Process Improvement Research Project
INTRODUCTION
Nearly every organizational management work tirelessly to ensure effective marketing that can attract a pool of customers for increased sales. Maintaining the acquired customers has become a big challenge for many companies. This paper discusses an order processing problem at Kmart Corporation, a departmental store headquartered in Illinois, US. The primary reason for choosing this problem is because the problem has created a negative image of the company from the customers’ viewpoint. Typically, customers would want their orders to be processed within the limited time possible and possible in real-time. Order processing at Kmart Corporation is a great challenge as it increases customers’ waiting time and in some instances causing them to incur extra shipping costs or receive damaged items.
The main reason for choosing Kmart departmental store is its deteriorating reputation in the market. Kmart departmental stores have been facing operational challenges leading to closing a substantial number of its retail stores across the country. According to a recent Gallop survey on customer satisfaction in the United States, most of Kmart customers complain of delayed orders and sometimes delivery of damaged items.
STATEMENT OF PROBLEM
Problem
Order processing is the underpinning challenge at Kmart stores. As demonstrated by the below company’s order processing flow chart, a decision has to be made on whether the placed customer order can be picked directly, ordered from the suppliers, or produced internally. The order processing system processes the order quantity and creates a pick ticket before creating a purchase order. The system experiences hurdle when locating the requested items mainly because of disorganized warehouse and poor communication. The existing inventory system does not automatically update the inventory when items are sold out from the store. Consequently, the inventory handling officer may not be aware of whether the requested order items exist in the store and hence delaying the invoicing process and other subsequent processes. The purpose of this paper is to demonstrate how order processing affects the company operations as well as its reputation and overall performance. Besides, the paper develops an improved process to increase company performance, reduce wastage and costs while increasing customer satisfaction and profitability.
Sub-problems
Ineffective inventory locating
When a customer orders for a given product, the company should be able to swiftly locate for the requested product in the warehouse or quickly order for the product from the suppliers. Poorly organized warehouse and delayed or poor communication with the suppliers creates major problems in locating the inventory (Rutaganda et al., 2017). Inefficiencies and delays in locating inventory influence shipping delays, a situation that frustrates the customers mainly when they pay premiums for expedited deliveries.
Communicating with suppliers
Any successful business requires an effective and reliable communication channel with suppliers. Customer order processing is a great problem because of the existing poor communication with the suppliers while affecting the supply chain. Poor communication between the company’s purchasing department and the suppliers develops challenges in invoicing the customers and delays in packing the purchased goods before shipping (Ho, & Lin, 2017).
Inventory managing problem
Customers are often frustrated when they purchase products but they learn that they cannot receive their purchases or they must wait for the unexpected or projected duration. The existing inventory management system processes in batches with a lot of manual product data entries. With this system, the company often sells all the products in the stock but continues to accept new customer orders without realizing that the requested products are out of stock. The situation leads to the issuance of refunds and incentives to calm down frustrated customers. As such, poor inventory management increases operational costs.
Impact of Problem/Sub-problems
As highlighted above, the order processing problem and its sub-problems greatly increase operational costs, reduce customer satisfaction, and creates negative company reputation. Because of frequent frustrations, the company has lost a significant number of customers and overall market share. Loss of customers and negative company image has greatly influenced the company to make losses in recent years. Consequently, Kmart has closed over a hundred retail outlets across the United States (Rutaganda et al., 2017). Developing an alternative and improved process can highly restore company image, increase customer satisfaction and profitability. The purpose of this paper is to determine to improve order processing for improved customer experience and customer satisfaction.
PROBLEM ANALYSIS
Relevant Social Factors
Different social factors are leading to the problem of inefficiency in order processing. The primary factor is poor communication between the employees. For instance, the order processing system may have a technical problem relating to the network infrastructure but the employee in-charge of order processing fails to inform the Information Technology Officer at the right time for correction (Ho, & Lin, 2017). The lack of a clear communication channel influence delays in communication.
Another social factor leading to order processing challenges is racial discrimination existing within the organization. The order processing officer can have problems processing orders placed by customers of certain races. Customers will have either their orders delayed or having missing items (Shenoy & Rosas, 2018). There is also a heavy communication breakdown between the supplier and the company’s procurement officer. Most of the employees have no motivation and hence increased conflicts and poor customer service.
