Chapter Ten: Electronic Commerce Payment Systems W10.1 Online File W10.1 Order Fulfillment and Logistics an Overview W10.1.1 Order Fulfillment and Logistics an Overview Taking orders over the Internet may be the easy part of B2C. Fulfillment and delivery to customers doors are the tricky parts (e.g., see Vitasek and Manrodt 2006). Many e-tailers have experienced fulfillment problems, especially during the 1990s. Amazon.com, for example, which initially operated as a totally virtual company, added physical warehouses with thousands of employees in order to expedite deliveries and reduce order fulfillment costs. Deliveries may be delayed for several reasons. These range from an inability to accurately forecast demand to ineffective e-tailing supply chains. Many of the same problems affect offline businesses. One issue typical to EC is that EC is based on the concept of pull operations that begin with an order, frequently a customized one. This is in contrast to traditional retailing, which usually begins with a production of inventory that is then pushed to customers. In the EC pull case, it is more difficult to forecast demand because of lack of experience and changing consumer tastes. Another reason for delays is that in a B2C pull model, many small orders need to be delivered to the customers doors, whereas in brickand-mortar retailing, the goods are shipped in large quantities to retail stores where customers pick them up. Before we analyze the order fulfillment problems and describe some solutions, we need to introduce some basic order fulfillment and logistics concepts. Overview of Order Fulfillment Order fulfillment refers not only to providing customers with what they have ordered and doing so on time but also to providing all related customer services. For example, a customer must receive assembly and operation instructions with a new appliance. This can be done by including a paper document with the product or by providing the instructions on the Web. In addition, if the customer is dissatisfied with a product, an exchange or return must be arranged. Order fulfillment involves back-office operations, which are the activities that support the fulfillment of orders, such as packing, delivery, accounting, inventory management, and shipping. It also is strongly related to the front-office operations, or customer-facing activities, such as advertising and order taking, that are visible to customers. Overview of Logistics The Council of Supply Chain Management Professionals defines logistics as the process of planning, implementing, and controlling the efficient and 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 (Council of Supply Chain Management Professionals 2008). Note that this definition includes inbound, outbound, internal, and external movement and the return of materials and goods. It also includes order fulfillment. However, the distinction between logistics and order fulfillment is not always clear, and the terms are sometimes used interchangeably, as we do in this text. The key aspects of order fulfillment are delivery of materials or services at the right time, to the right place, and at the right cost. The EC Order Fulfillment Process In order to understand why there are problems in order fulfillment, it is beneficial to look at a typical EC fulfillment process, as shown in Exhibit W10.1.1. The process starts on the left, when an order is received and after verification that it is a real order. Several activities take place, some of which can be done simultaneously; others must be done in sequence. These activities include the following steps: order fulfillment All the activities needed to provide customers with their ordered goods and services, including related customer services. back-office operations The activities that support fulfillment of orders, such as packing, delivery, accounting, and logistics. front-office operations The business processes, such as sales and advertising, that are visible to customers. logistics The operations involved in the efficient and effective flow and storage of goods, services, and related information from point of origin to point of consumption. Step 1: Making sure the customer will pay. Depending on the payment method and prior arrangements, the validity of each payment must be determined. In B2B, the company s finance department or financial institution (i.e., a bank or a credit card issuer, such as Visa) may do this. Any holdup may cause a shipment to be delayed, resulting in a loss of goodwill or a customer. In B2C, the customers usually prepay, frequently by credit card.
W10.2 Part 5: EC Support Services Online File W10.1 EXHIBIT W10.1.1 Order Fulfillment and the Logistics Process Financial Institution Customer Start here Credit agreement 8 Business Query Order 8 1 Reply 2 3 Finance Sales No OK? No, delay? Yes Inventory No Replenishment orders Yes ERP Order from suppliers 5 6 Shipping Finance Accounting From manufacturing facility Extended supply chain 7 Contractors HRM Legal (tier 1) Subsuppliers Sub-subsuppliers (tier 2) (tier 3) Returns 3 Digitizable products UPS, FedEx, etc. Inventory 4 Insurance 3 Shipping Accounting Production planning Find where and how much to produce 9 Production Facility Receiving warehouse? 7 Returns center? Note: Demand forecasts and accounting are conducted at various points throughout the process. Step 2: Checking for in-stock availability. Regardless of whether the seller is a manufacturer or a retailer, as soon as an order is received an inquiry needs to be made regarding stock availability. Several scenarios are possible here that may involve the material management and production departments, as well as outside suppliers and warehouse facilities. In this step, the order information needs to be connected to the information about in-stock inventory availability. Step 3: Arranging shipments. If the product is available, it can be shipped to the customer right away (otherwise, go to step 5). Products can be digital or physical. If the item is physical and it is readily available, packaging and shipment arrangements need to be made. It may involve both the packaging and shipping department and internal shippers or outside transporters. Digital items are usually available because their inventory is not depleted. However, a digital product, such as software, may be under revision and unavailable for delivery at certain times. In either case, information needs to flow among several partners.
