CHAPTER 7 Demand Management Order Management and Customer

CHAPTER 7 Demand Management, Order Management, and Customer Service

Learning Objectives • To understand the linkages between demand management, order management, and customer service • To introduce you to demand forecasting models Models + • To examine the order cycle and its four company system = components DSI 7 -2

Learning Objectives • To understand the four dimensions of customer service as they pertain to logistics • To familiarize you with select managerial issues associated with customer service 7 -3

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 7 -4

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 7 -5

Demand Management • Demand management can be defined as “the creation across the supply chain and its markets of a coordinated flow of demand. ” Within the company = DSI – Demand Supply Integration 7 -6

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 Non-determined demand Determined demand (or combination – tyre production – production for car producer and production for service market) 7 -7

Demand Management • Three basic types of demand forecasting models: – Judgemental – Time series – Cause and effect (associative) quantitative and qualitative methods 7 -8

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 7 -9

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 7 -10

Demand Management 7 -11

Demand Management • Cause-and-effect forecasting model: – Also referred to as associative forecasting – Assumes that one or more factors are related to demand that the relationship between cause and effect can be used to estimate future demand – Some techniques include: • Simple regression • Multiple regression 7 -12

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 7 -13

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 7 -14

Order Management • Four stages of the order cycle include: – Order transmittal – Order processing – Order picking and assembly – Order delivery 7 -15

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 7 -16

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 INCOTERMS 2000 – international commercial terms 7 -17

Order Management • Order processing includes: – Checking for completeness and accuracy Critical – A customer credit check – Order entry into the computer system commercial decision – Crediting salesperson with the sale – Recording the transaction – Determining inventory location – Arranging for outbound transportation 7 -18

Figure 7. 1: Flowchart of Order Handling (Order Processing) System 7 -19

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 Filling the order = invoicing 7 -20

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 …. . ? 7 -21

Order Management • Examples of Order Picking and Assembly technology: – Handheld scanners – Radio-frequency identification (RFID) – Voice-based order picking https: //www. youtube. com/watch? v=77 Do. Ld. Qv. XNQ – Pick-to-light: https: //www. youtube. com/watch? v=t. PIQp. Ki_-Ko 7 -22

Order Management • Order delivery is the time from when a transportation carrier picks up the shipment until it is received by the customer. 7 -23

Customer Service • Customer service is “the ability of logistics management to satisfy users in terms of time, dependability, communication , and convenience. ” • Customer service is much more difficult for competitors to imitate than other marketing mix variables such as price and promotion 7 -24

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 7 -25

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 7 -26

Managing Customer Service • Four specific customer service considerations include: – Establishing customer service objectives – Measuring customer service – Customer profitability analysis (CPA) – Service failure and recovery 7 -27

Managing Customer Service • 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 7 -28

Managing Customer Service 7 -29

Managing Customer Service • 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 7 -30

Managing Customer Service • 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 Customer Life-time Value – Can help to identify when an organization should pursue different logistical approaches for different customer groups – Has been facilitated by the acceptance of activitybased costing 7 -31

Managing Customer Service • 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 7 -32

Managing Customer Service • 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 7 -33