m10 turb9235 03 se wc10.qxd 8/13/10 8:04 pm page w10.1 online file

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 OverviewTaking orders over the Internet may be the easy part of B2C. Fulfillment and delivery to customers’ doors are the trickyparts (e.g., see Vitasek and Manrodt 2006). Many e-tailers have experienced fulfillment problems, especially during the1990s. Amazon.com, for example, which initially operated as a totally virtual company, added physical warehouses withthousands 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 toineffective e-tailing supply chains. Many of the same problems affect offline businesses. One issue typical to EC is that ECis based on the concept of “pull’ operations that begin with an order, frequently a customized one. This is in contrast totraditional retailing, which usually begins with a production of inventory that is then “pushed’ to customers. In the EC pullcase, it is more difficult to forecast demand because of lack of experience and changing consumer tastes. Another reasonfor delays is that in a B2C pull model, many small orders need to be delivered to the customers’ doors, whereas in brick-and-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 orderfulfillment and logistics concepts.

Overview of Order FulfillmentOrder fulfillment refers not only to providing customers with what they have ordered anddoing so on time but also to providing all related customer services. For example, a customermust receive assembly and operation instructions with a new appliance. This can be done byincluding 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 bearranged.

Order fulfillment involves back-office operations, which are the activities that supportthe fulfillment of orders, such as packing, delivery, accounting, inventory management, andshipping. It also is strongly related to the front-office operations, or customer-facingactivities, such as advertising and order taking, that are visible to customers.

Overview of LogisticsThe Council of Supply Chain Management Professionals defines logistics as “the process ofplanning, 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 purposeof conforming to customer requirements’ (Council of Supply Chain Management Professionals2008). Note that this definition includes inbound, outbound, internal, and external movementand the return of materials and goods. It also includes order fulfillment. However, thedistinction between logistics and order fulfillment is not always clear, and the terms aresometimes 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 ProcessIn order to understand why there are problems in order fulfillment, it is beneficial to look at atypical EC fulfillment process, as shown in Exhibit W10.1.1. The process starts on the left, whenan 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 activitiesinclude the following steps:

◗ Step 1: Making sure the customer will pay. Depending on the payment method and priorarrangements, the validity of each payment must be determined. In B2B, the company’s finance department or financialinstitution (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.

back-office operationsThe activities thatsupport fulfillment oforders, such as packing,delivery, accounting,and logistics.

order fulfillmentAll the activities neededto provide customerswith their ordered goodsand services, includingrelated customerservices.

front-office operationsThe business processes,such as sales andadvertising, that arevisible to customers.

logisticsThe operations involvedin the efficient andeffective flow andstorage of goods,services, and relatedinformation from pointof origin to point ofconsumption.

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M10_TURB9235_03_SE_WC10.QXD 8/13/10 8:04 PM Page W10.1

W10.2 Part 5: EC Support Services

FinancialInstitution

Contractors

Creditagreement

Replenishmentorders

Receivingwarehouse

Productionplanning

Find where andhow muchto produce

Finance

Sales

UPS,FedEx,

etc.

ERP

Order fromsuppliers

Frommanufacturing

facility

Shipping

Subsuppliers

Finance

Insurance

Shipping

HRM

Legal

ProductionFacility

AccountingSub-subsuppliers

OK?

ReplyQuery

Order

Business

Yes Yes

No

No, delay?

No

Inventory

Extended supply chain

(tier 2)

(tier 3)

Inventory

Note: Demand forecasts and accounting are conducted at various points throughout the process.

Accounting?

?Returns center

Returns

Starthere

Customer

1 2 3

7

5

6

7

9

3

4

8

3

8

(tier 1)

Digitizable products

EXHIBIT W10.1.1 Order Fulfillment and the Logistics Process

Online File W10.1 (continued)

◗ Step 2: Checking for in-stock availability. Regardless of whether the seller is a manufacturer or a retailer, as soonas an order is received an inquiry needs to be made regarding stock availability. Several scenarios are possible herethat may involve the material management and production departments, as well as outside suppliers and warehousefacilities. In this step, the order information needs to be connected to the information about in-stock inventoryavailability.

