03-demand mgmt and customer service

8/6/2019 03-Demand Mgmt and Customer Service

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Chapter 3

Demand Management and

Customer Service


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Chapter 3 Management of Business Logistics, 7th Ed. 2

Learning Objectives Understand the critical importance of

outbound-to-customer logistics systems.

Appreciate the growing need for effectivedemand management.

Know the types of forecasts that may be

needed, and understand how collaborationamong trading partners will help the overallforecasting and demand managementprocess.


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Learning Objectives Identify the key steps in the order fulfillment

process, and understand how effective order

management can create value for a firm andits customers.

Realize the meaning of customer service, andunderstand its importance to logistics andsupply chain management.


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Learning Objectives Understand the difference between logistics

and marketing channels, and understand that

goods may reach their intended customer viaa number of alternative channels ofdistribution.


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Logistics Profile:

Dreyers Instituted scan-based trading.

Manufacturer (Dreyers) is paid based on

what is actually scanned at the checkoutcounter.

Customer takeaway drives manufacturingand delivery.

Freed resources for use elsewhere. Win-win partnership arrangement.


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Outbound-to-Customer Logistics

Systems To increase levels of customer service,

significant emphasis is placed on outbound-

to-customer logistics systems. These systems refer to the set of processes,

systems, and capabilities that enhance thefirms ability to serve its customers.

This topic also is of historical interest in thestudy of physical distribution, logistics, andsupply chain management.


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Inbound-to-Operations Logistics

Systems These systems refer to the set of processes

that precede and facilitate value-adding

activities such as manufacturing, assembly,and so on.

This topic also is of historical interest in thestudy of the supply chain and includesmaterials management and physical supply.

The study of inbound-to-operations logisticssystems will be presented in the next chapter.


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Demand Management Defined as focused efforts to estimate and

manage customers demand, with the

intention of using this information to shapeoperating decisions.3

Recent practice has been just the opposite,with the manufacturer determining the what,where, when, and how many of the sale.


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Demand Management It is this disconnect between manufacturing

and the demand at the point of consumption

that attracts attention to demandmanagement.

Any attention paid to demand managementwill likely result in benefits flowing throughthe supply chain.


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On the Line:

Ingram Micro

Took leadership in creating a demand chainamong its supply chain partners.

$22 billion sales of 200,000 products from1,500 manufacturers to 140,000 resellers in130 countries.

Ingram Micro is using a demand chain,rather than a supply chain, to focus onmeeting consumer demand.


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On the Line:

Ingram Micro


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Demand Management Objectives Gathering and analyzing knowledge about

consumers, their problems, and their unmet

needs. Identifying partners to perform the functions

needed in the demand chain.

Moving the functions that need to be done tothe channel member that can perform themmost effectively and efficiently.


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Demand Management Objectives Sharing with other supply chain members

knowledge about consumers and customers,

available technology, and logistics challengesand opportunities.

Developing products and services that solvecustomers problems.

Developing and executing the best logistics,transportation, and distribution methods todeliver products and services to consumers inthe desired format.


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Demand Management:

Related Issues Lack of communication between departments

results in little or no coordinated response to

demand information. Too much emphasis is often placed on

forecasts of demand with little attention paidto collaborative efforts and strategic andoperational plans that need to be developedfrom the forecasts.


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Demand Management:

Related Issues Demand information is often used more for

tactical and operations purposes than for

strategic purposes. Primary emphasis should be on using demand

information to create likely scenarios of thefuture as they relate to product supply

alternatives. Resulting business successes will be a

outcome of the better match of demand toproduct availability.


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Traditional Forecasting:

Demand Forecasting A major component of demand management

is forecasting the amount of product that will

be purchased by consumers or end users. In the integrated supply chain all other

demand will be derived from the primarydemand.

A key objective is to anticipate and respondto primary demand as it occurs in themarketplace.


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Figure 3-1

Supply-Demand Misalignment


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Traditional Forecasting An example of integrating forecasting with

production is illustrated by Figure 3-2.

Long-term (more than three years), midrange(one to three years), and short-termforecasting are each important contributors tothe forecasting process.


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Figure 3-2 Integration of Sales

Forecasting and Production


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Collaborative Planning,

Forecasting, and Replenishment CPFR is recognized as a breakthrough

business model for planning, forecasting, and

replenishment. Uses available Internet-based technologies to

collaborate from operational planning throughexecution.

Developed by Wal-Mart and Warner-Lambertin 1995.


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Forecasting, and Replenishment The CPFR model is illustrated in Figure 3-3.

Emphasizes a sharing of consumer

purchasing data among and between supplychain partners.

Creates a direct link between the consumerand the supply chain.


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Figure 3-3

CPFR Business Model


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Forecasting, and Replenishment The plan and the forecast are entered by

suppliers and buyers into an Internet

accessible system. Within established parameters, any of the

participating partners is empowered tochange the forecast.

Only a few CPFR initiatives have been madepublic, but results are impressive.


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Supply Chain Technology:

Midwest Pharmaceuticals Using a statistically advanced demand-

management system the company discovered

that in one of its five 3,000 product families,72% of the products were in the maturephase and 14% were in decline.

Management modified and improved its

product investment strategy. In essence, demand management helped

make the company more profitable andeffective.


