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The Perfect Order Requires Integrated Processes

Analyst Insight: A number of factors are drawing increased attention to the order-to-cash (OTC) process. Achieving a perfect order, one that is filled to completion and arrives at the customer undamaged and properly documented, is under stress from doing new ways of business and increasing customer expectations. - Alex Bajorinas and Jim Morton, both Senior Managers, Ernst & Young LLP

The Perfect Order Requires Integrated Processes

Order fulfillment has become more complex in an age of distributed order management, in which rules-based engines seek to fulfill orders across multiple sales channels, while sourcing from multiple fulfillment locations, including vendors. Omnichannel retailing is a prime example of increasing OTC complexity, offering more sophisticated and demanding customers options that bridge shopping at a retail outlet, having an online order shipped to a home or a nearby store, having an order shipped from the closest store with inventory, and online ordering supported via websites and mobile devices.  Other industries are contending with similar increases in OTC complexity.

While logistics plays a key role in driving perfect orders, planning processes are equally important.  Make-to-stock items must be in stock at appropriate levels and visible across the network.  For example, a durable goods manufacturer plans to fulfill online orders from the same warehouse that processes distributor and store replenishment orders. To reduce inventory requirements, the company can leverage the same inventory pool for all three channels. However, unexpected demand from a distributor for a trendy item could wipe out inventory available for online orders, resulting in dissatisfied web shoppers, who may not return later. Clearly, planning the appropriate amount of inventory while considering channel conflicts is critical to order fulfillment.

As another example, a consumer packaged goods manufacturer builds to forecast and pushes inventory downstream to regional distribution centers for customer order fulfillment. However, the forecast is never perfect, resulting in stockouts and incomplete orders at some DCs and redeployment costs to rebalance inventory across the network based on actual demand levels. Better alignment between order planning and fulfillment can improve the situation.  By shortening manufacturing runs and leveraging demand sensing technology to improve the near-term forecast, the supply chain becomes more agile, inventory allocation improves, redeployment is reduced and order fill rates increase.  Alternatively, holding production output upstream and deploying inventory downstream based on the pull from DC replenishment orders avoids planning regional inventory allocation, eliminates the need for inventory redeployment and improves customer order fill rates.

Expect to see a continued increase in OTC complexity as companies across industry verticals seek to fulfill customer orders from distributed fulfillment platforms, while optimizing inventory levels and accelerating the cash-to-cash cycle.

                                                The Outlook

For 2014, integrated order planning and fulfillment will be a key enabler, as planning and logistics must be synchronized to drive improved performance. With regard to technology, enterprise resource planning and best of breed solutions for distributed order management, supply chain visibility and demand sensing technology will continue to be active areas of focus for companies seeking to improve the OTC process.

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