Chapter 11: Logistics and Order Fulfillment
Process Management: Creating Value Along the Supply Chain (1st edition)
Wisner and Stanley
Chapter Outline
Setting Logistics Customer Service Goals
Transportation Planning and Selection
The Order Fulfillment Process
Warehouse Management
Planning the Logistics Network
Developing a Logistics Strategy
Order Fulfillment and Logistics Concerns
Learning Objectives
After completing this chapter, you should be able to:
Describe the elements of customer service from a logistics standpoint.
Explain the role of transportation in the logistics and order fulfillment process.
Identify the key activities in the order fulfillment process.
Understand the importance of order cycle time to the customer.
Learning Objectives (cont.)
After completing this chapter, you should be able to:
Define the storage and handling activities that take place in a warehouse.
Recognize the attributes of an effective logistics network.
Describe the strategic planning process for logistics.
Understand some of the concerns logistics managers face today.
One of the biggest opportunities for a company to create goodwill with the customer
According to the Council of Supply Chain Management Professionals (CSCMP), a professional organization for Logistics and SCM professionals, logistics is defined as:
the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from point of origin to point of consumption for the purpose of conforming to customer requirements
The goal of logistics is to support procurement, manufacturing and customer accommodation operational requirements

Logistics process
Transportation management: the movement of materials, and parts to a warehouse or storage facility within a manufacturing site as well as movement of finished goods to distribution centers and retails sites
Order management: procurement of SKUs and processing customer orders
Warehouse management: Locating and designing facilities to meet customer service levels
Inventory management: Balancing inventory levels to achieve high customer service levels
Setting Logistics Customer Service Goals
Logistics customer service: the speed and dependability with which items ordered can be made available
Customer service represents logistics’ role in fulfilling the marketing concept
Adds value for the seller when customers’ needs are met while minimizing costs
Backorders-when customer is kept from receiving at least part of the order, requires additional tracking
Setting Logistics Customer Service Goals (cont’ d)
Availability: the capacity to have inventory when desired by a customer
The traditional practice is to stock inventory in anticipation of customer orders, based on forecasted demand for products
Measures of inventory management
Order fill rate / line order fill rate: measures the percentage of units available to fill a specific order (being out of stock does not effect service performance until a customer demands a product)
Stockouts and service level: the probability that a firm will not have inventory available to meet customer order
Orders shipped complete: the most exacting measure of performance

Setting Logistics Customer Service Goals (cont.)
Order lead time:
Order cycle begins with the order placement and ends when the customer receives the order
Customers are looking for suppliers who are flexible in meeting emergency, unexpected or unusual requests

Setting Logistics Customer Service Goals (cont.)
Reliability: involves the combined attributes of logistics and concerns a firm’ s ability to perform all order-related activities as well as provide customers with critical information regarding logistical operations and status
Transportation Planning and Selection
Very visible elements of logistics
Wide range of transportation alternatives are available
A mode identifies a basic transportation method or form
Modes of transportation: air, truck, pipeline, rail and water carriers
Intermodal transportation: combination of two modes
Piggyback: integrated rail and motor service, birdyback: cargo airplanes carry specially designed containers between airports
Transit time: measured from the point where an order leaves the shipper’ s dock until the time it arrives its destination
Air is the fastest mode of transportation
Freight rates: related to time, distance and density.
Transportation Planning and Selection (cont.)
Carrier selection
Transportation carriers:
Private carriers: use of the firm’ s own carriers
Public carriers: use of public, for-profit transportation companies
Third-party logistics providers (3PLs): provide a range of logistics services including warehousing, customs clearance, packaging, labeling
Core carrier strategy: developing good working relationships with a smaller number of transportation carriers
Transportation Planning and Selection (cont.)
Transportation routing and scheduling
Important to improve the routes that vehicles travel between the network of facilities
Several techniques are used to analyze the problem including linear programming simulation, heuristic approaches
Day-to-day management
Monitoring the performance of the carriers
Transportation carrier performance metrics: rates, billing accuracy, reliable pickup/delivery, consistent service, carrier reliability, damages/loss, carrier flexibility, equipment availability, safety, special services
The Order Fulfillment Process
Important to understand the path a customer order might take once it is placed
Any interruptions during the transmittal of an order or miscommunication will increase order fulfillment time

