THE ORDER PROCESSING SYSTEM AND ORDER CYCLE MANAGEMENT

Among the factors that have driven the development of logistics around the world, one of the most important is the growing and intelligent use of information, which has become possible thanks to the enormous development of information technologies. The speed, scope and quality of information flows directly impact the cost and quality of logistical operations. That is, slow and erratic information flows usually result in a drop in service quality, increased costs, and loss of market share.

A good way to understand the role of information in the performance of logistics systems is through the order processing system and order cycle analysis, based on the concept of integrated logistics represented in the following figure.

The concept of integrated logistics assumes that the logistics system must be understood as an operational marketing tool. One of the most used models for establishing a marketing strategy is the marketing mix, popularly called the 4 Ps model. According to this model, the marketing strategy must be established based on product, price, promotion and place policies, that is, distribution channels.

When defining a distribution channel policy, a mission is created for the logistics organization, as logistics has the role of operationalizing this policy. Therefore, the structure of a logistics system must be designed from the establishment of its mission, which results from the formalization of the types and levels of services to be offered to different channels and customer segments. Setting up a logistics system, on the other hand, comprises five basic components: transport; storage; stock; order and information processing, and production/purchasing. Within the concept of integrated logistics, the role of the logistics organization is to meet the service levels established by the marketing strategy at the lowest total cost of its components, that is, the lowest sum of component costs. It is important to draw attention to the existing trade-offs between the components of the logistics system. The existence of these trade-offs requires coordination / integration between the various components.

The order and information processing system in an advanced logistics company makes intensive use of information technologies and is considered the basis for coordination/integration. This coordination role places the order processing system as the central nerve of the logistics system. A well-designed order processing system allows for centralized command of information and material flows.

ORDER CYCLE AND INFORMATION AND MATERIAL FLOWS

Logistic systems are composed of information and material flows, where information flows trigger and control material flows. Therefore, a very practical way to better understand the order cycle and the order processing system is to examine the information and material flows, that is, the activities that occur from the moment the customer decides to consider the possibility of placing an order. order, until the moment you receive this order and make the payment. Figure 2, below, seeks to represent the main stages of the order cycle.

The first stage, normally called order preparation, begins with the identification of a need to purchase products or services, and is completed with the selection of potential suppliers. The identification of the need can be provoked by the most varied stimuli: the visit of a seller; consulting a catalogue; reading an ad in a newspaper or magazine; exposure to a TV or radio advertisement; the receipt of a message via the internet or the identification that the time has come to replenish stocks. The development of the Internet has enabled an enormous advance in this first stage of the order cycle, as it expands and streamlines the activities of identifying suppliers and accessing information on the characteristics of the products and services offered.

Once the purchase of products or services has been decided, the second stage of the cycle begins, that is, the transmission of the order to the supplier. Prior to the development of modern communication systems, this stage was characterized by slowness and high susceptibility to errors. This is because orders were formalized by filling out a paper form and sending them through the sellers or by post. The development of telephones and call centers, as well as portable computers and the Internet, has revolutionized this stage of the ordering cycle. This revolution directly impacts the ease and speed with which orders are formalized and transmitted, as well as the errors that are reduced as a result of the reduction in the number of human interventions in the process. If in the past the preparation and transmission time was measured in days or weeks, today, with the use of modern communication systems, and especially the Internet, time can be measured in minutes, bringing enormous agility to the logistical process.

The third step, which occurs after the supplier has received the order, is to enter the order into the processing system. In general, this step requires entering the order data into the system, so that the supplier can start processing it. In cases where the request is made via the Internet, this step tends to be automated, eliminating the typing process.

After order entry, several checks and decisions need to be made before the order is confirmed and shipment is authorized. Two of the most important checks that need to be made concern stock availability and confirming customer credit. In cases of made-to-order products, checking the availability of stocks is replaced by checking the status of the production schedule. The estimated delivery date should be calculated during this phase based on current stock availability, backorders and production status.

Once the existence of credit is confirmed and the availability of stock, the physical activities of picking, packing and shipping the order can begin. Parallel to these physical activities of material handling, it is necessary to schedule the transport and issue the legal documentation, involving the bill of lading and invoice. The cycle is completed with the transport and delivery of the goods, and the payment of the invoice by the customer.

