Order fulfillment (in BE also: order fulfilment) is in the most general sense the complete process from point of sales inquiry to delivery of a product to the customer. Point of sale or point of service ( POS or PoS) can mean a retail shop, a checkout counter in a shop or the location where a transaction Sometimes Order fulfillment is used to describe the more narrow act of distribution or the logistics function, however, in the broader sense it refers to the way how firms respond to customer orders.
The first research towards defining order fulfiment strategies was published by Mather (1988) and his discussion of the P:D ratio, whereby P is defined as the production lead-time, i. e. how long it takes to manufacture a product, and D is the demand lead-time, i. e. how long customers are willing to wait for the order to be completed. Based on comparing P and D, a firm has several basic strategic order fulfilment options:[1]
- 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 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 vehicles and aircraft
- Assemble-to-Order (ATO) - (D<P) Here, the product is built to customer specifications from a stock of existing components. This assumes a modular product architecture that allows for the final product to be configured in this way; a typical example for this appraoch is Dell's approach to customising 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 and retail sectors.
In its broadest definition the possible steps in the process are [1]
- Product Inquiry - Initial inquiry about offerings, visit to the web-site, catalog request
- Sales Quote - 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)
- Order Acknowledgment / Confirmation - Confirmation that the order is booked and/or received
- Order Sourcing / Planning - Determining the source / location of item(s) to be shipped
- Order Changes - Changes to orders, if needed
- Shipment Release - Process step where the warehouse / inventory stocking point starts the shipping process. A sales quote allows a prospective buyer to see what costs would be involved for the work they would like to have done A purchase order (PO is a commercial document issued by a Buyer to a seller, indicating the type quantities and agreed prices for products or services In Project management, a change order is a component of the Change management process whereby changes from the agreed upon scope (limitations of the project's May comprise of picking, packing and staging for shipment.
- Shipment - The shipment and transportation of the goods
- Delivery - The delivery of the goods to the consignee / customer
- Invoicing / Billing - The presentment of the commercial invoice / bill to the customer
- Settlement - The payment of the charges for goods / services / delivery
- Returns - In case the goods are unacceptable / not required
The order fulfilment strategy also determines the de-coupling point in the supply chain (Olhager, 2003), which describes the point in the system where the "push" (or forecast-driven) and "pull" (or demand-driven) elements of the supply chain meet. Shipping is physical process of Transporting goods and Cargo. Delivery is the process of transporting Goods. Most goods are delivered through a transportation network. An invoice or bill is a commercial document issued by a seller to the Buyer, indicating the products quantities and agreed Prices 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
The order fulfilment strategy has also strong implications on how firms customise their products and deal with product variety (Pil and Holweg, 2004). Strategies that can used to mitigate the impact of product variety include modularity, option bundling, late configuration, and build to order (BTO) strategies -- all of which are generally referred as mass customization strategies. Build To Order ( abbrev: BTO; Chinese: 预购组屋制度 is a Housing and Development Board (HDB flat allocation system that offers flexibility Mass customization, in Marketing, Manufacturing, and Management, is the use of flexible computer-aided manufacturing systems to produce custom output
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