In my quest to get to the bottom of the omni-channel conundrum without “boiling the ocean,” I have stumbled over some fundamental claims that challenge the pure logic of a solution designed to achieve the best of all worlds (including Wayne’s wORld). In an effort to keep it simple I have defined two basic categories for order allocation: Distributed and Dynamic.
Before I get into the details I want to clarify the definition of some tried and true supply chain terms. I use the term fulfillment to represent the successful transfer or allocation of product to satisfy customer demand. Customer demand is defined as the intent to acquire goods or services via an appropriate sales channel such as on-line orders and store point of sale purchases. Replenishment is the process of replacing or resupplying consumed inventory. Any item made available to satisfy customer demand is considered active inventory.
The general concept then is that a retailer or manufacturer establishes a meaningful market place to provide goods or services in response to identified demand. To best meet the broad requirements of customer demand, retailers and manufacturers design and implement a multi-echelon supply chain infrastructure to ensure product is available according to service standards at minimum possible cost.
Nothing new so far, right? So what’s the point? If a corporate enterprise is willing to spend significant time, money and people to prepare for success why would they not further leverage this infrastructure in response to an emerging and ever-changing customer demand landscape?
I contend that the basic solution offered by what is widely termed distributed order management is ignoring the full potential of the supply chain infrastructure in place to fulfill demand at minimum total cost.
In summary, distributed order management attempts to satisfy customer demand requests by executing a series of filters seeking the first identified feasible source. While the queries used to define the filters have varying degrees of complexity and access to varying levels of data, in the end, orders are assigned according to an underlying concept of immediate gratification. Ultimately, retailers are not afforded the detail to understand at the time of demand fulfillment if the transaction was profitable or the impact the decision has on future demand.
An alternative to distributed order management is Dynamic Fulfillment. As the term implies, Dynamic Fulfillment considers the full view of the ever changing, continuously updating and progressing end-to-end supply chain system.
Dynamic Fulfillment as a platform is integrated with real time information for all locations with available to promise inventory, the status of inventory relative to future demand, how much has been spent on the inventory in position, how much more it will cost to allocate the inventory and the service implications of the potential fulfillment solution.
Dynamic Fulfillment can be implemented to process each order independently but this approach significantly impacts the full value of the solution. Assessing constraints such as pick, pack & ship capacity, staffing plans and the role of DCs, warehouses and stores in the fulfillment solution allows a detailed definition of order line batch processing.
As an order day progresses the batch size and release schedule is also dynamically executed. The algorithm determines the best fulfillment solution for every order line in the batch. While the distributed order management solution may allocate the last available to promise item to a single line order, Dynamic Fulfillment has the ability to fill a multi-line order from this location and use an alternative source for the single line order. The solution in total is superior.
Dynamic Fulfillment considers the value of inventory according to the location where it is maintained. For example, if a store is in an overstock position anticipating mark-downs to move the excess, these items can be given priority for on-line orders. The net result is higher profit and customer satisfaction.
Dynamic Fulfillment provides a platform to realize the full potential of the supply chain infrastructure in terms of maximum revenue, maximum profit, minimum cost and best in class service.
Understanding Dynamic Fulfillment is a critical component of Closed Loop Operational Management (CLOM), we have found the best of ALL worlds indeed!
Logistics are part of supply chains. The purpose of a supply chain is to do one thing – enable a company to grow. However, focusing only on transportation will reduce costs but invariably will cause issues in other areas.