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TOPIC 3: OVERVIEW OF BUSINESS LOGISTICS AND PLANNING

Topic Outcomes:

You should be able:

1. Define order processing

2. Identify factor that affect order processing
3. Determine logistics information system

3.1 ORDER PROCESSING

There are 5 main activities involved when an order request is received upon.
Besides the main flow of activities, the accuracy of the information transmitted from one
stage to another in the flow is crucial. This is to ensure no repeat checking will occur that
would involve more time thus increase the overall cost and effect the level customer
service to be provided.

The main activities involved in a series of stages or flow are order preparation,
order transmittal, order entry, order filling and order status reporting as shown in Figure
3.1

3.1.1 Order Preparation

Order preparation refers to the activities of gathering the information needed

about the products or services desired and formally requesting the product to be
purchased.

The information needed are such as determining an appropriated vendor, the

filling out of an order form by customer or sales person, determining stack availability,
voice communication of order information by telephone to a sales clerk or making
selections from a computer menu.

3.1.2 Oder Transmittal

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Order transmittal refers to the transferring of the order request from its point of
origin to the place where the order entry can be handled.

It can be carried out manually or electronically. Manual transmission includes the

mailing of orders or the physical carrying of orders by the sales staff to the point of order
entry.

While using electronic transmission, the information of the request order is

transmitted using various electronic devices. These devices are such as toll-free telephone
numbers’ data phones, facsimile machines and satellite communications.

Whatever method is used, the importance of the reliability and accuracy of the
request data that is being transmitted is fundamental. Another aspect that should also be
looked upon is the speed time used for the information to reach point of order entry. The
shorter the time, the more reliable and accurate the information the less cost will be
incurred. Nowadays, the electronic methods are being used widely compared to the
manual method.

3.1.3 Order Entry

Order entry refers to a variety of tasks that take place prior to the actual filling of an order

The activities involved are:

a. Checking the availability of the requested items.

b. Checking the availability or order cancelling documentation, if necessary
c. Checking the customer’s credit status
d. Transcribing the order information as necessary
e. Billing

It is important to ensure that the order request information is in the form needed to
enable further processing. Or else additional work has to carry out before the order can be
released for filling.

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There’s a tremendous improvements in these activities through technology. The

existence of bar codes, optical scanners and computer has improved the efficiency of
these activities.

3.1.4 Order Filling

Order filling could be carried out parallel with order entry above, which could save time.

The activities of order filling are:

a. Acquire the items through stock retrieval, production or purchasing

b. Pack the items for shipment
c. Schedule the shipment for delivery
d. Prepare the shipping documentation

The priority of the type of processing orders may affect the speed all orders are
processed or the speed with which the more important orders are handled. Selection of a
particular rule depends on criteria such as fairness to all customers, the differentiated
importance among orders and the overall speed of processing that can be achieved.
Among the priority rules available and are being used are:

i. First-received first-processed
ii. Shortest processing time
iii. Pre-specified priority number
iv. Smaller, less complicated orders first
v. Earliest promised delivery date
vi. Orders having the least time before promised delivery date

3.1.5 Order Status Reporting

This final activity is to keep the customer informed of any delays in order
processing or delivery of the order. This includes tracing the order throughout the entire
order cycle and communicating with the customer as to where the order may be in the
order cycle.

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Order Preparation
 Requesting Products or Services

Order Transmittal
 Transferring Order information

Order Entry
 Stock Checking
 Accuracy Checking
 Credit Checking
 Bank Ordering/ Order Cancellation
 Transcription
 Billing

Order Filling
 Product Retrieval, Production or Purchase
 Packing for Shipment
 Scheduling for Delivery
 Shipping Document Preparation

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Order Status Reporting

 Tracing and Tracking
 Communication with Customer on Order Status

Figure 3.1: Flow of Order Processing

3.2 OTHER FACTOR AFFECTING ORDER PROCESSING

There are other factors to be considered as it affects the order processing process.
These factors are as follows:

3.2.1 Processing priorities

Implementing priority can take place if firm have limited resources to be

distributed among its customers. Firm wants the most appropriate time, capacity and
effort to be allocated to the more profitable orders. Firm can use the high-priority and
low-priority systems. Customers given the high-priority list will be attended with the
least time of order processing time.

