chapter 6 - demand management, order management and customer service

Demand Management, Order Management, and Customer Service

Learning Objectives

• To explain the linkages between demand management, order management, and customer service

• To examine the order cycle and its four components

• To elaborate the four dimensions of customer service as they pertain to logistics

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Order Management and Customer Service Key Terms

• Activity-based costing• Benchmarking• Cause-and-effect

(associative) forecasting

• Collaborative planning, forecasting, and replenishment (CPFR)

• Customer profitability analysis (CPA)

• Customer service• Demand

management• Judgmental

forecasting• Make-to-order • Make-to-stock• Multichannel

marketing systems• Order cycle


Order Management and Customer Service Key Terms

• Order delivery

• Order fill rate

• Order management

• Order picking and assembly

• Order processing

• Order to cash cycle

• Order transmittal

• Order triage

• Pick-to-light technology

• Service recovery

• Time series forecasting

• Voice-based order picking


Demand Management

• Demand management can be defined as “the creation across the supply chain and its markets of a coordinated flow of demand.”

Source: John T. Mentzer, “A Telling Fortune”, Industrial Engineer, April 2006, 42-47.


Demand Management

• Demand (sales) forecasting

– Refers to an effort to project future demand

– Is a key component in demand management

– Is helpful in make-to-stock situations

– Is helpful in make-to-order situations


Demand Management

• Three basic types of demand forecasting models:

– Judgemental

– Time series

– Cause and effect (associative)


Demand Management

• Judgmental demand forecasting model:

– Involves using judgment or intuition

– Preferred in situations where there is limited or no historical data

– Techniques include surveys, the analog technique, and others

• Surveys used to learn about customer preferences and intentions

• An analog (similar item to that being forecasted) is used as the basis for demand history


Demand Management

• Time series forecasting model:

– Underlying assumption is that future demand is solely dependent on past demand

– Some techniques include:

• Simple moving averages

• Weighted moving averages


Demand Management


Demand Management

• Cause-and-effect forecasting model:

– Also referred to as associative forecasting

– Assumes that one or more factors are related to demand and that the relationship between cause and effect can be used to estimate future demand

– Some techniques include:

• Simple regression

• Multiple regression


Demand Management

• Demand forecasting issues:

– Selection of forecasting technique(s) depends on many factors

– Selecting an inappropriate technique will reduce forecast accuracy

– Forecast accuracy can have important logistical implications

– Computer forecasting software unable to completely eliminate forecast errors


Order Management

• Order management refers to management of the various activities associated with the order cycle

• Order cycle (replenishment cycle or lead time) refers to the time from when a customer places an order to when goods are received

• Some organizations include order to cash cycle in their order management model


Order Management

• Four stages of the order cycle include:– Order transmittal

– Order processing

– Order picking and assembly

– Order delivery


Order Management

• Order transmittal refers to the time from when the customer places an order until the seller receives the order

• Methods of order transmittal• In person

• Mail

• Telephone

• FAX

• Electronically


Order Management

• Order processing refers to the time from when the seller receives an order until an appropriate location (i.e. warehouse) is authorized to fill the order


Order Management

• Order processing includes:– Checking for completeness and accuracy

– A customer credit check

– Order entry into the computer system

– Crediting salesperson with the sale

– Recording the transaction

– Determining inventory location

– Arranging for outbound transportation


Figure 7.1: Flowchart of Order Handling (Order Processing) System


Order Management

• Order picking and assembly includes all activities from when an appropriate location is authorized to fill the order until goods are loaded aboard an outbound carrier


Order Management

• Order picking and assembly

– Often represents the best opportunity to improve the effectiveness and efficiency of an order cycle

– Can account for up to 2/3 of a facility’s operating cost and time


Order Management

• Examples of Order Picking and Assembly technology:

– Handheld scanners

– Radio-frequency identification (RFID)

– Voice-based order picking

– Pick-to-light


Order Management

• Order delivery is the time from when a transportation carrier picks up the shipment until it is received by the customer.


Order Management

• Three key order delivery issues:

– Variety of options in terms of transit time are now available such as delivery by 12 noon and delivery by 4:30 P.M.

– A number of shippers are emphasizing both elapsed transit time as well as transit time reliability

– Transportation carriers are revamping their operations to provide faster transit times to customers


Customer Service

• Customer service is “the ability of logistics management to satisfy users in terms of time, dependability, communication , and convenience.”Source: Roger A. Kerwin, Steve W. Hartley, and William Rudelius, Marketing, 9th ed. (Boston, MA: McGraw-Hill/Irwin, 2009), Chapter 16.

• Customer service is much more difficult for competitors to imitate than other marketing mix variables such as price and promotion


Customer Service

• Four dimensions of customer service include:

– Time

Refers to the period between successive events (example - order cycle)

– Dependability

refers to the reliability of the service encounter

consists of three elements: consistent order cycles, safe delivery, and complete delivery

– Communication

– Convenience


Customer Service

• Four dimensions of customer service include:

– Communication

If effective should be a two-way exchange between seller and customer

Goal is to keep both parties informed

Requires correct parties to be involved in the process

– Convenience

Focuses on the ease of doing business with a seller


Managing Customer Service

• Four specific customer service considerations include:

– Establishing customer service objectives

– Measuring customer service

– Customer profitability analysis (CPA)

– Service failure and recovery



• Objectives for establishing customer service

– Specific

– Measurable

– Achievable

– Cost-effective



• Measuring Customer Service

– “you can’t manage what you can’t measure”

– Key issues include:

Determining data sources to be used

Determining what factors to measure

Organizations must resist excessive measurement



• Customer Profitability Analysis (CPA) is the allocation of revenues and costs to customer segments or individual customers to calculate the profitability of the segments or customers



• Customer Profitability Analysis (CPA)– Suggests that different customers consume differing

amounts and types of resources

– Recognizes that all customers are not the same and some customers are more valuable than others to an organization

– Can help to identify when an organization should pursue different logistical approaches for different customer groups

– Has been facilitated by the acceptance of activity-based costing



• Service Failure and Service Recovery

– Situations will occur where actual performance does not meet the customer’s expected performance (i.e. service failure)

– Service failure is relevant to the order cycle

– Examples of order-related service failures include:• Lost delivery

• Late delivery

• Early delivery

• Damaged delivery

• Incorrect delivery quantity



• Service Failure and Service Recovery

– Examples of order-related service failures include:

• Lost delivery

• Late delivery

• Early delivery

• Damaged delivery

• Incorrect delivery quantity



• Service Failure and Recovery

– Service recovery Process for returning a customer to a state of satisfaction

after a service or product has failed to live up to expectations

Is often costly

May lead to increases customer loyalty

Can result in better performing organization by learning from failure and implementing processes and policies to prevent reoccurrence


chapter 6 - demand management, order management and customer service

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