Chapter Ten: Electronic Commerce Payment Systems W10.3 Online File W10.1 Step 4: Insurance. Sometimes the contents of a shipment need to be insured. This could involve both the finance department and an insurance company. Again, information needs to flow, not only inside the company, but also to and from the customer and insurance agent. Step 5: Replenishment. Customized orders will always trigger a need for some manufacturing or assembly operation. Similarly, if standard items are out of stock, they need to be produced or procured. Production can be done in-house or by contractors. The suppliers involved may have their own suppliers (subsuppliers or tier 2 suppliers). Step 6: In-house production. In-house production needs to be planned. Production planning involves people, materials, components, machines, financial resources, and possibly suppliers and subcontractors. In the case of assembly, manufacturing, or both, several plant services may be needed, including possible collaboration with business partners. Services may include scheduling of people and equipment, shifting other products plans, working with engineering on modifications, getting equipment, and preparing content. The actual production facilities may be in a different country than the company s headquarters or retailers. This can further complicate the flow of information and communication. Step 7: Use contractors. A manufacturer may opt to buy products or subassemblies from contractors. Similarly, if the seller is a retailer, such as in the case of amazon.com or walmart.com, the retailer must purchase products from its manufacturers. Several scenarios are possible. Warehouses can stock purchased items, which is what Amazon.com does with its best-selling books, toys, and other commodity items. However, Amazon.com does not stock books for which it receives only a few orders. In such cases, the publishers or intermediaries must make the special deliveries. In either case, appropriate receiving and quality assurance of incoming materials and products must take place. Once production (step 6) or purchasing from suppliers (step 7) is completed, shipments to the customers (step 3) are arranged. Step 8: Contacts with customers. Sales representatives need to keep in constant contact with customers, especially in B2B, starting with notification of orders received and ending with notification of a shipment or a change in delivery date. These contacts are usually done via e-mail and are frequently generated automatically. Step 9: Returns. In some cases, customers want to exchange or return items. Such returns can be a major problem; more than $100 billion in North American goods are returned each year (Kuzeljevich 2004). Returns cost UK retailers approximately $1.4 billion a year (Boles 2004). The movement of returns from customers back to vendors is called reverse logistics. Order fulfillment processes may vary, depending on the product and the vendor. The order fulfillment process also differs between B2B and B2C activities, between the delivery of goods and of services, and between small and large products. Furthermore, certain circumstances, such as in the case of perishable materials or foods, require additional steps. Such a complex process may have problems (Section W10.1.2); automating the various steps can minimize or eliminate several of these problems. Order Fulfillment and the Supply Chain The nine-step order fulfillment process previously described, as well as order taking, are integral parts of the supply chain. The flows of orders, payments, information, materials, and parts need to be coordinated among all the company s internal participants, as well as with and among external partners (see Kelsall 2006). The principles of supply chain management must be considered when planning and managing the order fulfillment process. Traditional Versus EC Logistics EC logistics, or e-logistics, refers to the logistics of EC systems mainly in B2C. The major difference between e-logistics and traditional logistics is that the latter deals with the movement of large amounts of materials to a few destinations (e.g., to retail stores). E-logistics shipments typically are small parcels sent to many customers homes. Other differences are shown in Exhibit W10.1.2. reverse logistics The movement of returns from customers to vendors. e-logistics The logistics of EC systems, typically involving small parcels sent to many customers homes (in B2C).
W10.4 Part 5: EC Support Services Online File W10.1 EXHIBIT W10.1.2 Characteristic Type, quantity Destinations Demand type Value of shipment Nature of demand Customers Inventory order flow Accountability Transporter Warehouse How E-Logistics Differs from Traditional Logistics Traditional Logistics Bulk, large volume Few Push Very large, usually more than $1,000 Stable, consistent Business partners (in B2B), usually repeat customers (B2C), not many Usually unidirectional, from manufacturers One link Frequently the company, sometimes outsourced Common EC Logistics Small, parcels Large number, highly dispersed Pull Very small, frequently less than $50 Seasonal (holiday season), fragmented Usually unknown in B2C, many Usually bidirectional Through the entire supply chain Usually outsourced, sometimes the company Only very large shippers (e.g., amazon.com) operate their own Questions 1. Define order fulfillment and logistics. 2. List the nine steps of the order fulfillment process. 3. Compare logistics with reverse logistics. 