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Chapter 3 Demand management, IBS3002 Logistics International Trade 8282020 1 IBS3002 Logistics International Trade Chapter 3 Demand management, order management customer service 1 Contemporary logistics, Murphy (2015) Top.
8/28/2020 IBS3002 Logistics & International Trade Chapter Demand management, order management & customer service Contemporary logistics, Murphy (2015) Topic areas Linkages between demand management, order management, and customer service Models of demand forecasting The order cycle and its components Customer service and its dimensions Managerial issues related to customer service Introduction How an organization determines what the customer wants? How an organization facilitates the customer getting what is wanted? Demand management Order management Customer service 8/28/2020 Demand management Demand management: the creation across the supply chain and its markets of a coordinated flow of demand Demand forecasting: an effort to project future demand & a key component in demand management Demand forecasting is helpful in: + Make-to-stock situations: when finished goods are produced prior to receiving a customer order + Make-to-order situations: when finished goods are produced after receiving a customer order (Ex: Dell, BMW…) basis types of demand forecasting models: judgmental, time series, cause-effect Demand management Demand forecasting models: Judgmental forecasting model: + This model uses judgmental or intuition and is preferred in situations where there is limited or no historical data (such as with a new product introduction) + Judgmental forecasting techniques: surveys and the analog technique… + Surveys: questionnaires are used to learn about customer preferences, intentions + Analog forecasting: determining an analog (similar item) to the item being forecast, then using the analog’s demand history as a basis for relevant forecast Demand management Demand forecasting models: Time series forecasting model: + Future demand is solely dependent on past demand + Time series forecasting techniques: simple moving average & weighted moving average + Simple moving average: is calculated by summing the demand across different time periods & then dividing by the number of time periods + Weighted moving average: assign greater importance (weight) to the more recent data 8/28/2020 Demand management Demand forecasting models: Time series forecasting model: Demand management Demand forecasting models: Cause-and-effect forecasting model: + Assumes that one or more factors (independent variables) are related to demand and that the relationship between cause and effect can be used to estimate future demand + Example: in some western countries, there are an inverse relationship between the level of interest rates & the consumers’ ability to buy a house -> as interest rates increase, housing sales tend to decrease Demand management Demand forecasting issues: Selection of a forecasting technique depends on many factors An inappropriate selection will reduce forecast accuracy – linkage between actual & forecasted demand & accuracy can be affected by various considerations Forecasting accuracy can have important logistical implications Computer forecasting software unable to completely eliminate forecast errors It is generally recommended to use a combination of techniques CPFR concept – where supply chain partners share planning and forecasting data to better match up supply and demand 8/28/2020 Order management Order management: Order management refers to management of various activities associated with order cycle A key to operational efficiency and customer satisfaction Order cycle (replenishment cycle or lead time) Order cycle refers to the time from when a customer places an order to when the order is received Including principle activities: order transmittal, order processing, order picking & assembly, order delivery Some organizations include order to cash cycle in their order management model 10 Order management Order cycle should be analyzed in terms of order cycle time and cycle time reliability Order management is affected by advances in information systems Discussions: How is relationship between order management and demand management? How is relationship between order management and customer service? 11 Order management Order transmittal: Is the series of events that occur between the time a customer places or sends an order and the time the seller receives the order Methods of order transmittal: - In person - Mail - Telephone - Fax - Electronically 12 8/28/2020 Order management Order processing: 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 processing include: - Checking for completeness & accuracy, and customer credit - Order entry into the computer system - Marketing department credits salesperson - Accounting department records transaction - Inventory department locates nearest warehouse to customer and advises them to pick the order - Transportation department arranges for shipment 13 Order management Order processing: Some activities must be performed sequentially, some might be performed simultaneously -> should identify activities that can be performed simultaneously to reduce cycle time There are managerial approaches of order processing activities: order receipt, order triage, and the location(s) used to fill an order -> play an important role in implications for order cycle effectiveness & efficiency and for customer satisfaction 14 Order management Order picking and assembly: Order picking & assembly includes all activities from when an appropriate location is authorized to fill the order until goods are loaded aboard an outbound carrier Order picking & assembly 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 Example of order picking and assembly: - Handheld scanners - Radio-frequency identification (RFID) - Voice-based order picking - Pick-to-light 15 8/28/2020 Order management Order picking and assembly: To improve effectiveness and efficiency of order picking & assembly: - Analyze order pickers’ travel time + travel time accounts for 60%-80% of total pick time + travel time can be reduced through better slotting (placement) of products in the relevant facility - Match the picker to the order being picked - Using advances in technology 16 Order management Order delivery: Order delivery is the time from when a carrier picks up the shipment until it is received by the customer 17 Customer service Why you think customers are so important for organizations? 