THREE COMMON PROBLEMS IN ORDER CYCLE MANAGEMENT

Although the order processing system is increasingly automated and sophisticated, it is not entirely immune to problems during the order cycle. In fact, three types of problems occur relatively frequently during the order cycle: 1) conflicting perceptions between customers and suppliers about the actual performance of the order cycle; 2) the occurrence of significant variability in cycle times; 3) exaggerated fluctuations in demand over time.

CONFLICTING PERCEPTIONS

Conflicting perceptions of actual order cycle performance are directly related to customers and suppliers using different metrics to measure the same phenomenon. One of the most common situations where such a situation occurs concerns cycle time, which is often measured from a limited view on the part of suppliers and a broader view on the part of their customers.

From the customer's point of view, the cycle time count starts from the moment the order is formalized / transmitted, and ends when it is correctly delivered and formally received at the specified delivery location. On the other hand, many suppliers consider that the cycle time count only starts when the order is received and entered into the system, and ends when it is shipped and shipped.

This usually occurs in cases where the supplier is unable to monitor the time when the order was transmitted, nor the time when the order was received by the customer. This way, he starts to have a limited view of the true cycle time, as he fails to consider the time between the transmission and the entry of the order, as well as the time between the shipment and the receipt of the order. This limited vision on the part of suppliers, restricted to internal processes, results in an overestimation of the quality of services, and in dissatisfaction on the part of customers. While the supplier considers that it is offering an excellent cycle time, the customer considers this time to be poor and unsatisfactory.

VARIABILITY OF CYCLE TIMES

A second type of problem, normally present in order cycle management processes, is related to process variability, which results in cycle time variability. The lower the standardization of processes and the less sophisticated the control systems, the greater the variations in cycle times tend to be. Figure 3 below, exemplifies the impacts of small variations in the times of the various processes in the total order cycle time.

Figure 3 - Variability in cycle time

In the example above, the order cycle is broken down into 6 steps, ie preparation and transmission, receipt and entry, processing, picking and/or production, shipping and transport, customer receipt.

Each of the 6 stages has a minimum time, a maximum time, and an average time duration. The total cycle time results from the sum of the times of each of these steps, which means that the average total order cycle time is 13 days, but with a variation that goes from 4,5 to 21 days. Such variability creates a serious problem for customers and suppliers, that is, which cycle time to consider when establishing the delivery date. If we work on average, a substantial part of orders (around 50%) will be delivered late. On the other hand, if the maximum cycle time (21 days) is considered, deliveries will be made in much shorter terms than promised, which may lead to problems with customers receiving the product. The best alternative to tackle this problem is certainly to seek to reduce the variability of the stages, by identifying its main causes, and establishing effective systems for planning and monitoring the processes.

MAIN CAUSES OF VARIABILITY IN ORDER CYCLES

There are basically eight, the main causes of order cycle variability. These causes can be divided between informational/decision-making processes, and physical processes. Among the informational processes, the following stand out: 1) delays in order transmission; 2) delay in credit approval; 3) delay in negotiating discounts; 4) priority in attendance. Among the physical processes, the following stand out: 1) inventory availability problems; 2) wait for load consolidation; 3) miscellaneous transport delays; 4) delivery difficulties to customers.

Delays in transmitting orders may occur due to the method used, for example, when using a paper form to fill in the order, and they are sent by post to the supplier. Another cause may be the inappropriate use of more modern technologies, such as the use of a palm top or notebook to take and transmit the order, by the seller. In principle, this process of preparing and transmitting the order should be done online, in real time. However, many times, for reasons of convenience or haste, the seller decides to take the order using the form, and only later transmits this order to the supplier, delaying the transmission of the order. This second cause can be eliminated through more careful training and stricter control of the sales force. By giving up the use of the online tool to take and transmit the order, there is a risk of selling products that are not available in stock, thus compromising the delivery time, or the delivered quantity of the total sold.

A second source of variability in cycle times is in the process of credit approval. It is not uncommon to find companies where this activity is organizationally disconnected from the order cycle management activity, being the exclusive and isolated responsibility of the financial sector responsible for accounts receivable. In situations like these, it is quite common for an order to be held up due to lack of credit approval, without the sales or logistics organization being formally notified or consulted. Such a procedure can lead to extremely long order fulfillment times, which can generate large variations in the order cycle time.

