PART FIVE OPERATIONS MANAGEMENT

Order Processing

When things are going well, operations is able to produce and deliver what marketing sells .To keep things going well, operations management must play an active role in the processing of customer orders.In most cases, it is poor policy for the operations function to simply put into backlog any orders that sales is able to“scare up.” Instead, there should be a well-devised order processing system. Central to the system is the order promise.In this section we discuss orders in general, examine the order processing sequence, and then look specifically at order promising.

Orders

Even when considered only as a noun and only within an operations context, the word order has multiple meanings.For example, there might be individual sales orders, consolidation of sales orders into a few batch orders （for total requirements of each item）, scheduled production orders for major modules, planned orders for component parts from inventory planning, shop or work orders, purchase orders for component parts and raw materials, final assembly order, and shipment orders.Each type of order may have its own number system and set of documentation.Clearly, in a manufacturing company, you will not necessarily get the response you are looking for when you inquire, “Where's my order? ”

Even in the service sector the customer order may break down into several subtypes.Consider, for example, a medical clinic.You, the patient, are an order; when you go to X ray, an X-ray order number is assigned; when you go to the lab, several lab orders are created; when you are finished, there will be a billing order with its own number for total services rendered.

With these meanings in mind, we now turn our attention to the order processing sequence .

Order Processing Sequence

The sequence of order processing is as follows.

The first step is order booking, in which an order is booked by sales.The second step is order entry.Order entry, which is really a subprocess in itself, includes the organizational acceptance of the order into the order processing system.Order-entry activities might include：

* Credit checks, especially for new customers.

* Documentation of pertinent customer data, such as specifications.

* Translation of what the customer wants into terms used by production.

* Determining whether the order can be filled from stock（if so, the process might skip directly to step 10）.

* Assignment of an internal order number.

The next seven steps are operations functions.Step 3 is determining total requirements.Orders by several customers for the same product or service must be totaled.Additional translation might be required at this point, specifically, translation of sales catalog terminology into manufacturing part numbers. Some companies employ as many as three sets of part numbers, which are used with three different scheduling procedures:（1）the final assembly schedule—for assembly of finished end products, （2）the master production schedule—for production of major modules such as frames and engines, and（3）a schedule for the manufacture of service parts, interplant transfer parts, customer optional parts, and so forth.

Step 4, order positioning, accomplishes several things.First, a check is made to see if present schedules can accommodate new requirements.If so, the order is positioned—placed—in the schedule.We might say that the order receives its third“acceptance, ”this time by the master schedule.

If the schedule is full and the customer is willing to wait, the order is accepted and positioned at the tail end of a backlog of orders.The preferred procedure in competitive firms is to make the goods, wholly or partially, based on a forecast. Thus, parts, major modules, and final assemblies are scheduled in advance.It is these schedules that are checked to see whether they will result in the goods requested by a customer at a desired future date. 40

Step 5 is the culmination of step 4.If the schedule can meet the customer order, an order promise notice goes to the customer.We will discuss the order promise step more fully a bit later.

In steps 6 through 8, customer identification is lost, and these steps are generally out of the realm of demand management.In step 6, inventory planning, accepted orders are divided into requirements for component parts. If the parts are not on hand, manufacture and purchase orders for parts are generated. The component parts orders do not easily tie to a given customer, because common parts go into various end items ordered by various customers. Scheduling, at a detailed level, and purchasing constitute step 7:Schedulers carefully release the parts manufacturing orders so as not to overload the shop; buyers release the purchase orders.Dispatching is step 8:Dispatchers control the priorities of parts orders as they queue up in the work centers to have certain operations done.

In step 9, assembly orders, the customer order reemerges as the basis for orders for the final assembly of end items（and accessories）into finished goods or end products.Shipment orders, geographically consolidated, constitute step 10.

It is clear that order processing is complex.Much of this book is devoted to explaining all the steps and techniques used to achieve good results—on-time completion of quality goods and services at a reasonable cost and flexibility to respond to new orders or other customer needs.

Order Promising

Order promising means making a commitment to the customer to ship or deliver an order.Order promise by operations management also serves as its commitment to the partnership that marketing and operations should have. Speedy notice of order promise can provide salespeople with sound information for use in making any delivery arrangements.Timely notice also helps get more sales.In return, the sales force may be able to more closely gear selling activities toward operating capacity; that is, salespeople may push sales of items that require use of idle or slack operations capacity and ease off on items that would strain other capacity.

The only situation in which operations does not have an order promise function is the pure make-to-stock company.Here goods are made to a forecast and placed in distribution centers, and customer order processing is left to the marketing arm of the business.But few companies are strictly make-to-stock. Special large orders, orders for service parts, and so forth may be accepted.In that case, there should be a formal order promise procedure so that sales can give the customer some assurance that production is committed to meet the agreed-upon delivery date.

In client-oriented services, the order promise is known as an appointment. The order is not a legal promise; it just means that schedules have been checked and that, barring problems, the customer's order should be done on time.All parties realize that problems do occur and some orders are going to be late.Just as obvious to all is that the firm with the fewest late orders enhances its competitive position.

Richard J.Schonberger and Edward M.Knod, Jr., Operations Management 3rd ed.© 1988, pp.99-102.Reprinted by permission of Richard D.Irwin, Inc., Homewood, Illinois.

KeyTerms and Concepts

operations management a term shifting from industrial management, manufacturing management, production management, and production/operations management, because people have found that concepts and techniques for managing production in factories are useful in government and services as well.

order promising to grant a customer to ship or deliver an order.

batch orders orders which consist of several orders, often small.

final assembly order notice which tells people to proceed final assembly.

shipment orders notice which tells people to ship or transport goods.

number system parts or goods with their own codes so as to make management easier.

set of documentation documents to tell the details in order processing.

billing order notice which tells people the sum of payments.

order booking making record of order.

order entry inputting the details of order.

operations functions concerned scope or tasks which management should deal with.

order positioning arranging when and how to proceed an order.

order promise notice making a commitment to the customer to ship or deliver an order.

accessories parts attached to a machine or a good, making it with extra functions.