Expert Opinion

What is Customer Order Management (COM)?

Customer Order Management (COM), is also known as Order Lifecycle Management (OLM), or Customer Fulfilment Management (CFM), and commonly forms an integral part of supply chain management processes. COM systems frequently employ software packages which involve a range of activities including:

COM systems are frequently implemented in a bid to improve productivity and to minimise all errors that could detrimentally affect customer satisfaction. A cross-industry benchmarking study carried out by the American Productivity & Quality Centre recorded the following primary COM objectives found in four best practice companies: (Allnoch, 1997)

Web-based technology has become a key to developing COM systems, for this reason the following sub-sections largely refer to COM in web-related environments:

What is involved in the Customer Order Management process?

Internet shopping is increasingly being used by shoppers to make their purchases. Internet ordering and the subsequent fulfilment of orders can create special challenges for sellers. Geri Spieler (2001) research director for Gartner Inc., is cited as stating that satisfactory order fulfilment involves customers receiving the correctly ordered items in a timely manner, and in addition incorporates a simple and efficient means to return goods as necessary. Online shoppers are removed from human interaction and can shift to competitors very quickly. Spieler reports that some 60 percent of potential purchasers abandoned their purchases before reaching credit card transaction processes. Web stores need to engage shoppers, provide a good shopping experience, and finally achieve “e-fulfilment” (satisfaction with on-line shopping). The following 15 components specified by Gartner were designed to help Internet retailers assess the effectiveness of their Web sites (Anonymous, 2001):

Warehouse management systems

Warehouse management systems (WMSs) are an integral component of the COM process. Jerry Sparger (2002) president of U.S. Global Business Solutions states that WMS are a key area in the order entry and fulfilment cycle for tracking orders in real-time. The information in the WMS is also pivotal for controlling the fulfilment of orders. Effective COM processes play an important role in assisting organisations to meet customer’s expectations, and thereby to remain competitive. Ross (1998) is cited as stating that customer expectations have developed to a point where customised products are demanded in preference to standard items. In addition these are required at a time and place of the customer’s choosing; rather than fitting in with seller’s timetables and site locations. In addition to demanding more customised products buyers expect prices and support to remain at the same levels as provided for standard products. These emerging expectations are putting greater pressure on sellers to provide real-time ordering and tracking, along with customisation capabilities at the time of order. Sellers are also seeking to close all sales promptly in a bid to deter customers from moving off to competitors.

In order to improve COM processes suppliers should consider:

The integration of functions such as sales, order entry, processing, order fulfilment, and customer services can enable organisations to provide continuous, real-time, one-stop shopping and support for their customers. Warehouse management systems form a pivotal part of the provision of such services. An example of the type of functionality that may be provided is as follows:

The provision of integrated systems can reduce hand-off errors, improve efficiencies, and make it easier for customers to do business with organisations.

Order fulfilment

Order fulfilment has an important bearing on repeat business for on-line transactions. Joseph Shlesinger and Darrell Rigby (Directors), and Miles Cook (vice-president) of Bain & Company along with Julian Chu (2001) a director of Mainspring Consulting, reported on a Bain/Mainspring study which concerned on-line retail activities. The study revealed that order-fulfilment performance was one of the main factors that affected customers’ choices of vendor. The study revealed that on-line shoppers spend greater amounts when making repeat purchases than on the initial purchase, and that on-line vendors spend an average of US $50 to acquire new customers. This figure relates to roughly 3 years profit margin because purchase are usually small in volume, hence organisations need to ensure that customers keep returning to generate positive cash flows. The survey revealed that the critical customer concerns for order fulfilment were accurate delivery, product availability and ease of returns.

On-line business infrastructures are becoming an essential component for many organisations. However the success of actual on-line implementations vary greatly among organisations. Currently on-line order fulfilment systems are in their infancy, and organisations face the challenge of keeping ahead of changing customer expectations, whilst managing expensive investments that may become obsolete before making a return. There is growing pressure to provide more sophisticated IT networks as buyers demand detailed on-line information concerning prices, duties, freight costs, taxes, and tracking data. Current order fulfilment models are an early indication of what might be expected to exist in the next few years. The challenge facing many organisations now is not, “if to invest,” but rather “when to invest,” in COM systems.

An important benefit of emerging Web-based technologies is that they can help suppliers to reduce inventory levels and to become more efficient. Suppliers are being enabled to reduce inventory costs by significant amounts and this can improve the profitability of businesses. Web based technology can also enable organisations to re-engineer their supply chains from being a predominantly supplier based “push” process, to a customer driven “pull” system. With pull systems goods are supplied to meet the customer’s specifications, and this creates the potential for large efficiency improvements.

Concerning internet based direct marketing Frank DiMaria, divisional president, of APL Direct Logistics states that “the most successful companies today are flexible (Langnau, 2002). Some 80 percent of work in warehouses involves the movement of product and not the actual picking. Flexibility is extremely important because the volume fluctuations in direct marketing are extreme, Robert Mann , associate partner, supply chain management of the consultant company Accenture, also cited by Langnau, believes that a ratio of 20:1 could exist between the lowest and highest volume weeks. For his reason order management systems should not be designed around peaks in demand, as this may lead to over capitalisation.

Packaging

Paul B. Hogan (2001) consultant for Sealed Air Corporation writes that packaging is a very important component of the order fulfilment process. Customer perceptions and brand image are associated with the quality and appearance of the packaging provided. The price of packaging forms a significant portion of the total order fulfilment costs and the robustness of the packaging is important to minimise returns due to damage in transit. Hogan cites PricewaterhouseCoopers who report that of all the reasons customers gave for returning online purchases, 31 percent complained that the product was broken or damaged. By instituting a packaging system that reduces postage, enhances the company image, and protects products savings can be accrued. A Jupiter Communications report is cited in which 27 percent of “e-tailers” spent more than 10 percent of revenues on order fulfilment. Some half of the costs of order fulfilment are associated with the packaging process. Labour, size, materials, and postage are key elements and if better way can be found to handle these significant savings can be made.

Customer Issues

• Establish procedures for identifying and handling potential problems before they occur:
• Notify every department that could be affected by fulfilment problems and give them opportunities to provide feedback;
• Establish clear guidelines for communications between departments and vendors;
• Constantly test the organisations and competitors’ fulfilment processes by putting orders through each of the channels available.

• Locate and correct any damage caused and endeavour to retain customers:
• Contact the affected parties immediately, explain the situation, and make an offer to compensate for the problem;
• Advise all necessary parties both inside and outside of the organisation concerning the problem.;
• Update customer records;
• Make sure that the returns department do not put faulty products back into stock.

• Take the necessary steps to avoid future occurrences:
• Consider what might be done to prevent future occurrences, or provide early warnings of a likely occurrence;
• Take care to reflect on what might have been overlooked and go back to step one.

Predictable process handling systems are required to ensure that reliable delivery commitments can be made. Steve Parsley (2001), regional manager for Eskay Corporation reports that order fulfilment process have not kept pace with Internet developments and Enterprise Resource Planning (ERP) innovations. While business redesign has focused on improving quality and reducing costs, improved delivery has received only secondary attention. Delivery is the fulfilment of customer needs, and the quicker that this can be achieved the better. In the production of complex products the performance of in-process material handling can dramatically affect a supplier's ability to satisfy customers. In-process material handling is a term that describes the normal flow of material among value-adding operations. Costs added by in-process handling are a function of the time the material is in the system and the distance it travels. Parsley states “making reliable delivery commitments depends totally on having a predictable in-process handling systems. This one truth will be more important and more influential to customer recruitment and retention than any other strategy of distribution.”

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