4. Compare traditional logistics with e-logistics. W10.1.2 Addressing Problems in Order Fulfillment Even supply chain experts such as Amazon.com can experience problems with order fulfillment. As the Opening Case noted, Amazon.com introduced its Kindle e-book reader during the 2007 holiday season. Within a short period of time, demand for the $399 reader far outpaced forecasts and the device quickly sold out. Well after the season was over, the device remained backordered. Part of the problem was due to the inability of one of Amazon s key parts suppliers, Prime View International (pvi.com.tw/index_en.php), to manufacture displays fast enough to meet consumer demand (Kuo 2008). Obviously, the overall result for Amazon.com was lost sales. Typical Supply Chain Problems Amazon.com s fulfillment problems are typical of those experienced in both offline and online commerce. First, demand forecasting is difficult. In the case of standard or commodity items, such as toys, a demand forecast must be done in order to determine appropriate inventories of finished goods at various points in the supply chain. In the case of customized products, it is necessary to forecast the demand for the components and materials required for fulfilling customized orders. Difficulties arise from a number of factors. Factors such as consumer behavior, economic conditions, competition, prices,
Chapter Ten: Electronic Commerce Payment Systems W10.5 Online File W10.1 weather conditions, technological developments, and consumer taste and confidence influence demand. Any one of these factors can change quickly. This means that the demand forecast needs to be adjusted frequently based on inputs from all the manufacturers and suppliers along the supply chain in order to correctly gauge and meet the real demand. Second, many of the problems along the EC supply chain stem from the need to coordinate several activities, internal units, and business partners in the face of uncertainties. Some of these uncertainties include variable delivery times created by factors ranging from machine failures, to poor road conditions, to quality problems of materials and parts, all of which add up to production or delivery delays. The chance that such problems will occur in EC is even higher due to the lack of appropriate infrastructure and e-tailing experience, as well as the special characteristics of EC. For example, most manufacturers and distributors warehouses are designed to ship large quantities to several stores; they cannot optimally pack and ship many small packages to many customers doors. Improper inventory levels are typical in EC, as are poor delivery scheduling and mixed-up shipments. Pure EC companies are likely to have more problems because they do not have a logistics infrastructure already in place and are forced to use external logistics services rather than in-house departments for these functions. These external logistics services are called third-party logistics suppliers (3PL), or logistics service providers. Outsourcing such services can be expensive, and it requires more coordination and dependence on outsiders who may not be reliable. For this reason, many large virtual retailers are following Amazon.com s lead and have or are developing their own physical warehouses and logistics systems. Other virtual retailers are creating strategic alliances with logistics companies or with experienced mail-order companies that have their own logistics systems. Solutions to Order Fulfillment Problems Many EC logistics problems are generic; they can be found in the non-internet world as well. Therefore, many of the solutions that have been developed for these problems in brick-and-mortar companies also work for e-tailers. This section describes some of the specific solutions to the EC order fulfillment problems (Hett and Davis 2006). Improvements in the Order-Taking Process One way to improve order fulfillment is to improve the order-taking process and its links to fulfillment and logistics. Order taking can be done via EDI, EDI/Internet, the Internet, or an extranet, and it may be fully automated. For example, in B2B, orders can be generated and transmitted automatically to suppliers when inventory levels fall below a certain threshold. The result is a fast, inexpensive, and more accurate (no need to rekey data) order-taking process. In B2C, Webbased ordering using electronic forms expedites the process, makes the process more accurate (e.g., intelligent agents can check the input data and provide instant feedback), and reduces processing costs for sellers. When EC order taking can interface or integrate with a company s back-office system, it shortens cycle times and eliminates errors. Order-taking improvements also can take place within an organization, for example, when a manufacturer orders parts from its own warehouse. Whenever delivery of such parts runs smoothly, it minimizes disruptions to the manufacturing process, reducing losses from downtime. Implementing linkages between order-taking and payment systems also can be helpful in improving order fulfillment. Electronic payments can expedite both the order fulfillment cycle and the payment delivery period. With such systems, payment processing can be significantly less expensive and fraud can be better controlled. Warehousing and Inventory Management Improvements A popular EC inventory management solution is a warehouse management system (WMS). WMS refers to a software system that helps in managing warehouses. It has several components. For example, in the case of Amazon.com the system supports item pickers as well as packaging. Amazon.com s B2C WMS can handle hundreds of millions of packages. Manhattan (manhattan.com), RedPrairie (redprairie.com), and High Jump (highjumpsoftware.com) are leaders in the WMS market space. Online File W10.1.1 illustrates how one company, Schurman Fine Paper, has utilized its WMS to improve demand forecasting and inventory management. third-party logistics suppliers (3PL) External, rather than in-house, providers of logistics services. warehouse management system (WMS) A software system that helps in managing warehouses.