The Order Fulfillment Process
The Order Fulfillment Process
Order cycle time: the elapsed time between when a customer places a purchase order and when the product is received by the customer
Late orders are not considered acceptable
Transportation times are the most variable in the order cycle time
Causes of variability:
The choice and design of the order transmittal system
Inventory management policies
Procedures to process orders
Selection of transportation modes
Priority rules: creating rules to determine the sequence in which customer orders are processed and shipped (i.e. process smaller, simpler orders first)
Packaging standards: additional packaging may result in lower overall logistics costs
Drop shipping: selling products to customers and then shipping the product directly to the customer, common for Internet companies
Non-asset-based 3PLs: specialize in providing comprehensive information services that facilitate supply chain arrangements
Asset-based 3PLs: logistics firm that owns many or all of the assets necessary to run a client’s supply chain. These assets include trucks, warehouses and distribution centers, among others.
Warehouse Management
Storage has always been an important aspect of economic development
Important part of lean production and replenishment
Distribution centers: serving as a point to form outbound specific product assortments which are then shipped to the customer
Postponement : postponing the final manufacturing, labeling, or packaging of product until it is needed by the customer
Reverse logistics: may be used for getting rid of damaged inventory and goods don’ t sell, performing light manufacturing of recalled products and refurbishing returned items
Warehouse Management (cont.)
Warehouse planning
Warehouse vs. distribution center: Warehouse is for storage of inventory whereas DC is to keep finished product moving towards its destination
Number and location of warehouses: trade-off between customer service level and number of warehouses
Company should identify how many customers they have, in which locations, the service levels, and the forecasts of their buying habits
Criteria in site selection: transportation costs, site costs, access to major shipping nodes, facility/operation costs, availability of workforce, potential tax incentives, impact on the environment/local community
Automated storage and retrieval systems (AS/AR): moves inventory located in warehouse using robotics, conveyor belts, bar code scanning systems
Warehouse management systems (WMS): computer software designed for warehousing
Main uses: Order picking, receiving, put-away, stock location, work order management
Warehouse Management (cont.)
Warehouse activities
After planning managers must determine the location of inventory, stock the shelves, hire staff to work in the warehouse, setup work procedures, implement a warehouse management system
Employee training
Break-bulk warehousing and consolidation
Three stages of warehouse material handling
Receiving incoming shipments
Handling while in storage

Planning the Logistics Network
Companies must have a good understanding of their supply chains to design a logistics network that will meet their customer service goals.
Logistical needs can change fairly regularly, requiring network adjustments
Public warehouses: space rented for short periods of time from for-profit warehousing companies
Private warehouses: companies own their own warehouses
Logistics network planning involves a process of decision making in three areas:
Location planning
Product flow planning
Transportation service planning

Planning the Logistics Network (cont.)
Location planning making decisions with regards to the size, location and number of fixed facilities (warehouses, manufacturing plants, retail outlets, service centers)
Site selection factors: land/construction costs, tax/regulations/laws, quality of life

Planning the Logistics Network (cont.)
Product flow planning
Determination of how products will be moved from the points of origination to demand points
Includes reverse logistics
Companies analyze product/service flows by developing flowcharts

Transportation service planning
Important to know the modes and carriers available at each potential location
Developing a Logistics Strategy
Integrating logistics with marketing into the strategic planning process can be a means to improve customer service and increase sales.
Two strategic orientations:
Process orientation: creating a system of only value-adding logistics activities
Information / channel orientation: focus on coordination and control within supply chain by synchronizing logistics activities with related information
Important questions to ask: who are our customers how do we segment them; what do our customers need; what are our customer service goals for the upcoming year; what are our current capabilities
Logistics vision includes what the organization hopes to accomplish in the future
Each option to achieve the vision should be weighed and compared using a cost/benefit analysis
Logistics value proposition is a unique commitment of a firm to an individual or selected customer groups.
Order Fulfillment and Logistics Concerns
Legal and physical security
Increasing customer service requirements
Congestion at ports

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