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2. Retail Order Processing

Companies, such as retailers, that operate intermediate to vendors and customers frequently design their order-processing systems with at least a moderate degree of automation. Very quick order response time is usually not necessary, since there are inventories available for final consumers. These inventories act as a buffer against the indirect effects of the replenishment order cycle. However, replenishment order cycle times that help to maintain a fixed replenishment schedule are important.

Modern information systems have had the benefit of replacing many of the assets previously needed to run a business. Using the Internet, companies have been able to reduce warehouse space, lower inventory levels, reduce handling time, and better track order progress. Consider how a warehouse-free-distribution, direct-to-customer delivery system works.

3.Customer Order Processing.

Order processing systems that are designed to interact directly with final consumers will be based on elevated levels of customer service. Meeting customer product requests from retail stocks provides almost instantaneous order processing. McDonald’s has built a very successful food franchise business on fast order processing.

Quick response to customer order requests has often been on the cutting edge of customer service for many companies that sell to the final consumer, espe­cially when the products involved are highly substitutable. As the next example shows, some firms can provide quick response to customer orders even when their place of business is some distance from the customers who can acquire the same products from local retail outlets.

Example

Many remote discount computer hardware and software supply houses have sprung up as competitors to local retail stores. Traditionally, customers would drive to their local retail computer stores and purchase what they wanted on the spot, or, if out of stock, the retailers would in turn order the items from local distributors.

Computer supply houses located at one place in the country can offer cus­tomers low prices that result from low overhead and buying economies. However, overcoming location disadvantages is important if these discount houses are to be truly successful. Many have developed a strategy to compress the order cycle time, which usually involves the following steps in the order-processing chain of activities.

  1. A customer calls in an order using a toll-free telephone number or enters the order through the company's Web site. Mail is also an option, but it substan­tially increases order transmittal time.

  2. An order taker keys the order request into a computer terminal, or the cus­tomer has entered it electronically at the time of order placement. Inventory availability of the items is immediately checked from computerized inventory records, prices are found or calculated, and order charges are computed. If method of payment is by credit card, a credit check on the card is conducted electronically.

  1. The order request is transmitted electronically to the warehouse to be filled, usually within the same day the order is received.

  2. Normally, the order is shipped using UPS, FedEx, or another courier directly to the customer's home or place of business. Overnight delivery may be made for an increased charge, if requested by the customer.

The result is often a total order cycle time that is quicker and a price that is lower than what can be offered by local retailers.

Electronic commerce, once practiced by only a few firms such as Wal-Mart, General Motors, and Baxter International, is now becoming a reality for a great many companies. As the security issues are resolved on the Internet, the Internet becomes a driving force to eliminate much of the paperwork in order processing that occurs when one firm sells to another (B2B). E-commerce can reduce the cost of processing a purchase order by 80 percent.

Exercises.