W10.6 Part 5: EC Support Services ONLINE FILE W10.1.1 EC Application HOW WMS HELPS SCHURMAN IMPROVE ITS INTERNAL AND EXTERNAL ORDER FULFILLMENT SYSTEM Schurman Fine Paper (now papyrusonline.com) is a manufacturer and retailer of greeting cards and related products. It sells through its own 170 specialty stores (Papyrus), as well as through 30,000 independent retail outlets. Using integrated logistics software solutions from RedPrairie (redprairie.com), Schurman improved its demand forecast and minimized both out-of-stocks and overstocking. The system also allows physical inventory counts to be conducted without the need to shut down the two central warehouses for a week three times a year. The central warehouses receive shipments from about 200 suppliers worldwide (500 to 1,000 orders per day). Until 2003, all inventory and logistics management was done manually. One problem solved by the software is picking products from multiple stock-keeping-unit (SKU) locations. Picking is faster now, with a minimum of errors. Customers orders go directly from the EDI to shipping, which ignites the fulfillment and shipment process. This system automatically generates an advanced shipping notice (replacing the lengthy process of manual scanning). The new system also automates the task of assessing the length, width, height, and weight of each item before it goes into a box (to determine which item goes into what box). The system also improved inventory replenishment allocations. In the past, the list of items to be picked up included items not available in the primary location. Pickers wasted time looking for these items, and unfound items had to be picked up later from the reserve storage center, resulting in delays. The WMS simultaneously created two lists, expediting fulfillment. This tripled the number of orders fulfilled per picker per day. The system also generates automatic replenishment orders for items falling below a minimum level at any storage location. In addition, special software provides Schurman s customer service department with real-time access to inventory and distribution processes, allowing the department to track the status of all orders. The WMS also tracks the status of all orders and sends alerts when an order problem occurs (e.g., delay in downloading). An e-mail goes to all necessary parties in the company so they can fix the problem. Finally, information collected about problems can be analyzed so remedies can be made quickly. All of this helps to reduce both overstocks and out-of-stocks. Sources: Compiled from Parks (2004), papyrusonline.com (accessed February 2008), Maloney (2006), and redprairie.com (accessed February 2008). Questions 1. Identify what the WMS automates, both in receiving and shipping. 2. How has inventory management been improved? Online File W10.1 Other Inventory Management Improvements WMS is useful in reducing inventory and decreasing the incidence of out-of-stocks. Such systems also are useful in maintaining an inventory of repair items so repairs can be expedited; picking items out of inventory in the warehouse; communicating; managing product inventory; receiving items at the warehouse; and automating the warehouse (e.g., Amazon.com). For example, introducing a make-to-order (pull) production process and providing fast and accurate demand information to suppliers can minimize inventories. Allowing business partners to electronically track and monitor inventory levels and production activities can improve inventory management and inventory levels, as well as minimize the administrative expenses of inventory management. In some instances, the ultimate inventory improvement is to have no inventory at all; for products that can be digitized (e.g., software), order fulfillment can be instantaneous, eliminating the need for inventory.
Chapter Ten: Electronic Commerce Payment Systems W10.7 Online File W10.1 Automated Warehouses Large-volume EC fulfillment requires automated warehouses. Regular warehouses are built to deliver large quantities to a small number of stores and plants. In B2C, however, businesses need to send small quantities to a very large number of individuals. Automated warehouses can minimize the order fulfillment problems that arise from this need. Automated warehouses may include robots and other devices that expedite the pick-up of products. An example of a company that uses such warehouses is Amazon.com. The largest EC/mail-order warehouse in the United States is operated by a mail-order company, Fingerhut. This company handles its own order fulfillment process for mail orders and online orders, as well as orders for Wal-Mart, Macy s, and many others. Other companies (e.g., fosdickfulfillment.com) provide similar order fulfillment services. The keys to successful inventory management, in terms of order fulfillment, are efficiency and speed, which can be facilitated by wireless devices. Partnering Efforts and Outsourcing Logistics An effective way to solve order fulfillment problems is for an organization to partner with other companies. For example, several EC companies partner with UPS or FedEx. Logistics-related partnerships can take many forms. Another partnering example is marketplaces managed by forwarders.com and aacb.com, which help companies with goods find forwarders -the intermediaries that prepare goods for shipping. They also help forwarders find the best prices on air carriers, and the carriers bid to fill the space with forwarders goods that need to be shipped. SkyMall (skymall.com), owned by New York-based private equity fund Spire Capital Partners and The Greenspun Corporation, is a retailer that sells from catalogs on airplanes, over the Internet, and by mail order. It relies on its catalog partners to fill the orders. For small vendors that do not handle their own shipments and for international shipments, SkyMall contracts distribution centers owned by fulfillment outsourcer Sykes Enterprise. As orders come in, SkyMall conveys the data to the appropriate vendor or to a Sykes distribution center. A report is then sent to SkyMall. Comprehensive Logistics Services Major shippers, notably UPS and FedEx, offer comprehensive logistic services. These services are for B2C, B2B, G2B, and other types of EC. See Online File W10.1.2 for a description of the broad EC services UPS offers. ONLINE FILE W10.1.2 EC Application UPS PROVIDES BROAD EC SERVICES UPS is not only a leading transporter of goods sold on the Internet, but it also is a provider of expertise, infrastructure, and technology for managing global commerce-synchronizing the flow of goods, information, and funds for its customers. UPS has a massive infrastructure to support these efforts. For example, it has an over 120-terabyte (1012-byte) database (in 2003) that contains customer information and shipping records. More than 100,000 UPS customers have incorporated UPS Online Tools into their own Web sites to strengthen their customer services. In addition, UPS offers the following EC applications: Electronic supply chain services for corporate customers, by industry. This includes a portal page with industryrelated information and statistics. Calculators for computing shipping fees. Helping customers manage their electronic supply chains (e.g., expediting billing and speeding up accounts receivable). Improved inventory management, warehousing, and delivery. A shipping management system that integrates tracking systems, address validation, service selection, and timein-transit tools with Oracle s ERP application suite (similar integration with SAP exists). Notification of customers by e-mail about the status and expected arrival time of incoming packages.