◗ Step 3: Arranging shipments. If the product is available, it can be shipped to the customer right away (otherwise, go tostep 5). Products can be digital or physical. If the item is physical and it is readily available, packaging and shipmentarrangements need to be made. It may involve both the packaging and shipping department and internal shippers oroutside 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 toflow among several partners.

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◗ Step 4: Insurance. Sometimes the contents of a shipment need to be insured. This could involve both the financedepartment and an insurance company. Again, information needs to flow, not only inside the company, but also to andfrom 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 bycontractors. 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 onmodifications, getting equipment, and preparing content. The actual production facilities may be in a different countrythan 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 theseller is a retailer, such as in the case of amazon.com or walmart.com, the retailer must purchase products from itsmanufacturers. Several scenarios are possible. Warehouses can stock purchased items, which is what Amazon.com doeswith its best-selling books, toys, and other commodity items. However, Amazon.com does not stock books for which itreceives 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) arearranged.

◗ Step 8: Contacts with customers. Sales representatives need to keep in constant contact with customers, especially inB2B, 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; morethan $100 billion in North American goods are returned each year (Kuzeljevich 2004). Returns cost UK retailersapproximately $1.4 billion a year (Boles 2004). The movement of returns from customers back tovendors is called reverse logistics.

Order fulfillment processes may vary, depending on the product and the vendor. The orderfulfillment process also differs between B2B and B2C activities, between the delivery of goodsand of services, and between small and large products. Furthermore, certain circumstances, suchas 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 oreliminate several of these problems.

Order Fulfillment and the Supply ChainThe 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 internalparticipants, as well as with and among external partners (see Kelsall 2006). The principles of supply chain managementmust be considered when planning and managing the order fulfillment process.

Traditional Versus EC LogisticsEC logistics, or e-logistics, refers to the logistics of EC systems mainly in B2C. The majordifference between e-logistics and traditional logistics is that the latter deals with the move-ment of large amounts of materials to a few destinations (e.g., to retail stores). E-logistics ship-ments typically are small parcels sent to many customers’ homes. Other differences are shown inExhibit W10.1.2.


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reverse logisticsThe movement ofreturns from customersto vendors.

e-logisticsThe logistics of ECsystems, typicallyinvolving small parcelssent to many customers’homes (in B2C).




Questions1. 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.

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, demandfor the $399 reader far outpaced forecasts and the device quickly sold out. Well after the season was over, the deviceremained backordered. Part of the problem was due to the inability of one of Amazon’s key parts suppliers, Prime ViewInternational (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 ProblemsAmazon.com’s fulfillment problems are typical of those experienced in both offline and online commerce. First, demandforecasting is difficult. In the case of standard or commodity items, such as toys, a demand forecast must be done in orderto determine appropriate inventories of finished goods at various points in the supply chain. In the case of customizedproducts, 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,

W10.1.2 Addressing Problems in Order Fulfillment

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Characteristic Traditional LogisticsBulk, large volumeFewPushVery large, usually more than $1,000Stable, consistentBusiness partners (in B2B), usually repeat

customers (B2C), not manyUsually unidirectional, from manufacturersOne linkFrequently the company, sometimes out-

sourcedCommon

Type, quantityDestinationsDemand typeValue of shipmentNature of demandCustomers

Inventory order flowAccountabilityTransporter

Warehouse

EC LogisticsSmall, parcelsLarge number, highly dispersedPullVery small, frequently less than $50Seasonal (holiday season), fragmentedUsually unknown in B2C, many

