ERP Brilliant Basics – Part 4: Order Management

This is Part 4 of an ongoing series describing how to apply the principle ‘keep the system and physical worlds aligned’ to various aspects of your ERP system. Today’s topic is order management.

In ERP systems, all supply chain activities are managed via some type of order, such as:

·        Sales orders, to capture and manage orders from customers

·        Purchase orders, to procure external goods and services from vendors

·        Manufacturing orders, to manage internal production of materials

·        Transportation orders, to manage the flow of materials between locations

·        Etc.

For the purposes of this article, I’ll focus on sales orders because, since they are based on independent demand, all other order types are ultimately dependent on them.

Applying the principle ‘keep the system and physical worlds aligned’ to sales orders essentially translates to “live up to the promises you make to your customers”. In other words, “deliver what you say you are going to deliver, when you say you are going to deliver it”. One of the best ways to measure how well an organization does this is the perfect order metric. To be considered a perfect order it must be: On-time; In-full; Damage-free; and contain all the correct documentation (such as labeling, quality documents, shipping documents, invoicing, etc.) The metric itself is simply the percent of total sales orders which are perfect. (Note: A less-inclusive, but also common metric is On-Time, In-Full, or OTIF.)

Much like last week’s discussion about inventory management, the key differentiator between thriving and struggling organizations is what they do with the information learned from analyzing defects. Thriving organizations categorize defects, perform root cause analysis, and apply corrective actions to reduce recurrence. Struggling organizations generally do not. 

To help ensure a thorough investigation of defects, it is helpful to think about things in terms of what happens before, during, and after order fulfillment.

Before order fulfillment, it’s all about being able to make reliable promises to customers. That usually starts with an availability, or ATP (Available-To-Promise) check. Although ATP checks can vary in degrees of sophistication, the most basic approach is to first check available inventory. If inventory is available, it is promised. If not, the next most common approach is to promise based on lead time. So, immediately we see that accurate inventory and accurate lead time are two critically important components of good perfect order performance.

One of the most often overlooked aspects of promising based on lead time is the implicit assumption that there is sufficient capacity to meet all commitments. That assumption generally works fine when the system lead time is based on actual demonstrated performance, and demand and supply are both normal, but when demand spikes, or supply gets disrupted, that assumption goes out the window. That is why it is important for an organization to be able to sense abnormal demand, or disrupted supply, and respond accordingly. Some, but not all, thriving organizations do this well. Struggling organizations do not. (Note: The COVID-19 pandemic is an extreme example of widespread abnormal demand and disrupted supply - the likes of which this generation has never seen before - but in more normal times, those situations tend to be a bit more subtle and isolated.)

During order fulfillment, it’s about execution. Collective, integrated execution. To meet customer commitments, all parties must live up to their individual commitments. Vendors must reliably supply to the agreed upon schedule. Manufacturing must reliably produce to the agreed upon schedule. Logistics must reliably transport to the agreed upon schedule.  Etc. But achieving good perfect order performance is not just about executing the original plan well - it is also about executing the monitor and alert processes well, and taking prompt, appropriate, corrective actions to help get back on plan if something goes awry.  Thriving organizations do this well. Struggling organizations do not.

After order fulfillment, it’s about order maintenance. Generally speaking, sales orders which are fully delivered do not present much of a problem because most ERP systems enable automatic closing of those orders. The real issue comes with how organizations handle partially delivered sales orders, as those processes tend to be a bit more manual. 

If a sales order remains open, with an undelivered amount, the system will continue to try to satisfy that requirement. If your intention is to actually fulfill that requirement, then all is well. If, however, that order was left open inadvertently – a common occurrence in struggling organizations – then the system will try to fulfill a requirement that you may not physically intend to fulfill. This disconnect between the system and the physical world can result in seemingly erroneous ATP dates, which frustrates customers and users alike.  To avoid this situation, organizations need to have in place disciplined processes for performing prompt, accurate order disposition. Thriving organizations do this well. Struggling organizations do not.

In summary, the principle ‘keep the system and physical worlds aligned’ can and should be applied broadly to order management activities before, during, and after order execution. By putting in place disciplined processes to ensure that your orders are, and remain, an accurate reflection of the physical world, you can take advantage of the powerful capabilities that a highly integrated ERP system has to offer.