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Order Fulfillment and Order

Management Collaborative planning improves the

quality of the demand signal for the

entire supply chain through a constantexchange of information from one endto the other.

Goes beyond the traditional practice.

Examine the three critical elements ofcollaborative planning in Figure 3-4.


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Figure 3-4

Collaborative Planning


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Management Order fulfillment activities differ as a

supply chain matures through

transactional to interactive tointerdependent levels.

Examine the four key stages of order

fulfillment in Figure 3-5.


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Figure 3-5

Stages of Order Fulfillment


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Management Order-management systems represent

the principal means by which buyers

and sellers communicate informationrelating to individual product orders andis key to operational efficiency and

customer satisfaction. Examine the characteristics of order-

management functions in Figure 3-6.


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Figure 3-6

Order-Management Functions


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Management The order cycle traditionally includes

only those activities that occur from the

time an order is placed to the time it isreceived by the customer.

Examine the four principal activities of

the order cycle in Figure 3-7.


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Figure 3-7

Major Components of the Order Cycle


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Management Order placement methods seem to be

changing to accommodate new technologies.

Examine order placement trends in Figure 3-8.


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Figure 3-8

Order-Placement Trends


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Management: Other Issues

Order processing

Order preparation Order shipment

Length and variability of the order cycle

Examine the order cycle time analysis inFigure 3-9 and order cycle length andvariability in Figure 3-10.


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Figure 3-9

Example of Order Cycle Time Analysis


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Figure 3-10

Order Cycle Length and Variability


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Management: E-Commerce Success is just as much about designing and

implementing the basic principles of logistics

and supply chain management as it is aboutmarketing the latest technologies.

According to Richer and Kalatora10, some ofthe critical decisions are related tothe evaluation of multiple fulfillmentplanning strategies.

What are the reasonable alternativefulfillment strategies?


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Five Alternative Fulfillment

Strategies for E-Commerce1. Distributed delivery centers

2. Partner fulfillment operations

3. Dedicated Fulfillment centers

4. Third-party fulfillment centers

5. Build to order


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Customer Service:

The Logistics/Marketing Interface Customer service is often the key link

between logistics and marketing.

Examine the traditional logistics- marketinginterface in Figure 3-11.


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Figure 3-11 The Traditional

Logistics/Marketing Interface


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Customer Service:

The Logistics/Marketing Interface A new vision of the interface is represented

by National Semiconductor, whose re-

engineering of the supply chain reducedoverall logistics cost.

Required a more dynamic, proactiveapproach that recognized the value-added

role of logistics supply chains in creating andsustaining competitive advantage andproviding win-win outcomes.


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Customer Service:

The Logistics/Marketing Interface Becton Dickinsons commitment resulted in

the creation of a Supply Chain Services

operating division of the company. This new perspective emphasizing value-

added is providing the basis for othercompanies such as Sears, Proctor &

Gamble, Nabisco, Hershey, and DellComputer to improve both efficiency andeffectiveness.


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Customer Service:

The Logistics/Marketing Interface Defining customer service

In terms of levels of product

In terms of types of customersupport/service

In terms of levels of involvement

In terms of complexity of customer service


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Customer Service:

The Logistics/Marketing Interface Elements of Customer Service

Time

Dependability

Cycle time

Safe delivery

Correct orders Communications

Convenience


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Table 3-2 Customer Service Elements forthe Food Industry


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Figure 3-12 Example of the

Frequency Distribution of Lead Time


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Customer Service:

Performance Measures Traditional

% availability in base units

Speed and consistency Response time to special

requests

Speed, accuracy, andmessage detail of response

Response and recovery timerequirements

Response time, quality ofresponse

New Orders received on

time Orders received

complete

Orders receiveddamage free

Orders filled accurately

Orders billedaccurately


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Table 3-3 Elements and Measurement ofCustomer Service


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Customer Service: Overview If the basics of customer service are not in

place, nothing else matters.

Customers may define service differently. All customer accounts are not the same.

Relationships are not one dimensional.

Partnerships and added value can lock up

customers.


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Figure 3-13

Customer Service Issues


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Expected Costs of Stockouts

Event Probability CostsExpected

Costs

Back Order 70% $ 6.00 $ 4.20

Lost Sale 20% $20.00 $ 4.00

LostCustomer

10% $200.00 $ 20.00

Estimatedcost perstockout

100% --- $ 28.20


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Channels of Distribution One or more companies or individuals who

participate in the flow of goods and services

from the producer to the final user orconsumer.

Wide variety of firms comprise thesechannels.

Examine Figures 3-14 & 3-15.


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Figure 3-14

Distribution Channel Separation


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Figure 3-15Examples of Channels of Distribution for the

Food Products Manufacturing Industry


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Growth and Importance of

Channels of Distribution Retail channels

showing dramatic

growth. Mass merchandisers

such as Wal-Mart,Kmart, Sears, and

Target squeezingsmaller retailers .

Nature of logisticschanging to

accommodatecustomized systems.

Successful retailersbase efficiency on

logistics systems.


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Chapter 3:Summary and Review Questions

Students should review theirknowledge of the chapter by

checking out the Summary and StudyQuestions for Chapter 3.

This is the last slide for Chapter 3


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End of Chapter 3 Slides

Demand Managementand Customer Service

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