Usually bidirectionalThrough the entire supply chainUsually outsourced, sometimes the

companyOnly very large shippers

(e.g., amazon.com) operate their own

EXHIBIT W10.1.2 How E-Logistics Differs from TraditionalLogistics



weather conditions, technological developments, and consumer taste and confidence influence demand. Any one of thesefactors can change quickly. This means that the demand forecast needs to be adjusted frequently based on inputs from allthe 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, internalunits, and business partners in the face of uncertainties. Some of these uncertainties include variable delivery timescreated by factors ranging from machine failures, to poor road conditions, to quality problems of materials and parts, all ofwhich 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 pack-ages to many customers’ doors. Improper inventory levels are typical in EC, as are poor delivery scheduling and mixed-upshipments. Pure EC companies are likely to have more problems because they do not have a logistics infrastructure alreadyin place and are forced to use external logistics services rather than in-house departments forthese 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 morecoordination and dependence on outsiders who may not be reliable. For this reason, many largevirtual retailers are following Amazon.com’s lead and have or are developing their own physicalwarehouses and logistics systems. Other virtual retailers are creating strategic alliances withlogistics companies or with experienced mail-order companies that have their own logisticssystems.

Solutions to Order Fulfillment ProblemsMany EC logistics problems are generic; they can be found in the non-Internet world as well. Therefore, many of thesolutions that have been developed for these problems in brick-and-mortar companies also work for e-tailers. This sectiondescribes some of the specific solutions to the EC order fulfillment problems (Hett and Davis 2006).

Improvements in the Order-Taking ProcessOne way to improve order fulfillment is to improve the order-taking process and its links to fulfillment and logistics. Ordertaking can be done via EDI, EDI/Internet, the Internet, or an extranet, and it may be fully automated. For example, inB2B, orders can be generated and transmitted automatically to suppliers when inventory levels fall below a certainthreshold. The result is a fast, inexpensive, and more accurate (no need to rekey data) order-taking process. In B2C, Web-based ordering using electronic forms expedites the process, makes the process more accurate (e.g., intelligent agents cancheck the input data and provide instant feedback), and reduces processing costs for sellers. When EC order taking caninterface 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 partsfrom its own warehouse. Whenever delivery of such parts runs smoothly, it minimizes disruptions to the manufacturingprocess, 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 ImprovementsA popular EC inventory management solution is a warehouse management system (WMS). WMSrefers to a software system that helps in managing warehouses. It has several components. Forexample, 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) areleaders in the WMS market space. Online File W10.1.1 illustrates how one company, SchurmanFine Paper, has utilized its WMS to improve demand forecasting and inventory management.


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third-party logisticssuppliers (3PL)External, rather than in-house, providers oflogistics services.

warehousemanagementsystem (WMS)A software system thathelps in managingwarehouses.



ONLINE FILE W10.1.1 EC Application

HOW WMS HELPS SCHURMAN IMPROVE ITS INTERNALAND EXTERNAL ORDER FULFILLMENT SYSTEMSchurman Fine Paper (now papyrusonline.com) is amanufacturer and retailer of greeting cards and relatedproducts. It sells through its own 170 specialty stores(Papyrus), as well as through 30,000 independent retailoutlets.

Using integrated logistics software solutions fromRedPrairie (redprairie.com), Schurman improved its demandforecast and minimized both out-of-stocks and overstocking.The system also allows physical inventory counts to beconducted without the need to shut down the two centralwarehouses for a week three times a year.

The central warehouses receive shipments from about200 suppliers worldwide (500 to 1,000 orders per day).Until 2003, all inventory and logistics management wasdone manually. One problem solved by the software ispicking 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. Thissystem automatically generates an advanced shippingnotice (replacing the lengthy process of manual scanning).The new system also automates the task of assessing thelength, width, height, and weight of each item before itgoes into a box (to determine which item goes into whatbox). The system also improved inventory replenishmentallocations. In the past, the list of items to be picked upincluded 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 storagecenter, resulting in delays. The WMS simultaneously createdtwo lists, expediting fulfillment. This tripled the number oforders fulfilled per picker per day. The system also gener-ates automatic replenishment orders for items falling belowa minimum level at any storage location.

In addition, special software provides Schurman’scustomer service department with real-time access toinventory and distribution processes, allowing thedepartment to track the status of all orders. The WMS alsotracks the status of all orders and sends alerts when anorder problem occurs (e.g., delay in downloading). An e-mail goes to all necessary parties in the company sothey can fix the problem. Finally, information collectedabout problems can be analyzed so remedies can be madequickly. All of this helps to reduce both overstocks andout-of-stocks.

