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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here to view larger version
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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here to view larger version
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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here to view larger version
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.
- 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.
- 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.
- 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.