W10.8 Part 5: EC Support Services ONLINE FILE W10.1.2 Representative Tools UPS s online tools-a set of seven transportation and logistics applications-lets customers do everything from tracking packages to analyzing their shipping history using customized criteria to calculating exact time-in-transit for shipments between any two postal codes in the continental United States. The tools, which customers can download to their Web sites, let customers query UPS s system to get proof that specific packages were delivered on schedule. For example, if a company is buying supplies online and wants them delivered on a certain day, a UPS customer can use an optimal-routing feature to ensure delivery on that day, as well as to automatically record proof of the delivery in its accounting system. UPS offers logistics services tailored for certain industries. For example, UPS Logistics Group provides supply chain reengineering, transportation network management, and service parts logistics to vehicle manufacturers, suppliers, and parts distributors in the auto industry worldwide. UPS Autogistics improves automakers vehicle delivery networks. For example, Ford reduced the time to deliver vehicles from plants to dealers in North America from an average of 14 days to about 6. UPS Logistics Group offers similar supply chain and delivery tracking services to other kinds of manufacturers. UPS also is expanding into another area important to e-business delivery of digital documents. The company was the first conventional package shipper to enter this market in 1998 when it launched UPS Document Exchange. This service monitors delivery of digitally delivered documents and provides instant receipt notification, encryption, and password-only access. UPS offers many other EC-related services. These include the ability to enter the UPS system from wireless devices; helping customers configure and customize services; and providing for electronic bill presentation and payment (for B2B), EFT, and processing of COD payments. Sources: Compiled from Violino (2006) and UPS (2008). Questions 1. Why would a shipper, such as UPS, expand to other logistic services? 2. Why would shippers want to handle payments? 3. Why does UPS provide software tools to customers? 4. What B2B services does UPS provide? (Note: Check ups.com to make sure that your answers are up-to-date.) Online File W10.1 Speeding Deliveries In the digital age, the standard delivery services provided by companies such as FedEx and UPS may not be fast enough. Today, we talk about same-day delivery, and even delivery within an hour. Deliveries of urgent materials to and from hospitals are an example of such a service. efulfillment Service (efulfillmentservice.com) and One World (owd.com) are two companies that have created networks for the rapid distribution of products, mostly EC-related ones. They offer national distribution systems across the United States in collaboration with shipping companies, such as FedEx and UPS. Delivering food is an area where speed is important. Quick pizza deliveries have been available for a long time. Today, many pizza orders can be placed online, some wirelessly. Also, many restaurants deliver food to customers who order online, a service called dine online. Examples of this service can be found at dineonline.com and gourmetdinnerservice.com.au. Some companies even offer aggregating supply services, processing orders from several restaurants and then making deliveries (e.g., dialadinner.com.hk in Hong Kong). Grocery and supermarket deliveries are done same day or next day. Arranging and making such deliveries may be difficult, especially when fresh food is to be transported. Buyers may need to be home at certain times to accept the deliveries. Therefore, the distribution systems for such enterprises are critical. One of the most comprehensive delivery systems was that of GroceryWorks (now a subsidiary of Safeway USA). Note that the delivery trucks can pick up other items (such as rented videos and dry cleaning).
Chapter Ten: Electronic Commerce Payment Systems W10.9 Online File W10.1 Handling Returns (Reverse Logistics) Allowing for the return of unwanted merchandise and providing for product exchanges are necessary to maintain customers trust and loyalty. A number of years back, the absence of a good return mechanism was one of the major impediments to online buying. According to Ellis (2006), a good return policy is a must in EC. Dealing with returns is a major logistics problem for EC merchants. Several options for handling returns exist: Return the item to the place of purchase. This is easy to do with a purchase from a brick-and-mortar store but not a virtual one. To return a product to a virtual store, a customer needs to get authorization, pack everything up, pay to ship it back, insure it, and wait up to two billing cycles for a credit to show up on his or her statement. The buyer is not happy and neither is the seller, who must unpack, check the paperwork, and resell the item, usually at a loss. This solution is workable only if the number of returns is small or the merchandise is expensive. Separate the logistics of returns from the logistics of delivery. With this option, returns are shipped to an independent returns unit and are handled separately. This solution may be more efficient from the seller s point of view, but it does not ease the returns process for the buyer. Completely outsource returns. Several outsourcers, including UPS and FedEx, provide logistics services for returns. The services deal not only with delivery and returns, but also with the entire logistics process. FedEx, for example, offers several options for returning goods. Allow the customer to physically drop the returned item at a collection station. Offer customers locations (such as a convenience store or the UPS Store) where they can drop off returns. In Asia and Australia, returns are accepted in convenience stores and at gas stations. For example, BP Australia Ltd. (gasoline service stations) teamed up with wishlist.com.au, and Caltex Australia is accepting returns at the convenience stores connected to its gasoline stations. The accepting stores may offer in-store computers for ordering and may also offer payment options, as at Japanese 7-Elevens (7dream.com). In Taiwan, you can pay, pick up books and other item orders, and return unwanted items at a 7-Eleven store. Click-and-mortar stores usually allow customers to return merchandise that was ordered from the online outlet to their physical stores (e.g. walmart.com and eddiebauer.com). Auction the returned items. This option can go hand-in-hand with any of the previous solutions. For strategy and guidelines on returns, see Parry (2006) and Ellis (2006). Reverse Logistics Executive Council (rlec.org) is a major portal on reverse logistics. Order Fulfillment in B2B Most of the discussion in this section has centered on B2C order fulfillment. Some of the discussion pertains to B2B fulfillment as well. Exhibit W10.1.3 shows the B2B fulfillment options. The exhibit shows how the buy options (brown lines) relate to the shipping options (blue lines). For another overview of B2B fulfillment, see Supplychainer.com (2006). B2B fulfillment may be more complex than that of B2C because it has at least six dimensions of complexity (versus two in B2C): shipment size, multiple distribution channels, more variety of shipment frequency, uneven breadth of carrier services, fewer carrier EC offerings, and complex EC transaction paths. Using BPM to Improve Order Fulfillment B2B order fulfillment commonly uses business processes management (BPM) software to automate various steps in the process, as done by Daisy Brand (Online File W10.1.3). The case also demonstrates how customers pressure suppliers to improve the order fulfillment process. Note that a video supporting this case is available at tibco.com.