Sources: Compiled from Parks (2004), papyrusonline.com(accessed February 2008), Maloney (2006), and redprairie.com(accessed February 2008).

Questions1. Identify what the WMS automates, both in receiving

and shipping.

2. How has inventory management been improved?

Other Inventory Management ImprovementsWMS is useful in reducing inventory and decreasing the incidence of out-of-stocks. Such systems also are useful inmaintaining 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 accuratedemand information to suppliers can minimize inventories. Allowing business partners to electronically track and monitorinventory levels and production activities can improve inventory management and inventory levels, as well as minimize theadministrative expenses of inventory management. In some instances, the ultimate inventory improvement is to have noinventory at all; for products that can be digitized (e.g., software), order fulfillment can be instantaneous, eliminating theneed for inventory.


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Automated WarehousesLarge-volume EC fulfillment requires automated warehouses. Regular warehouses are built to deliver large quantities to asmall number of stores and plants. In B2C, however, businesses need to send small quantities to a very large number ofindividuals. 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 acompany 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 com-pany handles its own order fulfillment process for mail orders and online orders, as well as orders for Wal-Mart, Macy’s, andmany others. Other companies (e.g., fosdickfulfillment.com) provide similar order fulfillment services. The keys to success-ful inventory management, in terms of order fulfillment, are efficiency and speed, which can be facilitated by wirelessdevices.

Partnering Efforts and Outsourcing LogisticsAn 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 partneringexample is marketplaces managed by forwarders.com and aacb.com, which help companies with goods find “forwarders’-theintermediaries that prepare goods for shipping. They also help forwarders find the best prices on air carriers, and the carri-ers 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 GreenspunCorporation, is a retailer that sells from catalogs on airplanes, over the Internet, and by mail order. It relies on its catalogpartners 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 conveysthe data to the appropriate vendor or to a Sykes distribution center. A report is then sent to SkyMall.

Comprehensive Logistics ServicesMajor shippers, notably UPS and FedEx, offer comprehensive logistic services. These services are for B2C, B2B, G2B, andother types of EC. See Online File W10.1.2 for a description of the broad EC services UPS offers.



UPS PROVIDES BROAD EC SERVICESUPS is not only a leading transporter of goods sold on theInternet, but it also is a provider of expertise, infrastructure,and technology for managing global commerce-synchronizingthe flow of goods, information, and funds for its customers.

UPS has a massive infrastructure to support theseefforts. For example, it has an over 120-terabyte (1012-byte) database (in 2003) that contains customerinformation and shipping records. More than 100,000 UPScustomers have incorporated UPS Online Tools into theirown Web sites to strengthen their customer services. Inaddition, UPS offers the following EC applications:

◗ Electronic supply chain services for corporate customers,by industry. This includes a portal page with industry-related information and statistics.

◗ Calculators for computing shipping fees.◗ Helping customers manage their electronic supply chains

(e.g., expediting billing and speeding up accountsreceivable).

◗ Improved inventory management, warehousing, anddelivery.

◗ A shipping management system that integrates trackingsystems, address validation, service selection, and time-in-transit tools with Oracle’s ERP application suite (simi-lar integration with SAP exists).

◗ Notification of customers by e-mail about the statusand expected arrival time of incoming packages.

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ONLINE FILE W10.1.2 (continued)

Representative ToolsUPS’s online tools-a set of seven transportation andlogistics applications-lets customers do everything fromtracking packages to analyzing their shipping history usingcustomized criteria to calculating exact time-in-transit forshipments between any two postal codes in the continentalUnited States.

The tools, which customers can download to theirWeb sites, let customers query UPS’s system to get proofthat specific packages were delivered on schedule. Forexample, if a company is buying supplies online and wantsthem delivered on a certain day, a UPS customer can usean optimal-routing feature to ensure delivery on that day,as well as to automatically record proof of the delivery inits accounting system.

