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Order Promising: Pre-Condition Your Enterprise for Operational Excellence

Written By: Dave Strothmann
Published On: November 24 2001

Why Is Order Promising Important?   

When can I have my order? Can you ship it tomorrow? Tell me now.

Simple questions often have complex answers. Whether they are speaking with you on the phone or placing an order on a Web storefront, your customers expect immediate gratification. They want to know when their order will ship the moment it is placed. How do you respond?

How do you balance customer delivery requirements against your need to make a consistent profit? If you expedite the order, will your margin erode to the point that it will cost you money instead of making you money? Given all of your other orders, do you have the capacity to produce the order by the requested date? Is it more profitable to ship the order from a distribution center hundreds of miles away or to build and ship it directly from the factory?

You could use standard lead-times to answer these questions and hope for the best, but if the quoted lead-time is too long, your valued customer may go elsewhere. If your lead-time is too optimistic and you miss the delivery date, your customer may never come back. And if you incur additional expenses such as overtime and premium freight, your valued customers now become unprofitable.

On the other hand, if you consistently deliver according to your commitments and quickly assess your capability to respond to urgent customer orders, your customers will become even more valuable and will ultimately help grow your business. Furthermore, if you fully understand the costs associated with these actions, you can ensure that the orders you accept are profitable.

An order promising application should instantly provide the answers to the following questions:

  • When can I deliver the order?

  • From where should I source it?

  • How much will it cost?

  • What will the profit margin be on the order?

What Must An Order Promising Application Do?   

Recognizing that every customer is different, an order promising application must support multiple order entry points simultaneously promising accurate and profitable delivery dates via the Internet, phone, fax, EDI transactions, Customer Relationship Management (CRM) applications, or multiple disparate order entry systems.

Understanding the Status Quo

To really understand how an order promising application can impact your business, it is important to understand the process for promising orders that exists in most companies today, as summarized in Figure 1.

Figure 1.


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The clock starts ticking when the customer calls in their order. A simple question is asked, "When can I have my order?" The customer service representative attempts to contact the planning department, but the planner is currently in a meeting. Several hours may pass before the planner reacts to the request. If the order contains complex processes and multiple levels in the bill of material structure, it may take the planner several days to evaluate the impact of inserting the order into the current schedule.

Once an answer is received from planning, the customer service representative attempts to contact the customer. When the customer is finally reached, they may either accept the promise date or reject it. The order may even be revised. If the promise date is rejected or the order is modified, the process will have to be repeated, taking up more of your, and the customers, valuable time.

How Does an Order Promising Application Make it Better?   

An on-line order promising application supports a wholly different process to solve this problem, as summarized in Figure 2.

Figure 2.


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The process of providing accurate order commitments is fully automated. The process is now divided into two steps. The work that the planning department did in the old process is externalized into a one-time setup to precondition the enterprise for promising orders. Conceptually, this is very similar to externalizing the setup of a piece of machinery on the shop floor. The second step is to automatically promise accurate and optimized delivery dates in real-time. The time to promise the orders is now analogous to the run-time to produce parts on the machine.

Step 1:

The sales and planning departments agree on a process for promising orders. This may include roles and responsibilities, manufacturing facilities along with items produced, and inventory policies for different items. Customer rules are also established regarding backorders, partial shipments and product substitutions.

Next, business objectives are determined for how to fulfill customer orders. Sample objectives would be maximization of customer service, minimization of cost, or profit maximization. These objectives govern the details of how the promise will be made. For example, the business objective for maximizing customer service may search through alternatives based on meeting the delivery date at the lowest cost by using existing inventory from multiple locations before incremental manufacturing is authorized. If delivery cannot be made on time, then overtime can be authorized and material can be expedited as required.

The minimizing cost objective may be based upon satisfying the order at the lowest cost, within an acceptable delivery window from available inventory in your closest distribution center. Manufacturing operations will not be disrupted within a specific time fence and you will never plan on using overtime or expedited material.

The order promising application then applies these business objectives to customers and items. Customers or items with similar characteristics can be grouped together for simplicity.

Step 2:

Now you are ready to start taking orders. Promising orders can be accomplished two ways:

In Auto-Promise mode, the best delivery date based upon your pre-defined business objective for the customer/item combination is automatically applied to the order. Auto-Promise mode is used by customer service representatives who typically accept the highest ranked promising scenario based on the customer's assigned business objective. Since the user never exits the business process of order entry, this mode supports rapid, high-volume order entry.

If the date promised is not acceptable, the order can be easily transferred to a supervisor via a standard workflow process for further evaluation. The supervisor can evaluate other fulfillment alternatives by using a Scenario Manager.

In Scenario Management mode, the user is presented with several alternatives for fulfilling the order. The delivery date, costs, margin percentage and total profit are summarized at the order level and detailed line-item information can be explored as well. For each alternative, the user can view all of the constraints that impact the order across the multi-site enterprise.

How Does it Work?   

Figure 3 illustrates how an on-line order promising application evaluates the capabilities of the multi-site enterprise to determine the potential methods available to fulfill the order.

Figure 3.


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First the application performs an available-to-promise (ATP) check to see if the item exists in inventory anywhere in the network, or if there are any scheduled receipts currently planned. If the results of this query do not satisfy the order, the business objective and the customer rules, the order promising application proceeds to the next level where a capable-to-promise (CTP) check is performed to identify a feasible production method using unallocated capacity and materials. This query will evaluate material and capacity constrained plans across multiple sites and will drill down through all levels of the manufacturing routing and bill-of-material. Purchased materials can be modeled by using either standard supplier lead-times, or if more information is known about the supplier, the supplier's actual capacity can be modeled.

The Importance of Real-Time Execution Information   

Integration between the live execution environment and the in-memory order promising model is the key to making accurate promises. What many people do not realize is that the order promising application must be tightly integrated to the "back office" as well as the "front-office" to provide real-time visibility to sales orders as well as all inventory related transactions. In fact, back office integration is the more important and harder of the two. True, real-time back office integration can only be delivered economically within a single software solution. Real-time execution integration is critically important because changes that occur in the supply chain, such as late purchase orders or scrapped work orders, need to be considered in your promises as soon as they occur.

Delivering Value   

The value proposition for real-time order promising is as simple as 1-2-3.

  1. By understanding your true capability to fulfill customer orders, uncertainty can be reduced across your supply chain, resulting in lower inventory levels and improved customer service.

  2. Because your promising methodology is pre-coordinated using the planning knowledge base, you can achieve more profitable use of your intellectual capital and your supply chain assets.

  3. By understanding the costs and margins associated with different fulfillment options, you can reduce cost of goods sold and improve the profitability of customer orders.

 

   

 
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