W10.10 Part 5: EC Support Services Online File W10.1 EXHIBIT W10.1.3 B2B Buy and Ship Options Seller (Shipper) Seller Web site Customer(s) Buy site Buyer (Receiver) Vertical e-markets Transport e-markets Carrier/3PL Web sites Buy Options Ship Options Transportation Providers Source: Courtesy of Norbridge Inc., 2003. ONLINE FILE W10.1.3 EC Application HOW DAISY BRAND FULFILLS B2B ORDERS Daisy Brand is a large U.S. producer of sour cream products known for its quality products. Its major customers are supermarkets that operate in a very competitive environment. Many customers require that suppliers provide certain services that will improve the efficiency of their operations for example, vendor-managed inventory (VMI), collaborative planning, and forecasting. Most of Daisy Brand s large customers did the same. The customers pressured Daisy Brand to improve its services along the supply chain, and order processing became a prime target for improvement. The Daisy Brand IS team sought technology that would improve the efficiency of its existing order fulfillment process. Customers submit orders electronically. Every order that Daisy Brand handles travels through three applications: Customers submit orders through an EDI transaction. From there, orders flow to an Invensys Protean ERP system and various other systems for fulfillment and ultimately to shipping. The company sought to implement a workflow solution that could integrate and automate this order-to-delivery process.
Chapter Ten: Electronic Commerce Payment Systems W10.11 ONLINE FILE W10.1.3 Using TIBCO s business integration and business process management solution (see tibco.com), the IS team designed, developed, tested, and deployed a workflow in only three weeks. The workflow manages the order process from inception all the way to the point of delivery to ensure that orders move forward within the set timeframe. The company can also send notifications about shipping activity back to the customer. If an order is to ship out within a certain number of hours and has not shipped, TIBCO s solution can trace that order and get it moving faster. TIBCO s solution also helps stop problems before they start by auditing customer order information before it enters the ERP system. In addition to improving the efficiency of order processing at Daisy Brand, TIBCO s solution also enables the company to more flexibly accommodate customer needs. For example, a retail customer might change an order after the order is sent to the warehouse perhaps to request that the order ship on a different day or with a different amount. In these cases, the system sends an alert to the logistics management workbench to immediately notify the warehouse that the order has been modified. Thus, the logistics team can quickly implement the change, ensuring minimum impact on the order cycle time. The workflow software is part of TIBCO s BPM software suite, which includes other applications for control of business processes and to improve agility. Future projects include automation of new customer entry; integration of plant control systems; support for collaborative planning, forecasting, and replenishment (CPFR) and VMI; and implementation of a real-time order-arrival board. Sources: Compiled from TIBCO (2006) and Staffware.com (2006). Questions 1. Describe the steps in order fulfillment at Daisy Brand. 2. How is the automation of order fulfillment done? 3. How can supermarkets benefit from introducing electronic processing by Daisy Brand? 4. Enter tibco.com and find information about its BPM and workflow products. How can they support order fulfillment? 5. How can Daisy Brand improve its agility? REFERENCES FOR ONLINE FILE W10.1 Boles, T. Returned Goods Clog British Roads. Knight Ridder Tribune Business News, October 24, 2004. Council of Supply Chain Management Professionals. cscmp.org (accessed July 2010). Ellis, D. Seven Ways to Improve Returns Processing. Multichannelmerchant.com, January 4, 2006. multichannelmerchant.com/opsandfulfillment/ returns/improve_returns_processing_01042006 (accessed July 2010). Hett, S., and S. Davis. System for Order Allocation Among Warehouses. Issues in Information Systems, 7, no. 2 (2006). Kelsall, A. Matching Customer Service Agents to Your Customers Needs. Multichannelmerchant. com, July 25, 2006. multichannelmerchant.com/ opsandfulfillment/contact_center_advisor/ customeragents _need (accessed July 2010). Kuo, R. PVI Enjoys Growth in Profits and Gross Margin in 4Q07. DIGITIMES. January 29, 2008. digitimes.com/displays/a20080129pd207.html (no longer available online). Kuzeljevich, J. Targeting Reverse Logistics. Canadian Transportation Logistics, 107, no. 9 (2004). Maloney, D. More Than Paper Savings. DC Velocity, January 2006. dcvelocity.com/articles/20060101 technologyreview (accessed July 2010). papyrusonline.com (accessed July 2010). Parks, L. Schurman Fine Papers Rack Up Labor Savings. Stores, February 2004.
