demand management and customer service-4- supply chain management

7/27/2019 Demand Management and Customer Service-4- Supply Chain Management

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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

Outbound-to-Customer Logistics Systems refer to the set of

processes, systems and capabilities that enhance the

companys ability to serve its customers

This area plays a major role in the companys revenues,

profits and overall image

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DEMAND MANAGEMENT

Demand Management can be defined as focusedefforts

to estimate and manage customers demand with the

intention of using this information to shape operating

decisions

Demand Management strives to reduce total costs for acompany and its supply chain

Demand Management must be a collaborative process

A major driver of the recession in 2008 was the increase

of error in forecasts due to which bi l li ons of dollars worth

of inventor ies had accumulated in several supply chains

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DEMAND MANAGEMENT OBJECTIVES

Gathering and analyzing knowledge from all possible sources aboutconsumers, their problems and their unmet needs

Sharing with other functions the knowledge about consumers,available technology and logistical challenges

Coordinate with other functions in developing the best products andservices

Ensuring the distribution of products and services to consumers in

the desired format

Develop and execute contingency plans with other functions toallow modification of short-term schedules when necessary

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ISSUES IN DEMAND MANAGEMENT

Lack of communication between departments results in little or nocoordinated response to demand information

Too much emphasis is often placed on forecasts of demand with little

attention paid to collaborative efforts and strategic and operational plans

that need to be developed from the forecasts

Demand information is often used more for tactical and operations

purposes than for strategic purposes

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o Example of Apple:

In the 1990s, Apple had several problems in forecasting demand

Many components were sourced fr om 1 suppl ier therefore accurate

forecasts were cr itical

Over $1 bil l ion in un-ful f il led orders dur ing the crucial holiday season

resul ting in the CEO (Spindler) getting ousted a few months later


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TRADITIONAL FORECASTING A major component of demand management is forecastingthe amount of

product that will be purchased by consumers or end users

Involves around how a firm integrates information about its customers

into the manufacturing planning and control systems

In the integrated supply chain , all other demand will be derived from the

primary demand

As forecast horizon increases, accuracy decreases

o Example of IBM :

Badly misjudged the demand for its PC business

Went f rom highly profi table to a loss of $200 mill ion

F inal ly had to sel l off the PC business to Lenovo

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TRADITIONAL FORECASTING CONTINUED

An example of integrating Sales Forecasting with

Production is illustrated on the next page

Points to note are:

Long-term (more than three years), M idrange (one to

three years) and Shor t-term (less than 1 year)

forecasting are each important contr ibutors to the

forecasting process

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INTEGRATION OF SALES FORECASTING AND PRODUCTION

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COLLABORATIVE PLANNING, FORECASTING AND REPLENISHMENT

(CPFR)

CPFR is recognized as a breakthrough business model forplanning, forecasting and replenishment

Uses available Internet-based technologies to collaborate

from operational planning through execution

Emphasizes a sharing of consumer purchasing data

between supply chain partners

Creates a direct link between the consumer and the supply

chain

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COLLABORATIVE PLANNING, FORECASTING AND REPLENISHMENT

(CPFR)

The plan and the forecast are input by suppliers and buyersinto an Internet accessible system

Within established parameters, any of the participating

partners is empowered to change the forecast

Collaborative planning improves the quality of the demandfor the entire supply chain through a constant exchange ofinformation from one end to the other

Example: Wal-M art and P&G

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MAJOR COMPONENTS OF THE ORDER CYCLE

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CUSTOMER SERVICE CONTINUED

Defining customer service: In terms of levels of product - Core, Basic, Expected, Augmented, Potential

In terms of types of customer support/service - Technical, Non-Technical

In terms of levels of involvement

In terms of complexity of customer service

Elements of Customer Service:

Time

Dependability

Cycle time

Safe delivery

Correct orders

Communications

Convenience

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CUSTOMER SERVICE: PERFORMANCE MEASURES

New:

Orders received on time

Orders received

complete (OTI F )

Orders received damage

free

Orders f il led accurately

Orders bil led accurately

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Traditional: % availability in units

Speed, accuracy and consistency

Response time to special requests

Response and recovery time

requirements

Quality of response


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CUSTOMER SERVICE: TAKEAWAYS 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 continuous value additions immenselyhelp to retain customers

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STOCKOUTS

A Stockout is a situation in which the demand or requirement for an item cannot be

fulfilled from the current inventory

While stockouts can occur along the entire supply chain, the most visible kind are in the

fast moving consumer goods (FMCG) industry (e.g. Toothpastes, Soaps)

Stockouts happen due to unexpected demand, ineffective inventory management,

production delays or replenishment issues

Research findings show that a retailer loses about 4 percent of sales annually due to

stockouts

Possible outcomes from a Stockout:

Back orders- A customer order that cannot be filled immediately and for which the

customer is prepared to wait for some time

Lost sales

Dissatisf ied customers

Diminish store loyalty

Obstruct Sales and Marketing plans

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EXPECTED COSTS OF STOCKOUTS

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Cost of Stockouts consist of:

Internal costs (delays, labour time wastage, lost

production)

External costs (loss of profit from lost sales, and loss of

future profit due to loss of goodwill)

Event Probability Costs Expected Costs

Back Order 70% $ 6.00 $ 4.20

Lost Sale 20% $20.00 $ 4.00

Lost Customer 10% $200.00 $ 20.00

Estimated costper stockout

100% --- $ 28.20


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CHANNELS OF DISTRIBUTION

A Distribution Channel or Trade Channel is defined as theroute along which goods move from manufacturers to end

consumers

This channel consists of various middlemen like Wholesalers,Stockists, Agents and Retailers who intervene between the

producers and consumers

The channel serves to bridge the gap between the point of

production and the point of consumption thereby creating time,place and possession utilities (value additions)

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DISTRIBUTION CHANNEL SEPARATION

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EXAMPLE OF DISTRIBUTION CHANNEL FOR THE FOOD PRODUCTS

MANUFACTURING INDUSTRY

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BENEFITS OFFERED BY CHANNEL MEMBERS

Cost Savings in Specialization -Members of the distribution channel arespecialists in what they do

Reduce Exchange Time -They often perform their job more rapidly resulting infaster product delivery

Customers Want to Convenientl y Shop for VarietyAssortments at a singlelocation

Resellers sell Small er Quanti ties

Create Sales -Encourage sales of the product through their own advertisingefforts and using other promotional means such as special product displays

Offer F inancial Support -Purchase on credit; purchase using a payment plan;delay the start of payments; and allowing trade-in or exchange options

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GROWTH AND IMPORTANCE OF DISTRIBUTION

CHANNELS

Retail channels showing dramatic growth

Mass merchandisers such as Wal-Mart, Carrefour, Sears and

Target constricting growth of smaller retailers

Nature of logistics changing to accommodate customized

systems

Successful retailers base efficiency on logistics systems

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BuySell BuyStore

MoveMake Sell Store

MoveSell

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MoveMoveBuy

demand management and customer service-4- supply chain management

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