Demand Management, Order Management, and Customer Service CHAPTER 7 Demand Management, Order Management, and Customer Service

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

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

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

Within the company = DSI – Demand Supply Integration 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

Non-determined demand 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)

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

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

INCOTERMS 2000 – international commercial terms 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

Critical commercial decision 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 Critical commercial decision

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

Filling the order = invoicing 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

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 https://www.youtube.com/watch?v=77DoLdQvXNQ Pick-to-light: https://www.youtube.com/watch?v=tPIQpKi_-Ko

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

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

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

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

Managing Customer Service

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

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 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 Customer Life-time Value

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

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