UPS offers logistics services tailored for certainindustries. For example, UPS Logistics Group providessupply chain reengineering, transportation networkmanagement, and service parts logistics to vehiclemanufacturers, suppliers, and parts distributors in the autoindustry worldwide. UPS Autogistics improves automakers’vehicle delivery networks. For example, Ford reduced thetime to deliver vehicles from plants to dealers in NorthAmerica from an average of 14 days to about 6. UPSLogistics Group offers similar supply chain and deliverytracking services to other kinds of manufacturers.

UPS also is expanding into another area important toe-business—delivery of digital documents. The companywas the first conventional package shipper to enter thismarket in 1998 when it launched UPS Document Exchange.This service monitors delivery of digitally delivereddocuments and provides instant receipt notification,encryption, and password-only access.

UPS offers many other EC-related services. Theseinclude the ability to enter the UPS system from wirelessdevices; helping customers configure and customizeservices; and providing for electronic bill presentation andpayment (for B2B), EFT, and processing of COD payments.

Sources: Compiled from Violino (2006) and UPS (2008).

Questions1. 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: Checkups.com to make sure that your answers are up-to-date.)

Speeding DeliveriesIn 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 fromhospitals are an example of such a service. eFulfillment Service (efulfillmentservice.com) and One World (owd.com) are twocompanies that have created networks for the rapid distribution of products, mostly EC-related ones. They offer nationaldistribution 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 deliver-ies (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 bedifficult, especially when fresh food is to be transported. Buyers may need to be home at certain times to accept the deliv-eries. Therefore, the distribution systems for such enterprises are critical. One of the most comprehensive delivery systemswas that of GroceryWorks (now a subsidiary of Safeway USA). Note that the delivery trucks can pick up other items (suchas rented videos and dry cleaning).


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Handling Returns (Reverse Logistics)Allowing for the return of unwanted merchandise and providing for product exchanges are necessary to maintaincustomers’ trust and loyalty. A number of years back, the “absence of a good return mechanism’ was one of the majorimpediments 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 nota virtual one. To return a product to a virtual store, a customer needs to get authorization, pack everything up, payto ship it back, insure it, and wait up to two billing cycles for a credit to show up on his or her statement. The buyeris 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 anindependent returns unit and are handled separately. This solution may be more efficient from the seller’s point ofview, 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 (suchas a convenience store or the UPS Store) where they can drop off returns. In Asia and Australia, returns are acceptedin convenience stores and at gas stations. For example, BP Australia Ltd. (gasoline service stations) teamed up withwishlist.com.au, and Caltex Australia is accepting returns at the convenience stores connected to its gasoline sta-tions. The accepting stores may offer in-store computers for ordering and may also offer payment options, as atJapanese 7-Elevens (7dream.com). In Taiwan, you can pay, pick up books and other item orders, and return unwanteditems at a 7-Eleven store. Click-and-mortar stores usually allow customers to return merchandise that was orderedfrom 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 B2BMost of the discussion in this section has centered on B2C order fulfillment. Some of the discussion pertains to B2B fulfill-ment 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). B2Bfulfillment may be more complex than that of B2C because it has at least six dimensions of complexity (versus two inB2C): shipment size, multiple distribution channels, more variety of shipment frequency, uneven breadth of carrier ser-vices, fewer carrier EC offerings, and complex EC transaction paths.

Using BPM to Improve Order FulfillmentB2B order fulfillment commonly uses business processes management (BPM) software to automate various steps in theprocess, as done by Daisy Brand (Online File W10.1.3). The case also demonstrates how customers pressure suppliers toimprove the order fulfillment process. Note that a video supporting this case is available at tibco.com.



Seller(Shipper)

Buyer(Receiver)

Transporte-Markets

Buy OptionsShip Options

Carrier/3PLWeb sites

Verticale-Markets

SellerWeb site

Customer(s)Buy site

Transportation Providers

EXHIBIT W10.1.3 B2B Buy and Ship Options


Source: Courtesy of Norbridge Inc., ©2003.