In a very similar way to what happens in credit approval, the credit approval procedure discounts centralized, tends to generate substantial delays in order cycle time. As this type of procedure tends to be seen as an exception, most of the time the people responsible for it do not give it due priority, resulting in significant cycle time delays.

The lack of systemic vision for the setting priorities in stock allocation, or in production scheduling, is another factor that tends to generate excessive variability in the order cycle time. Most of the time, this situation occurs due to the use of apparently rational criteria, such as, for example, prioritizing the fulfillment of orders from large customers, to the detriment of small ones, without, however, considering the impact of such practices on delivery times.

A lack of stocks of certain items, a consequence of the lack of coordination between sales, production and transport, is another important source of delays, and therefore of variability in the order cycle. A good example of this is what happened until recently in a large Brazilian steel plant. Production scheduling was basically done with the aim of minimizing production costs, without taking into account agreed delivery times and shipment schedules for products for export. In this way, there was often a great delay in the shipment of goods abroad, with ships waiting in the port for the goods, at the same time that there was stock in large quantities of products for the domestic market, whose specifications did not meet the requirements of the importers.

In companies that have not yet implemented the concept of total logistics cost, it is quite common to find situations where transport is contracted by the purchasing organization, without the direct participation of the logistics organization. In these cases, it is quite common to hire transportation at the lowest possible price, without taking into account consideration the actual cost of the carrier, nor the quality of service to the customer.

In such situations, it is not uncommon for the carrier to collect the cargo from the customer and transfer it to its local terminal, where it is held waiting for other cargo to the same destination, with the aim of guaranteeing consolidation and thus reducing the cost. of the transporter.

transport delays tend to occur whenever there is no planned process for routing deliveries, or when there is no monitoring system that controls the execution of what was planned. In these cases, it is observed, with some frequency, the non-compliance with the planned route, or the occurrence of unscheduled stops. In addition, in the case of Brazil, the growth of cargo theft and the poor conditions of most of the roads, which increase the chances of accidents, contribute to the growth of uncertainty and therefore the variability of the cycle.

Another factor that contributes to the increase in delay, and therefore cycle variability, is the inability to deliver the cargo to the recipient. Issues such as lack of address, addressing errors, discrepancies in the invoice or bill of lading, absence of the person responsible for receiving the merchandise, and closed establishment, are some of the causes that prevent the delivery of the merchandise in the first attempt, and that result in the increase of the order cycle.

DEMAND FLUCTUATIONS

The third and most common phenomenon that affects order cycle management is demand peaks and valleys, which occur due to a variety of factors and generate significant uncertainties and inefficiencies not only in the order cycle, but throughout the entire logistics system. . Among the factors that contribute to demand fluctuations, sales promotions, quantity discounts, sales force performance evaluation systems (monthly quotas), speculative movements by customers, and various seasonal factors can be highlighted. .

Figure 4, below, is a clear example of the magnitude of daily fluctuations in demand that can occur in the supply chain, even in situations where demand at the end of consumption is quite stable. In the case of figure 4, the data represent the volume of daily orders received by a fuel distributor from its retail customers. The magnitude of the fluctuations (about 400% between peaks and valleys) becomes more intriguing when one considers that the volume of daily sales from stations to final consumers is quite stable, with fluctuations rarely exceeding 20%. A more careful examination of the factors that explain the magnitude of fluctuations naturally leads to the conclusion that it is speculative commercial practices, and not the final consumption pattern, that are mainly responsible for the phenomenon.

It is therefore necessary to seek to correct these practices, with the aim of reducing fluctuations in demand and eliminating the enormous waste that results. The search for cooperation between customers and suppliers, based on the continuous exchange of information, and on joint projects, aimed at eliminating waste, is the natural way to tackle these problems. The diffusion of the concept of supply chain management, and the increasing use of modern information technologies, represent a fundamental contribution to tackling this problem.

Among the new SCM practices that have contributed the most to eliminating problems and improving the management of the order cycle, the VMI (Vendor Management Inventory), the CRP (Continuous Replenishment Program), and the CPFR (Collaborative Planning, Forecasting and Replenishment) stand out. ), which break old paradigms and replace outdated commercial practices, responsible for increasing costs and deteriorating the quality of services.