3.2.2 Parallel Sequential Processing

Various methods can be implemented whether to carry out several request order
in a parallel or in sequential process. In the parallel process a few copies of the request
order are distributed among key functions, for example the sales manager and the credit
controller, to speed up the process of several orders in one go.

3.2.3 Order-filling Accuracy

The accuracy of the information in the request order will indefinitely speed up the
time of the order processing cycle. Any occurrence of error in the request order
information should be carefully controlled especially if minimizing the time is a prime
importance to the firm.

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3.2.4 Order Batching

Firm could accumulate several request orders and treat it as batch to be processed.
This will also contribute to minimizing time of order processing process. This would be
practical for firm with heavy request orders. However, if the number of order is
infrequent, the batching of orders would be impractical as it would lengthen the time for
order processing period.

3.2.5 Shipment Consolidation

Similar to order batching, it would be economically to consolidate several small

orders to build a larger shipping size. This would be reduce the transportation costs and
increase processing time.

3.3 LOGISTICS INFORMATION SYSTEM

The management information system refers to all the equipment, procedures and
people that create an information flow useful to the daily operations of an organization as
well as overall planning and control of the organization’s activities.

The information is gathered either in manual records or computer files. A good

system design supports the management uses of the information. The information system
must perform basic functions of transferring, storing and transforming information. The
information system must have the ability of moving information from points where it is
obtained to points where it is needed. The flow of information is as shown in Figure 3.2.

Input

Sources: Internal, External and Management

Database Management

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Data Analysis
Data Retireval
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Output

Information Access Speed

Information Output Form

Figure 3.2: The logistics information flow

Another function that is important is the storage. When data becomes available
and when they are needed for decision making and control does not usually match in
time, the information system must have storage capability.

3.3.1 Input

Data is required in order to make decision. There are questions that could act as a
guideline. Questions such as which data should be collected from what sources and the
frequency it to be collected must be answered. Key data required for logistics can be
identified through the planning of the structure of the logistics system.

The sources of these data are obtained through the sales order, internal records,
external sources and management. The sales order can be considered as the primary
source of logistic information. It contains data on customer locations, items demanded,
item weight, item value (price) and order date. Also are the freight bills, transportation
claim forms and invoices as additional data sources.

The internal is data readily available inside an organization or need to combine

with data from other department such as from finance (cost of capital), purchasing
(volume-price relationship), etc. The internal secondary sources that can facilitate
logistic are data such as data from customer’s request orders, company records on sales
volume and transportation costs and other internal data related to logistics. Additional
data is such as statistics maintained on suppliers and personnel records.

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Another form of secondary data is the external data, specifically data published by
government or private agencies. This external data would include professional journals
and trade magazines. The information is broader compared to the specified internal data.
The management data is where personnel or managers’ prediction of future sales level,
actions of competition and the availability of purchased materials.

3.3.2 Database Management

Management of the database involves selection of the data to be stored and

retrieved, choice of the methods of analysis to include and choice of the basic data-
processing procedure to implement. Among the activities involved in data base
management are data storage and data transformation.

Data processing is the processing of data into information. This serves as the basic
function of the information system. The processes of coding, arithmetic manipulation,
sorting and summarizing data are converted into information useful for logistics decision
making and reporting.

Data analysis involves the decision assisting models. The decision-assisting

models are typically self-contained software programs that address various logistics
problem. These models draw information from the database and the data-processing
activity and it in evaluating alternative courses of action. The objective is to have the
information system seek the best possible course of action.

Data retrieval refers to accessing a rather substantial database quickly and

displaying the data at the user’s location, often a personal computer. The activities
involved are more than just billing and report preparation. It is now focused on the data-
retrieval capability. User to the system can get fast access and retrieval of data from the
system. The output is generally of several types and transmitted in several forms.

3.3.3 Output

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Two important design considerations are information-access speed and

information output form. In the information-access speed, some information requires the
fastest possible access to the database. It is also called as on-line, real-time systems.
Information in this category is such as scheduling and tracing rail shipments, airline-
reservation access. While some information did not require the fast information such as
planning warehouse locations and routing shipments. Both types of data access should be
available.

In the information output form, there are two general forms. These are
information reports and action reports. The common form of reports widely requested are
summary report of cost or performance statistics, status reports of inventories or order
progress, exception reports that compare desired performance with actual performance,
report that initiate action (purchase orders or production orders).

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