Back to Basics: The Role of Supply Chain is Order Fulfillment

 [First Published in BusinessWorld]

Whether you are a new business or an established one, NOT fulfilling a delivery commitment will likely lead to serious consequences. The problem becomes worse if your company is new and aggressive but unaware of its capabilities to deliver customer orders. 

Most businesses have three core processes: demand generation, order generation, and order fulfillment.  

Demand generation is usually within the realm of Marketing while order generation is often a function of Sales.  Order fulfillment follows as a responsibility of Operations or the Supply Chain department. 

Firms often emphasize the demand and order generation processes in their strategies. But in the past 10 to 15 years, executives have placed more attention to order fulfillment. This is due mainly to growing complexity in supply chains as many firms have expanded globally and as many new products have entered the market.   

Managers are realizing that improvements in order fulfillment can:

1. increase sales by 2% - 5% year on year via better servicing of orders and less stock-outs;
2. reduce cost via efficiencies in orders processing and shipments;

3. generate goodwill via complete and on-time deliveries.

Not meeting a delivery commitment is no longer unacceptable in many companies. Some managers recall that there was a time firms can get away by not delivering orders complete and on-time. Customers would wait as they wouldn’t have other vendors to source from. 

But as customers now can source supply not only locally but from even other countries thanks to lifting of trade restrictions and to better communications technologies, a firm can quickly lose its competitive position if it doesn’t deliver right the first time. 

Exporters, for example, channel their deliveries via expensive international air freight to ensure on-time deliveries to foreign customers because the effect of not meeting a delivery deadline can be a horrific termination of a very profitable relationship and the end of a key livelihood for its employees. 

Lest they feel the wrath of unsatisfied customers, managers have prioritized order fulfillment and some have even realized it should be part and parcel of a firm’s strategic plan. 

For example, Dell Computer’s meteoric rise in the personal computer industry was due largely to its re-engineering the order fulfillment process which eliminated middle-men and guaranteed deliveries within 24 to 48 hours. Customers can order and customize the personal computers they want to buy from Dell and have it delivered within days.  

The order fulfillment process consists mainly of the following activities:

‒     Supply Chain management alignment with Sales and Marketing on what and how much to sell;

‒     Planning for materials, capacity, and resources;

‒     Orders capture

‒     Executing materials, capacity, and resource plan

‒     Actual delivery

As much as it seems a straightforward process, companies have encountered obstacles and have traced their problems to factors such as: 

►   Lack of communication in forecasting

►   Un-coordinated capacity planning

►   Purchasing the wrong materials

►   Haphazard crewing of production lines

►   Wrong order entry information

What goes wrong in the supply chain will go wrong in order fulfillment. 

And when things go wrong in order fulfillment, deliveries are rejected and customers get angry. In this scenario, perhaps the delivery policy should be better never than late!

Customers today demand flexibility in deliveries whether it is in quantities or in the SKU’s delivered. Customers also want to keep their inventories lean, hence they more than ever want more frequent deliveries at less order quantities. These kinds of “customer terms and conditions” increase the cost of freight even as customers continue to demand the lowest prices for their orders. 

These challenges can be mind-boggling but they are not new. There are solutions. But as there can never be easy answers, one has to make the journey to determine the best strategic options in improving the order-fulfillment process of the business. Here are some of our suggestions in starting that journey:

1. Get top management commitment to put priority on the order fulfillment process. If you are top management, then this is easy. If not, well, then you’ll have to develop your convincing powers to justify that improving order fulfillment will mean improvement in sales, reduction of cost, and better customer goodwill; 
2. Assign a top-notch senior manager to take the lead. It starts with credibility so this lucky person should have the training and drive to attain the results and sustain the improvement process;
3. Spotlight the opportunity with the greatest potential and focus resources on it. Multi-tasking sounds nice but if management vision is blurred because it’s taking on too many things at the same time, most likely nothing will be accomplished within a reasonable amount of time. The best two (2) improvement projects highlighting the most visible impact should at most be the only ones on the management’s plate;
4. Execute. The plans may never be perfect but no plan will come close if there’s no execution. Execution manifests the plan. But beware that manifestation means meeting targets set by the plan. These targets should be relevant to order fulfillment (e.g. product availability, un-served orders, delivery timeliness).

Keeping and sustaining customer relationships is a basic tenet of business. Meeting the delivery needs of customers ensures the reality of that tenet. It may sound “straightforward” but how your company meets the needs of customers can single-handedly determine not only your company’s profitability but also its survival in the marketplace.

The author is a Business Consultant and Supply Chain Management practitioner at Prosults Consulting LLP.  He has directed and implemented Business Improvement projects both local and international which have resulted to company-wide improvements in revenue, working capital, total cost, and service levels. Mr. Jader was formerly with Procter & Gamble Philippines and Coopers & Lybrand/PricewaterhouseCoopers. Should you have questions or comments, please e-mail at jjjader@prosultsconsulting.com