HOW DAISY BRAND FULFILLS B2B ORDERSDaisy Brand is a large U.S. producer of sour cream productsknown for its quality products. Its major customers aresupermarkets that operate in a very competitive environ-ment. Many customers require that suppliers providecertain services that will improve the efficiency of theiroperations—for example, vendor-managed inventory(VMI), collaborative planning, and forecasting. Most ofDaisy Brand’s large customers did the same. The customerspressured Daisy Brand to improve its services along thesupply chain, and order processing became a prime targetfor improvement.

The Daisy Brand IS team sought technology thatwould improve the efficiency of its existing order fulfill-ment process. Customers submit orders electronically.Every order that Daisy Brand handles travels through threeapplications: Customers submit orders through an EDItransaction. From there, orders flow to an InvensysProtean ERP system and various other systems for fulfill-ment and ultimately to shipping. The company sought toimplement a workflow solution that could integrate andautomate this order-to-delivery process.

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ONLINE FILE W10.1.3 (continued)

Using TIBCO’s business integration and businessprocess management solution (see tibco.com), the IS teamdesigned, developed, tested, and deployed a workflow inonly three weeks. The workflow manages the order processfrom inception all the way to the point of delivery toensure that orders move forward within the set timeframe.The company can also send notifications about shippingactivity back to the customer.

If an order is to ship out within a certain number ofhours and has not shipped, TIBCO’s solution can tracethat order and get it moving faster. TIBCO’s solution alsohelps stop problems before they start by auditing cus-tomer order information before it enters the ERP system.

In addition to improving the efficiency of orderprocessing at Daisy Brand, TIBCO’s solution also enablesthe company to more flexibly accommodate customerneeds. For example, a retail customer might change anorder after the order is sent to the warehouse—perhaps torequest that the order ship on a different day or with a dif-ferent amount. In these cases, the system sends an alert tothe logistics management workbench to immediately notifythe warehouse that the order has been modified. Thus, thelogistics team can quickly implement the change, ensuringminimum impact on the order cycle time.

The workflow software is part of TIBCO’s BPMsoftware suite, which includes other applications forcontrol of business processes and to improve agility.Future projects include automation of new customerentry; integration of plant control systems; support forcollaborative planning, forecasting, and replenishment(CPFR) and VMI; and implementation of a real-timeorder-arrival board.

Sources: Compiled from TIBCO (2006) and Staffware.com (2006).

Questions1. 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 elec-tronic processing by Daisy Brand?

4. Enter tibco.com and find information about its BPMand workflow products. How can they support orderfulfillment?

5. How can Daisy Brand improve its agility?

REFERENCES FOR ONLINE FILE W10.1Boles, 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 AllocationAmong Warehouses.” Issues in Information Systems,7, no. 2 (2006).

Kelsall, A. “Matching Customer Service Agents toYour 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 GrossMargin in 4Q07.” DIGITIMES. January 29, 2008.digitimes.com/displays/a20080129PD207.html(no longer available online).

Kuzeljevich, J. “Targeting Reverse Logistics.” CanadianTransportation Logistics, 107, no. 9 (2004).

Maloney, D. “More Than Paper Savings.” DC Velocity,January 2006. dcvelocity.com/articles/20060101technologyreview (accessed July 2010).

papyrusonline.com (accessed July 2010).Parks, L. “Schurman Fine Papers Rack Up Labor

Savings.” Stores, February 2004.

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REFERENCES FOR ONLINE FILE W10.1 (continued)Parry, T. “Study: Simpler Online Returns Make

Happier Customers.” Multichannelmerchant.com,January 11, 2006. multichannelmerchant.com/o p s a n d f u l f i l l m e n t / r e t u r n s / o n l i n e r e t u r n _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 availableonline).

Supplychainer.com. “Seven Ways to ImmediatelyIncrease Fulfillment Speed.” June 22, 2006.supplychainer.com/50226711/seven_ways_to_immediately_increase_order_fulfillment_speed.php(accessed July 2010).

