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. The moment an order is placed, the customer wants to know when it will ship. How do you respond?
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 may 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 loyal and 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.
A new set of applications known as order promising applications have hit the market recently and claim to help companies deliver according to their commitments every time. So what exactly is an order promising application? Here's an introductory profile:
What is it?
Generally, order promising is a component of an order management system that may also have components focused on fulfillment and customer relationship management (CRM). Other industry terms used to relate to order promising are available-to-promise, capable-to-promise and profitable-to-promise.
What does it do?
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 be the order's profit margin?
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, electronic data interchange (EDI) transactions, CRM applications or multiple disparate order entry systems.
Who is it for?
Typical industry verticals that are well suited for order-promising applications are high-tech/electronics, industrial fabrication and assembly, life sciences, pulp and paper, wholesale distribution, and consumer packaged goods.
How does it work?
To really understand how an online order promising application can impact your business, it is important to understand the order promising process that exists in most companies today.
The average process proceeds as follows: 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 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, he or she 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 customer's, valuable time.
An online order promising application, however, supports a different process to solve this problem. First, the process of providing accurate order commitments is fully automated. It comprises two steps. The work the planning department did in the manual 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 first step is for the sales and planning departments to 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 back-orders, 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 frame 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.
Now you are ready for the second step: to start taking orders. With these new applications, promising orders can be accomplished two ways. In an 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 a 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 do you decide which application is right for you?
Enterprises should evaluate advanced order promising applications based on their core business requirements. These will vary by industry but will typically include:
1. Multi-site capability
2. Capable-to-Promise capability
3. Profitable-to-Promise analysis
4. Real-time integration to back-office enterprise resource planning transaction processing
5. Flexibility to simultaneously support multiple order entry points, such as Web storefronts, ERP, CRM and EDI
6. Ability to evaluate multiple fulfillment scenarios
7. Ability to re-promise orders as customer changes are received
8. Ability to support high-volume rapid-order entry
Companies that focus only on distribution activities can often live with available-to-promise capability, but they also need an advanced system that gives them a holistic view of their multi-site enterprise. If inventory is not available in the primary fulfillment location for a particular customer, the company may need to balance the cost, profitability and customer service requirements of splitting an order across multiple distribution centers, shipping part of the order now and the balance later, and providing substitute items. Advanced order promising applications allow distribution companies to evaluate alternate fulfillment options that best meet their business objectives for customer service and profitability.
Manufacturing-centric companies, particularly make-to-order companies and subcontract manufacturers, have a pretty complex task in front of them when it comes to promising delivery dates. Complex routings and bills of material create inter-dependencies between manufacturing stages. This complexity is compounded as multiple components may compete for the same materials and resources during their manufacturing cycle. It is important to be able to evaluate promising scenarios that support analyzing the profitability impact of expediting material and using overtime to meet critical customer orders on their requested date.
How can it benefit my company?
The value proposition for real-time order promising is as simple. By understanding your company's true capability to fulfill customer orders, uncertainty can be reduced across its supply chain, resulting in lower inventory levels and improved customer service. Because the promising methodology is pre-coordinated using the planning knowledge base, you can achieve a more profitable use of your intellectual capital and supply chain assets. And finally, 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.
David Strothmann is the a senior product marketing manager for J.D. Edwards Advanced Planning Solution. He identifies market requirements of supply chain customers and works closely with the J.D. Edwards sales channel and internal product developers.
