Supply Chain Comment

By Prasad Acharya and Balaji Narasimhan
Infosys Technologies, Ltd.

December 1, 2011

A Recipe For Achieving Better Perfect Order Index Scores

Distributed Order Management Can Play an Important Role for Retailers

The evolution of the online marketplace as the new business model has significantly increased the number of variables responsible for effective customer service and supply chain management.

Acharya and Narasimhan Say: By ensuring that sellers provide timely and accurate inventory availability and fulfillment lead times and by exercising appropriate control over carrier delivery, retailers can drive growth and achieve success in the marketplace business model. What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

Even so, a common measure of supply chain effectiveness is still the Perfect Order Index (POI) which is the aggregate of four components of a perfect order i.e., whether the product is delivered: 1) On time; 2) Complete; 3) Damage-free; and 4) Correctly documented/labeled.

The POI is essentially an aggregate metric and this can only be improved by controlling the underlying measures holistically.

Order Management Systems (OMS) can play a vital role in improving some of the constituent metrics of the perfect order. While damage-free shipment and documentation errors are typically managed by the fulfillment and financial systems, the OMS should be designed to drive the measures of on-time delivery and complete shipment, collectively known as on-time in-full (OTIF).

The most common (and probably the most obvious) factors that influence the OTIF measure are:

Inventory Availability:

The complexity of one key function of the OMS, i.e. providing Availability to the Order Capture systems based on the inventory updates, is compounded in a marketplace environment where the customer’s order cannot be sourced from any other fulfiller. Inaccurate seller inventory can cause pick-to-order failures (leading to incomplete shipments), or delays in fulfillment (leading to delayed shipment), potentially driving away repeat customers. Thus, accurate Availability probably is the most important sub-metric to be controlled in a marketplace environment.

Fulfillment Lead Times:

In a marketplace scenario, the OMS needs to handle the complexity of managing the varied fulfillment lead times of an innumerable number of sellers and in addition to this, also provide for a robust and pro-active monitoring of seller orders. Failure to do so would result in precious time wasted in taking corrective steps to ensure on-time shipments.

Carrier Delivery Time:

Most marketplace sellers tend to deal in low volumes and hence have less leverage with carriers. A centralized fulfillment service provided by the retailer can mitigate risk substantially. By taking on the responsibility of fulfilling these seller orders for a nominal fee, the retailer can ensure better control on order delivery since they can negotiate delivery lead times with carriers.

Conclusion

Retailers looking to delight customers and improving their bottom line through marketplace operations would do well to use the POI as a benchmark. A properly designed OMS can enable retailers to drive the OTIF metric of the perfect order. By ensuring that sellers provide timely and accurate inventory availability and fulfillment lead times and by exercising appropriate control over carrier delivery, retailers can drive growth and achieve success in the marketplace business model.