Relevant Political Factors
Although no direct political factors are causing the current process problem, the bureaucracies in government agencies increase costs that make the organization to have financial challenges. Implementation of different government laws increases operational hardships. These problems make it hard for the company to acquire an expensive but effective order processing system.
Relevant Economic Factors
At present, the company is encountering financial challenges because of its declining sales. As such, there are fewer items in the store for the customers and hence most of the customers must wait for the purchasing officer to organize for the product with the suppliers once the customer places the order. Depending on the kind of items ordered and the robustness of the supply chain from the suppliers’ end, the customer may lack the ordered products (Rutaganda et al., 2017). The supply and demand factor also leads to the order processing problem. As highlighted, some customers may place an order for a product with limited supply in the market. When the company has a limited quantity to pack for the customer, it becomes hard to ship complete orders. Another economic factor influencing the order processing problem is consumer behavior. Customers are becoming aware of technology and hence their demands and interests are changing frequently. This factor is making it hard for the business to have adequate stock of a particular product for fear of changes in consumer requirements.
Relevant Legal Factors
Businesses operating within the United States follow certain business laws. Some of these laws affect order processing in different ways. For example, the equal employment opportunity requires businesses to hire without discrimination. The company may discriminate against an employee because of color or disability (Shenoy & Rosas, 2018). The discriminated employees files lawsuits and may quit the job leaving a disorganized workforce. The company is also grappling with various lawsuits filed by the customers and the public. Health and safety law also protects employees and thus they may decline from packing risky items for the customer.
Possible Causes of the Problem
The experienced order processing problem at Kmart Corporation is caused by various factors. The primary cause of the current order processing problem is the manual inventory management and poor communication between the suppliers and the procurement officer. The existing order processing system involves a substantial amount of redundant paperwork together with backbreaking human efforts. Another critical cause of the problem with order processing is the use of outdated network infrastructure.
Issues Due to Problem
Lack of real-time inventory updates to the inventory increases the challenge of locating products ordered by the customers. The system increases redundant paperwork together with backbreaking human efforts that lead to delays in order procurement and delivery as well as poor customer service (Rutaganda et al., 2017). Besides, updating massive procurement and shipping data in the backend systems is not only exhaustive but also time-consuming and hence the company processes limited orders. By processing limited orders, the company fails to realize the optimum return on investment.
Poor communication or lack of communication at critical points increases the chances of having conflicts amongst the employees and between the suppliers as well as conflicts with the customers. The outdated network infrastructure used for the order processing is not only slow in transmitting order requests but processes a limited number of orders each day forcing the employees to engage in massive paperwork (Van Donk & van Doorne, 2016). The system has no features to automatically update the inventory once an item is sold out. The company often creates a customer order but the items are out of stock causing unwarranted delays in packing, invoicing, and shipping. The company may also lose stock from fraudulent internal activities by employees because of unclear inventory data.
Prioritization of the Issues Due to Problem
- Problems in locating order products in the inventory
- Reduced sales
- Loss of market share
- Inventory management issues
- Lack of customer satisfaction
- Poor communication among employees
- Increased paperwork and employee conflicts
PROBLEM SOLUTIONS
Potential Solution #1
Implementing a system with features that can maintain real-time inventory data is one of the most viable solutions to the order processing problem (Van Donk & van Doorne, 2016). The quick location of inventory quickens entire order processing until the customer receives the shipment. Improved delivery of customer order increases the chances of turning a one-time customer into a return customer. Each time the customer makes purchases, the system automatically updates the stock levels.
Although implementing an order processing system with features that can maintain inventory details or can easily link with the inventory management system may be expensive, it is a worthy investment. Implementing this solution requires the company to acquire the system at an approximate cost of $4000, and then hire or internally train the staff to use the system. Hiring or training can spend an approximate cost of $800. The system also requires a maintenance fee of approximately $600 each month. Therefore, the initial cost of implementing the system would be $4,000+ $800 + ($600×12 months) = $ 12,000. With this investment, the management can have adequate time to focus on other critical areas in the business, avoid delivery delays, and attract more customers.
