Order fulfillment (in

British English British English (BrE, en-GB, or BE) is, according to Oxford Dictionaries, "English as used in Great Britain, as distinct from that used elsewhere". More narrowly, it can refer specifically to the English language in England, or, more broadl ...

: order fulfilment) is in the most general sense the complete process from

point of sale The point of sale (POS) or point of purchase (POP) is the time and place at which a retail transaction is completed. At the point of sale, the merchant calculates the amount owed by the customer, indicates that amount, may prepare an invoice f ...

s inquiry to delivery of a product to the customer. Sometimes, it describes the more narrow act of

distribution Distribution may refer to: Mathematics * Distribution (mathematics), generalized functions used to formulate solutions of partial differential equations *Probability distribution, the probability of a particular value or value range of a vari ...

or the logistics function. In the broader sense, it refers to the way firms respond to customer orders.

Classification

The first research towards defining order fulfillment strategies was published by Hans Wortmann, and was continued by Hal MatherHal Mather, Competitive manufacturing, Prentice Hall 1988 in his discussion of the P:D ratio, whereby P is defined as the production

lead time A lead time is the latency between the initiation and completion of a process. For example, the lead time between the placement of an order and delivery of new cars by a given manufacturer might be between 2 weeks and 6 months, depending on vari ...

, i.e. how long it takes to manufacture a product, and D is the demand lead time. D can be viewed as: # The lead time quoted by the firm to the customer # The lead time the customer wishes it was # The competitive lead time Based on comparing P and D, a firm has several basic strategic order fulfillment options: * 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 Formula One (also known as Formula 1 or F1) is the highest class of international racing for open-wheel single-seater formula racing cars sanctioned by the Fédération Internationale de l'Automobile (FIA). The World Drivers' Championship, ...

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 vehicle A motor vehicle, also known as motorized vehicle or automotive vehicle, is a self-propelled land vehicle, commonly wheeled, that does not operate on rails (such as trains or trams) and is used for the transportation of people or cargo. The ...

s and

aircraft An aircraft is a vehicle that is able to flight, fly by gaining support from the Atmosphere of Earth, air. It counters the force of gravity by using either Buoyancy, static lift or by using the Lift (force), dynamic lift of an airfoil, or in ...

. * Assemble-to-order (ATO); syn: Assemble-to-request - (Dmodular product architecture that allows for the final product to be configured in this way; a typical example for this approach is

Dell Dell is an American based technology company. It develops, sells, repairs, and supports computers and related products and services. Dell is owned by its parent company, Dell Technologies. Dell sells personal computers (PCs), servers, data ...

's approach to customizing 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 A grocery store ( AE), grocery shop ( BE) or simply grocery is a store that primarily retails a general range of food products, which may be fresh or packaged. In everyday U.S. usage, however, "grocery store" is a synonym for supermarket, a ...

and

retail Retail is the sale of goods and Service (economics), services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturing, manufacturers, dire ...

sectors. * Digital copy (DC) - (D=0, P=0) Where products are

digital assets A digital asset is anything that exists only in digital form and comes with a distinct usage right. Data that do not possess that right are not considered assets. ''Digital assets'' include but are not exclusive to: digital documents, audible ...

and inventory is maintained with a single digital master. Copies are created on-demand, downloaded and saved on customers' storage devices, such as research papers.

Processes

In the broader sense, the possible processes in a logistic-production system are: # 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 A purchase order is a commercial document and first official offer issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services. It is used to control the purchasing of products and services from exte ...

) # Order acknowledgment/confirmation – Confirmation that the order is booked and/or received # Invoicing/billing – The presentment of the commercial invoice/bill to the customer # Order sourcing/planning – Determining the source/location of item(s) to be shipped # Order changes – Changes to orders, if needed # Order processing – Process step where the

distribution center A distribution center for a set of products is a warehouse or other specialized building, often with refrigeration or air conditioning, which is stocked with products ( goods) to be redistributed to retailers, to wholesalers, or directly ...

or warehouse is responsible to fill order (receive and stock inventory, pick, pack and ship orders). # Shipment – The shipment and transportation of the goods # Track and trace – Determine the current and past locations of the goods during transit # Delivery – The delivery of the goods to the consignee/customer # Settlement – The payment of the charges for goods/services/delivery #

Return Return may refer to: In business, economics, and finance * Return on investment (ROI), the financial gain after an expense. * Rate of return, the financial term for the profit or loss derived from an investment * Tax return, a blank document or t ...

s – In case the goods are unacceptable/are not required

Strategic importance

The order fulfillment strategy also determines the de-coupling point in the supply chain, which describes the point in the system where the "push" (or forecast-driven) and "pull" (or demand-driven see

Demand chain management Demand-chain management (DCM) is the management of relationships between suppliers and customers to deliver the best value to the customer at the least cost to the demand chain as a whole. Demand-chain management is similar to supply-chain manage ...

) elements of the supply chain meet. 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 of interest. Since the forecast error is derived from the same scale of data, comparisons bet ...

). Typically, the higher the P:D ratio, the more the firm relies on forecasts and inventories. Hal Mather suggests three ways to tackle this "planning dilemma": #Improve forecasting accuracy #Provide for flexibility #Build a process to recognize forecasting errors and quickly correct production planning It has become increasingly necessary to move the de-coupling point in the supply chain to minimize the dependence on the forecast and to maximize the reactionary or demand-driven supply chain elements. This initiative in the distribution elements of the supply chain corresponds to the Just-in-time initiatives pioneered by

Toyota is a Japanese multinational automotive manufacturer headquartered in Toyota City, Aichi, Japan. It was founded by Kiichiro Toyoda and incorporated on . Toyota is one of the largest automobile manufacturers in the world, producing about 10 ...

. The order fulfillment strategy has also strong implications on how firms customize their products and deal with product variety. Strategies that can be used to mitigate the impact of product variety include

modularity Broadly speaking, modularity is the degree to which a system's components may be separated and recombined, often with the benefit of flexibility and variety in use. The concept of modularity is used primarily to reduce complexity by breaking a sy ...

, option bundling, late configuration, and build to order (BTO) strategies—all of which are generally referred as

mass customization In marketing, manufacturing, call centre operations, and management, mass customization makes use of flexible computer-aided systems to produce custom output. Such systems combine the low unit costs of mass production processes with the flexibili ...

strategies. The decoupling point can place a much stronger emphasis on the supply chain based on the process as well as the nature of supply chain configurations.Guven-Uslu, P., Chan, H.K., Ijaz, S., Bak, O., Whitlow, B. and Kumar, V., 2014. In-depth study of ‘decoupling point’as a reference model: an application for health service supply chain. Production Planning & Control, 25(13-14), pp.1107-1117.

References

{{DEFAULTSORT:Order Fulfillment Freight transport Inventory Supply chain management