W10.12 Part 5: EC Support Services REFERENCES FOR ONLINE FILE W10.1 Parry, T. Study: Simpler Online Returns Make Happier Customers. Multichannelmerchant.com, January 11, 2006. multichannelmerchant.com/ opsandfulfillment/returns/onlinereturn_ customer (accessed July 2010). redprairie.com (accessed July 2010). Staffware.com. Daisy Brand Uses BPM to Improve Agility. staffware.com/resources/customers/ successstory_daisybrand.pdf (no longer available online). Supplychainer.com. Seven Ways to Immediately Increase Fulfillment Speed. June 22, 2006. supplychainer.com/50226711/seven_ways_to_im mediately_increase_order_fulfillment_speed.php (accessed July 2010). TIBCO. Daisy Brand Uses TIBCO s Solution to Deliver Fresh Services. TIBCO.com, 2006. tibco. com/resources/customers/successstory_daisybrand (accessed February 2008). UPS. UPS Supply Chain Solutions. UPS.com, 2008. e-logistics.ups.com (accessed February 2008). Violino, B. What Can Logistics Do for You? Cybermedia, June 2006. pressroom.ups.com/ staticfiles/articles/521.pdf (accessed February 2008). Vitasek, K., and K. Manrodt. Perfecting the Perfect Order. Multichannelmerchant.com, May 10, 2006. multichannelmerchant.com/opsandfulfillment/ad visor/perfect_order (accessed December 2006). ONLINE FILE W10.2 Application Case HONG KONG S OCTOPUS CARD In Hong Kong, virtually everyone uses public transportation at least once in a while, and, as a consequence, close to 95 percent of the residents in Hong Kong carry a metro card. In Hong Kong, the metro card is known as the Octopus Card, named after the company Octopus Ltd. that issues the cards and manages the payment system. The Octopus Card is a contactless smart card that comes in many shapes and sizes. Besides its standard smart card format, the card s chip has been embedded in jewelry, watches, and mobile phones, to name just a few items. Regardless of its form, the card works the same way. The card is passed near a scanner mounted on a subway turnstile or at the front of a bus, tram, or ferry. The scanner reads the card, deducts the fare, and displays the remaining amount on the card. The scan takes about.3 seconds, compared with 1 or 2 seconds for a contact card. Altogether, the Octopus system handles over 7 million transactions per day, worth about HK$50 million (US$19 million). Octopus Cards can be purchased in a number of places. They cost HK$150, of which HK$50 is a safety deposit and the remainder is the amount that can be spent on transportation fares. When the available funds on the card are exhausted, simply inserting the card in an add-value machine along with HK$50, HK$100, or HK$500 in cash reloads the card. The amount of cash is credited to the card and then it is ready to go. Physically, the card has a life span of about 10,000 transactions. The cards are sold for children, adults, or elders, and can be personalized. The Octopus card is available now in the form of watches, key chains, and mobile phones (Hong Kong Economic and Trade Office 2009). The public transportation system in Hong Kong offers a wide variety of options, including the Mass Transit Railway (MTR) subways, the Kowloon-Canton Railroad that runs to the Chinese border, the Light Rail Transit in the New Territories, the Star Ferry, the interisland ferries, the city bus system, the electric trams on Hong Kong Island, the trains to and from the airport, as well as the tram to Victoria Peak. A number of private or quasi-government firms run these systems. Early in 1997, the various entities decided to sign with the Octopus system. In all likelihood, if they had decided to issue their own transit cards, the smart card payment system would have failed to reach critical mass. Today, the public transportation system in Hong Kong runs on the assumption that nearly everyone has an Octopus Card. Those riders without cards often face long
Chapter Ten: Electronic Commerce Payment Systems W10.13 ONLINE FILE W10.2 lines and the constant need to have coins for fares. This is especially true on the city s bus system, where fares must be paid with coins in the exact amount or a higher amount. The Octopus Card eliminates all the hassle. The only downside of the card is that riders who lose their cards are out of luck. The Octopus Card is like cash, so if someone finds a card they can use it until its value is exhausted. Besides paying for transit fares, the Octopus Card is starting to become an all-purpose debit card. Over 2,000 different service providers including apparel stores, bakeries, car parks, cinemas, convenience stores, fast food chains, household stores, leisure facilities, personal care stores, photo finishing stores, photocopiers, supermarkets, and vending machines honor the card. Even so, over 90 percent of all transactions made with the card are for transit fares. Octopus technology and expertise have been exported to the Netherlands and Dubai where it is used in the public transportation systems. Questions 1. How does the Octopus Card work? 2. What accounts for the success of the Octopus system? REFERENCES FOR ONLINE FILE W10.2 Bailey, S. Riding the Hong Kong Octopus. ThingsAsian, June 26, 2003. thingsasian.com/stories-photos/2582 (accessed March 2009). Hong Kong Economic and Trade Office. Hong Kong s