Potential Solution #2
Another solution to the order processing is to increase the number of trustworthy employees to handle different orders and checking stock levels in the stores.
In this solution, the company provides an adequate number of employees to handle each customer order satisfactorily (Shenoy & Rosas, 2018). Of great importance, this solution requires effective communication between the store manager and the customer order processing officers to keep track of the existing stock levels of each product. The inventory manager must determine the standard order level at which new supplies must be requested to avoid delays.
Merits of Potential Solution #1
Implementing an automated order processing system that integrates with the inventory management system brings various benefits to the company, employees, suppliers, and customers. The system reduces errors from paperwork performed by employees. Most importantly, the system hastens the location of inventory thus eliminating delays in all sub-processes in the order process including order picking, packing, invoicing, and delivery of the shipment (Van Donk & van Doorne, 2016). Another merit realized by the system is customer satisfaction and company reputation that may broaden the company market share. Maintaining up-to-date inventory details reduces the chances of missing orders or creating sales orders for items that are out of stock.
Merits of Potential Solution #2
The main advantage of this solution is that the workers will concentrate on their designated areas and are responsible for any actions required in the department. The solution reduces fraud among the employees. Besides, the solution reduces workload among the employees and thus can enhance customer experience besides faster processing of customer orders.
Proposed Solution
As demonstrated by the above calculations on R.O.I, the best solution for the order processing problem is implementing an order processing system with features for automatically updating the inventory after a product is sold out.
Proposed Solution Justification/Benefits
The justification of this proposed solution is increased efficiency in order processing by reducing order locating, invoicing, packing, and shipping delays. Swift order delivery increases customer satisfaction and company sales. A company usually makes considerable profits when sales are high. The solution also saves time for the management to focus on other operational areas.
Proposed Solution Implementation Plan
The first step in implementing the proposed system is to inform the workers about the need for proposed system changes and involve them in the implementation phases. The next step is to form a steering committee led by the chief information technology officer and then shop for the best system in the market or tailor the system according to the company needs (Rehman, Khan, Kusi-Sarpong & Hassan, 2018). The team should acquire and implement computers and other necessary network infrastructure devices. After acquiring the most appropriate system, the steering team should oversee the installation of the system in the specific company computers handling order processing. Before the system is fully implemented, the company should conduct thorough internal training for the system users including the manager. Finally, the system changeover happens to realize the benefits mentioned.
Proposed Solution Feasibility Analysis
Investing in this proposed solution is feasible from various viewpoints. As earlier discussed, the system will maintain updated inventory details and thus eliminates redundant paperwork. A lot of paperwork is not only tiresome but also increases errors in order processing. The system will increase employee motivation. The benefits can attract increased sales that can give again on the investment of approximately $18,000
Return on investment = ($18,000- $12,000)/$12,000
R.O.I =0.5 or 50%
Conclusion
Effective order processing is critical to customer satisfaction. A company with challenges in order processing is highly likely to lose customers and market share as well as company reputation. This research demonstrates the need for improving order processing with a system that can maintain details of the inventory to avoid selling products that are out of stock, having delays in delivery and conflicts among the employees. Although implementing a real-time order processing system is expensive, companies investing in the system realize a reasonable return on investment.
References
Ho, Y. C., & Lin, J. W. (2017). Improving order-picking performance by converting a sequential zone-picking line into a zone-picking network. Computers & Industrial Engineering, 113, 241-255.
Rehman, S. T., Khan, S. A., Kusi-Sarpong, S., & Hassan, S. M. (2018). Supply chain performance measurement and improvement system. Journal of Modelling in Management.
Rutaganda, L., Bergstrom, R., Jayashekhar, A., Jayasinghe, D., & Ahmed, J. (2017). Avoiding pitfalls and unlocking real business value with RPA. Journal of Financial Transformation, 46, 104-115.
Shenoy, D., & Rosas, R. (2018). Problems & Solutions in Inventory Management. Springer.
Van Donk, D. P., & van Doorne, R. (2016). The impact of the customer order decoupling point on type and level of supply chain integration. International Journal of Production Research, 54(9), 2572-2584.