18 8/28/2020 Customer service Customer service is “the ability of logistics management to satisfy users in terms of time, dependability, communication , and convenience.” Customer service strives to keep customers happy and creates in the customer’s mind the perception of an organization that is easy to business with Customer service can be an excellent competitive weapon and is much more difficult for competitors to imitate than price cuts or other competitive strategies Macroenvironmental changes -> higher level of customer service Customer service – customer satisfaction 19 Customer service Customer service – customer satisfaction Customer satisfaction: compares a customer’s actual experience with the expected experience, and if the actual experience equals or exceeds the expected experience then the customer would be satisfied In addition, it can influence both the expected and actual experience and hence influence customer satisfaction 20 Customer service Four dimensions of customer service: 21 8/28/2020 Customer service Four dimensions of customer service: Time - the period between successive events, usually order fulfilment cycle time + order cycle time & lead time + high degree of control over the order cycle -> reduce order cycle time -> influence decisions on inventory -> increase customer service level Dependability – the reliability of the service encounter, including elements: consistent order cycles, safe delivery, complete delivery 22 Customer service Four dimensions of customer service: Communication – a two-way exchange between seller and customer, with the goal of keeping both parties informed, technological advances should be used + error-free order information, updates, status + pre-transaction, transaction, post transaction Convenience – ease of doing business with a seller + service levels must be flexible + organizations should develop multichannel marketing systems because convenience dimension plays a key role in a consumer’s purchasing decision 23 Managing Customer service Four specific customer service considerations include: Establishing customer service objectives Measuring customer service Customer profitability analysis (CPA) Service failure and recovery 24 8/28/2020 Managing Customer service Establishing Customer Service Objectives: • Goals - broad and generalized statements regarding the overall results that the firm is attempting to achieve • Objectives - the means by which goals are to be achieved, state certain minimum requirements and are more specific than goals • Objectives should be specific, measurable, achievable, cost-effective • Determining customer’s viewpoint -> asking customers for their insights about customer service 25 Managing Customer service Establishing Customer Service Objectives: • Tool for companies benchmarking to evaluate their service performance: performance • Benchmarking: a comparison of an organization’s performance to the performance of other organizations • Performance benchmarking: a process that continuously identifies, understands, adapts outstanding processes found inside & outside an organization 26 Managing Customer service Measuring Customer Service: • “you can’t manage what you can’t measure” -> a systematic program of measurement & control is required • Must determine data sources to be used -> collect from both internal & external source • Must determine what factors to measure -> measures should be consistent with four dimensions of customer service • Organizations must resist excessive measurement – can strain an organization -> analysis paralysis, waste of time… 27 8/28/2020 Managing Customer service Measuring Customer Service: 28 Managing Customer service Customer Profitability Analysis (CPA): • 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 29 Managing Customer service Service Failure and Recovery: • Situations will occur where actual performance does not meet the customer’s expected performance (i.e service failure) • Examples of order-related service failures include: + Lost delivery + Late delivery + Early delivery + Damaged delivery + Incorrect delivery quantity 30 10 8/28/2020 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 + Unsatisfactory service recovery magnifies the initial failure 31 11 ...8/28/2020 Demand management Demand management: the creation across the supply chain and its markets of a coordinated flow of demand Demand forecasting: an effort to project future demand & a... planning and forecasting data to better match up supply and demand 8/28/2020 Order management Order management: Order management refers to management of various activities associated with order. .. relationship between order management and customer service? 11 Order management Order transmittal: Is the series of events that occur between the time a customer places or sends an order and the time