TIBCO. “Daisy Brand Uses TIBCO’s Solution toDeliver 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 February2008).

Vitasek, K., and K. Manrodt. “Perfecting the PerfectOrder.” Multichannelmerchant.com, May 10, 2006.multichannelmerchant.com/opsandfulfillment/advisor/perfect_order (accessed December 2006).

ONLINE FILE W10.2 Application Case

HONG KONG’S OCTOPUS CARDIn Hong Kong, virtually everyone uses public transporta-tion at least once in a while, and, as a consequence, closeto 95 percent of the residents in Hong Kong carry a metrocard. In Hong Kong, the metro card is known as theOctopus 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 inmany shapes and sizes. Besides its standard smart cardformat, 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. Thecard is passed near a scanner mounted on a subway turn-stile or at the front of a bus, tram, or ferry. The scannerreads the card, deducts the fare, and displays the remain-ing 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 milliontransactions per day, worth about HK$50 million (US$19 million).

Octopus Cards can be purchased in a number ofplaces. They cost HK$150, of which HK$50 is a safetydeposit and the remainder is the amount that can be spenton transportation fares. When the available funds on thecard are exhausted, simply inserting the card in an

add-value machine along with HK$50, HK$100, or HK$500in cash reloads the card. The amount of cash is credited tothe card and then it is ready to go. Physically, the card hasa life span of about 10,000 transactions. The cards aresold for children, adults, or elders, and can be personal-ized. The Octopus card is available now in the form ofwatches, key chains, and mobile phones (Hong KongEconomic and Trade Office 2009).

The public transportation system in Hong Kong offersa wide variety of options, including the Mass TransitRailway (MTR) subways, the Kowloon-Canton Railroad thatruns to the Chinese border, the Light Rail Transit in theNew Territories, the Star Ferry, the interisland ferries, thecity bus system, the electric trams on Hong Kong Island,the trains to and from the airport, as well as the tram toVictoria Peak. A number of private or quasi-governmentfirms run these systems. Early in 1997, the various entitiesdecided to sign with the Octopus system. In all likelihood,if they had decided to issue their own transit cards, thesmart card payment system would have failed to reachcritical mass.

Today, the public transportation system in Hong Kongruns on the assumption that nearly everyone has anOctopus Card. Those riders without cards often face long

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REFERENCES FOR ONLINE FILE W10.2Bailey, 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’sOctopus Propels Worldwide.” Hong Kong Update,Spring 2009. hketo.ca/hkn0209/octopus.htm(accessed April 2009).

Munroe, T. “Plugged In: Hong Kong Embraces theOctopus Card.” BusinessWorld Online, June 6, 2002.geocities.com/hal9000report/hal56.html (accessedMarch 2009).

octopuscards.com (accessed April 2009).

ONLINE FILE W10.2 (continued)

lines and the constant need to have coins for fares. This isespecially true on the city’s bus system, where fares mustbe paid with coins in the exact amount or a higheramount. The Octopus Card eliminates all the hassle. Theonly downside of the card is that riders who lose theircards are out of luck. The Octopus Card is like cash, so ifsomeone finds a card they can use it until its value isexhausted.

Besides paying for transit fares, the Octopus Card isstarting to become an all-purpose debit card. Over 2,000different service providers including apparel stores, bak-eries, car parks, cinemas, convenience stores, fast foodchains, household stores, leisure facilities, personal care

stores, photo finishing stores, photocopiers, supermarkets,and vending machines honor the card. Even so, over 90percent of all transactions made with the card are for tran-sit fares.

Octopus technology and expertise have been exportedto the Netherlands and Dubai where it is used in the pub-lic transportation systems.

Questions1. How does the Octopus Card work?