Octopus Propels Worldwide. Hong Kong Update, Spring 2009. hketo.ca/hkn0209/octopus.htm (accessed April 2009). Munroe, T. Plugged In: Hong Kong Embraces the Octopus Card. BusinessWorld Online, June 6, 2002. geocities.com/hal9000report/hal56.html (accessed March 2009). octopuscards.com (accessed April 2009). ONLINE FILE W10.3 Application Case STORED-VALUE CARDS: TAPPING THE TEEN AND PRETEEN MARKETS We re living on a plastic planet, where even vending machines, parking meters and Starbucks branches are now accepting credit and debit cards for everyday transactions. Small wonder that high schoolers who were expected to spend $195 billion in 2006, according to a study by the Harrison Group hanker for their own charge cards (Campbell 2006). According to a 2006 study by the Jump$tart Coalition for Financial Literacy, almost 50 percent of high school seniors in the United States have a credit card. Close to half of the students have a card in their own names, while the other half use their parents cards. In order to serve the market of kids under the age of 18, MasterCard and Visa have introduced a number of preloaded, open-loop, stored-value cards. These prepaid cards look like a regular plastic credit card, but the cardholder has no line of credit. Instead, they are more like debit cards in that the cardholder can only spend up to the amount loaded on the card. The cards are accepted anywhere a MasterCard or Visa credit card are accepted at stores, online, and at ATM machines. For the under-18 market, MasterCard offers the Allow Card (short for allowance card), which is a prepaid debit card. Not to be outdone, Visa offers a variety of cards that cater to the under-18 market, including the affinity-based MYPLASH card, which features images of rock stars and athletes on the cards. Another one of these cards is the RushCard, developed in conjunction with hip-hop mogul Russell Simmons. Besides working anywhere a Visa card is accepted, the card also works with mobile phones and provides discounts on clothing from Simmons Phat Farm and
W10.14 Part 5: EC Support Services ONLINE FILE W10.3 Baby Phat. Another is the Visa UPside card, which teaches responsible spending. Toward this end, Visa has developed a number of financial literacy programs for teachers and schools (see spendresponsibly.com). Probably the best known of the Visa offerings aimed at the under-18 market is the Visa Buxx card (pronounced bucks ). The Visa Buxx program was started in the fall of 1999 by WildCard Systems. WildCard created the system in order to tap into the teen market. In the United States, there are more than 30 million teens between 13 and 18 years of age, and they spend more than $160 billion annually. Most of their spending involves cash provided by their parents. WildCard was looking for a way to provide a turnkey payment system that would meet the needs of both parents and teens by offering a card that would provide: A parent-controlled reloadable payment card that would be accepted anywhere that Visa was accepted, including online and ATM cash machines. Stored-value functionality so that teens can only spend up to the amount established by their parents and loaded onto the card. A Web site where parents and teens could enroll for the card; add value through checking accounts, savings accounts, credit cards, or debit cards; set up recurring allowance schedules; shop online; and check balances and transaction history. Parental-control features so parents could maintain control over the account through the Web site. An educational component on the Web site so that teens could learn about financial responsibility and budgeting. WildCard licensed the Buxx product to Visa. Five Visa card issuers, including Bank of America, Capital One, National City, U.S. Bank, and Wachovia Bank, launched the system in 2000. Today, the card is offered by a wide range of banks throughout the United States. For issuing banks, the card helps build stronger relationships with existing customers (parents) and establishes relationships with new customers (the teens). In 2005, efunds (efunds.com) acquired WildCard. Although these prepaid cards offer a number of benefits, there is also a big downside. Excluding the actual use of the card, card issuers charge users fees for virtually every action. Most card issuers collect fees for enrolling in the program, reloading or replacing the card, and for making inquiries about the balance remaining on the card. Some issuers charge the cardholder if the card isn t used for a few weeks or months. Questions 1. What is the market for the MasterCard Allow Card and Visa RushCard? 2. What key characteristics underlie WildCard s Visa Buxx system? 3. What is the major downside of prepaid, preloaded cards for the under-18 market? REFERENCES FOR ONLINE FILE W10.3 Campbell, C. Educating Teens About Credit. 2006. bankrate.com/cnn/news/cc/20070109_teen_credit_ debit_card_a1.asp (accessed March 2009). Jump$tart Coalition for Financial Literacy. 2006 Jump$tart Questionnaire with Answers. 2006. mijumpstartcoalition.org/pdf/2006natjumpstar tsurveyanswers.pdf (accessed March 2009). WildCard Systems. Visa Buxx: Case Study. 2004. corporate.wildcardsystems.com/index.cfm?pageid =p09 (no longer available online).