Customer Service & Logistics Filmco & Walmart

Components of Customer Service Before Pre-Transaction Service During Transaction Service After Post-Transaction Service

How does this relate to SCM? Deliver products to customers faster and with greater accuracy Track shipments to ensure they reach their destination safely Maintain optimal inventory levels

Consequence of bad Customer Service Loss of current customersLoss of potential customersLoss of reputationLoss of profits

Impact of Logistics Management on Return on Investment (ROI) Logistics Management to improve Sources of Profit: Sources of ProfitLogistics Management Sales RevenueGood customer service Reduced CostsLogistics efficiency

Logistics Management for efficient capital employment : Capital EmployedLogistics Management CashCash-to-cash Cycle time Debtors/CreditorsDebt collection, early payment discount. Closer integration of deliveries to demand InventoryJust-in-time logistics Fixed AssetsAsset utilization

Impact of Logistics Management on return on Shareholder Value Shareholder value is a key component in measuring corporate performance. It is the sum of all strategic decisions that affect the firm’s ability to efficiently increase the amount of free cash flow over time. Market Value Added (MVA) can be used to measure shareholder value, MVA = (Share price * No. of issued shares) minus book value of capital added

The five basic drivers of enhanced shareholder value are:

Revenue Growth Impacts of logistics service on volume and customer retention. Superior logistics service on customers’ loyalty. Satisfied customers bring more customers.

Tax Minimisation Organisations have choices as to where they can locate their assets and activities. Tax regimes are different country by country. Property tax and excise duty on fuel. Supply chain decisions can significantly affect the total tax bill and hence shareholder value.

Operating Cost Reduction potential for operating cost reduction. Large proportion of costs are driven by logistics decisions and the quality of supply chain relationships. A total pipeline view of costs on a true ‘end-to-end’ basis should be taken.

Working Capital Efficiency Supply chain strategy and logistics management linked to the working capital requirement. Long pipelines by definition generate more inventory;.

Walmart and K-Mart

Why have Walmart been successful? Aggressive IT investment over time: Adopting technology early. Spending less per sales dollar getting goods to stores than its competitors. Improving inventory management Use of EDI with suppliers to improve coordination Exploiting economies of scale Aggressive overall investment in supply chain $4bn in themselves and $40bn suppliers High customer satisfaction: Ability to consistently meet customer demand through use of technology and high on shelf availability.

SWOT Strengths Market leader – largest retailer in the world Low cost products for customers Good information sharing with suppliers Good use of IT for tracking inventory Weaknesses Big box retailer – low penetration in urban areas Low cost market sector – not appealing to all customers who want quality Opportunities Emerging markets Further investment into new technology Further growth in online retailing – using existing knowledge and supplier ties Threats Wage wars Volatility in commodity prices Ethical issues in the supply chain

Direct Product Profitability (DPP)

Direct Product Profitability Accurate measure of the contribution of each product to profit Other costs involved other than purchase price These can be hidden and substantial Sales -Manufacturing -Storage -Transport -Retail (stocking/front end labour)

Filmco DPP CustomerPQR DPP19.6%23.1%33%

Why is R’s DPP So Much Higher? R could be buying in bulk R could receive direct delivery- cutting out warehouse R could be ordering more frequently than P

Customer P’s DPP Film TypeAB Customer P Orders 1234 DPP8.4%21.6%31.2%30.3% Why is Order 1’s DPP so different to the rest?

Why do the orders have such different DPP’s? Just considering manufacturing costs… e.g. Film A – Order 1 Profit a-c / c = / 1210 = 27.6% Film B – Order 3 Profit a-c/c = / = 35.3% Not that different- manufacturing costs are insufficient to calculate profit contribution

Why do the orders have such different DPP’s? There is likely semi-fixed costs eg. transport Film A - Order 1 Transport cost / order weight = 79/482 = £0.16 / tonne for transport Film B - Order 3 Transport costs / order weight = 343/4538 = £0.07 / tonne for transport This is a significant difference, and is one explanation for the large difference in DPP.

How can Filmco overcome this? Increase the order sizes from their customers (bulk-buying discounts / MOQ’s) Improve relationships with Customer P Investigate ways of reducing costs for lower weight orders Reducing some of the NVA costs ( storage and opportunity costs) Film B is uncoated and the DPP is much higher – could they outsource the coating or stop coating film altogether.