2. What accounts for the success of the Octopus system?

ONLINE FILE W10.3 Application Case

STORED-VALUE CARDS: TAPPING THE TEEN AND PRETEEN MARKETS“We’re living on a plastic planet, where even vendingmachines, parking meters and Starbucks branches are nowaccepting credit and debit cards for everyday transactions.Small wonder that high schoolers—who were expected tospend $195 billion in 2006, according to a study by theHarrison Group—hanker for their own charge cards”(Campbell 2006). According to a 2006 study by theJump$tart Coalition for Financial Literacy, almost 50 per-cent of high school seniors in the United States have acredit card. Close to half of the students have a card intheir own names, while the other half use their parents’cards. In order to serve the market of kids under the ageof 18, MasterCard and Visa have introduced a number ofpreloaded, open-loop, stored-value cards. These prepaidcards look like a regular plastic credit card, but the

cardholder has no line of credit. Instead, they are morelike debit cards in that the cardholder can only spend upto the amount loaded on the card. The cards are acceptedanywhere a MasterCard or Visa credit card are accepted—at stores, online, and at ATM machines.

For the under-18 market, MasterCard offers the AllowCard (short for allowance card), which is a prepaid debitcard. Not to be outdone, Visa offers a variety of cards thatcater to the under-18 market, including the affinity-basedMYPLASH card, which features images of rock stars andathletes on the cards. Another one of these cards is theRushCard, developed in conjunction with hip-hop mogulRussell Simmons. Besides working anywhere a Visa card isaccepted, the card also works with mobile phones and pro-vides discounts on clothing from Simmons’ Phat Farm and

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ONLINE FILE W10.3 (continued)

Baby Phat. Another is the Visa UPside card, which teachesresponsible spending. Toward this end, Visa has developeda number of financial literacy programs for teachers andschools (see spendresponsibly.com).

Probably the best known of the Visa offerings aimed atthe under-18 market is the Visa Buxx card (pronounced“bucks”). The Visa Buxx program was started in the fall of1999 by WildCard Systems. WildCard created the system inorder to tap into the teen market. In the United States, thereare more than 30 million teens between 13 and 18 years ofage, and they spend more than $160 billion annually. Most oftheir spending involves cash provided by their parents.

WildCard was looking for a way to provide a turnkeypayment system that would meet the needs of both par-ents and teens by offering a card that would provide:

◗ A parent-controlled reloadable payment card that wouldbe accepted anywhere that Visa was accepted, includingonline and ATM cash machines.

◗ Stored-value functionality so that teens can only spendup to the amount established by their parents and loadedonto the card.

◗ A Web site where parents and teens could enroll for thecard; add value through checking accounts, savingsaccounts, credit cards, or debit cards; set up recurringallowance schedules; shop online; and check balancesand transaction history.

◗ Parental-control features so parents could maintain con-trol over the account through the Web site.

◗ An educational component on the Web site so that teenscould learn about financial responsibility and budgeting.

WildCard licensed the Buxx product to Visa. Five Visacard issuers, including Bank of America, Capital One, NationalCity, U.S. Bank, and Wachovia Bank, launched the system in2000. Today, the card is offered by a wide range of banksthroughout the United States. For issuing banks, the cardhelps 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 bene-fits, there is also a big downside. Excluding the actual useof the card, card issuers charge users’ fees for virtuallyevery action. Most card issuers collect fees for enrolling inthe program, reloading or replacing the card, and for mak-ing inquiries about the balance remaining on the card.Some issuers charge the cardholder if the card isn’t usedfor a few weeks or months.

Questions1. What is the market for the MasterCard Allow Card

and Visa RushCard?

2. What key characteristics underlie WildCard’s VisaBuxx system?

3. What is the major downside of prepaid, preloadedcards for the under-18 market?

REFERENCES FOR ONLINE FILE W10.3Campbell, C. “Educating Teens About Credit.” 2006.

bankrate.com/cnn/news/cc/20070109_teen_credit_debit_card_a1.asp (accessed March 2009).

Jump$tart Coalition for Financial Literacy. “2006Jump$tart Questionnaire with Answers.” 2006.

mijumpstartcoalition.org/PDF/2006NatJumpstartSurveyAnswers.pdf (accessed March 2009).

WildCard Systems. “Visa Buxx: Case Study.” 2004.corporate.wildcardsystems.com/index.cfm?pageid=p09 (no longer available online).


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