated while allowing access to the web”
  • SCM Perspective on Li & Fung Case Study
  • SCM Perspective Li & Fung
    • Sourcing Characteristics
      • Seasons
        • Past: 2-4
        • Now: 6-7 … “fast clockspeed”?
      • Customers
        • Past: potentially many, but very slow deals, as translation was the service
        • Now: 350 big customers, potentially 22,800 SMEs might be added
      • Suppliers
        • Past: relatively few
        • Now: 7500 suppliers, 26 countries … more than 1 million workers engaged on their behalf (assuming 200/plant)
  • SCM Perspective Li & Fung Supply Chain Control Static Dynamic Unique Items Common Items 1980s: Delivering Manufacturing Programs Present Li & Fung Margin = 6-8% softgoods, 10-30% hardgoods, function of sourcing complexity Breaking up Value Chain Dispersed Manufacturing Rational Kitting of Parts 1910 Interpreter Margin=15% Broker Margin=10, 5, then 3% 1970s: Regional Sourcing Agent
  • SCM Perspective Li & Fung Design Engineering Production Planning Softgoods Textiles USA Textiles ROW Hardgoods Toys Accessories Festive Items Furnishings Handicrafts Home Travel Goods Sporting Goods Quality Control Testing Logistics Front End Back End Raw Material and Component Sourcing Managing Production The Process The Goods and Related Services
  • SCM Perspective Li & Fung Li & Fung Client Design Materials Sourcing Factories Quality Control Logistics “ Sense” “ Respond” Communications
  • SCM Perspective Li & Fung Li & Fung Client Design Materials Sourcing Factories Quality Control Logistics “ Operational Support System”
  • SCM Perspective Li & Fung Li & Fung Client Design Materials Sourcing Factories Quality Control Logistics Cost: $1 Retail Price $4 Margin to Share = $3
  • SCM Perspective Covisint Covisint Ford, GM, et al. Design Materials Sourcing Tier 1 Only Factories Tier 1 Only Quality Control Logistics Tier 1 Only Retail Price $19,000 Margin (Ford, GM) = $3,000 Cost: $16,000? Transaction Fee %
  • Summary
    • Conceptual supply chain frameworks
      • Fine: Two supply chain “periods” within an industry
      • Fine: 3-D engineering of product, process, supply-chain
    • Guiding principle: link up service-product, service-process, service supply chain
      • Very complex task
      • 3 product components, 3 process components, 3 supply chain types … all must work together
    • Many different supply chain models
  • Summary
    • Evaluation can initially (subjectively) be done based on standard operations strategies/metrics
      • Cost
      • Quality
      • Flexibility
      • Delivery
    • Thorough analysis and management of supply chains will involve hefty mathematics/OR models