chapter 3

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Chapter 3

Demand Management and Customer Service

Chapter 3Management of Business Logistics, 7th

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Topics to discuss I. Demand Management

II Customer Services


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I Demand Management

The concepts of outbound and inbound management


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I. Customer Logistics Systems Two main types:

1. Outbound (Chapter 3) – see next slide – demand management

2. Inbound (Chapter 4) – see the slide after next – procurement 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.

These systems refer to the set of processes, systems, and capabilities that enhance the firm’s ability to serve its customers.

This topic also is of historical interest in the study of physical distribution, logistics, and supply chain management.


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Inbound-to-Operations Logistics Systems These systems refer to the set of processes

that precede and facilitate value-adding activities such as manufacturing, assembly, and so on.

This topic also is of historical interest in the study of the supply chain and includes materials management and physical supply.

The study of inbound-to-operations logistics systems will be presented in the next chapter.


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I. Demand Management Defined as “focused efforts to estimate

and manage customers’ demand, with the intention of using this information to shape operating decisions.”

Recent practice has been just the opposite, with the manufacturer determining the what, where, when, and how many of the sale.


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Demand Management It is this disconnect between

manufacturing and the demand at the point of consumption that attracts attention to demand management.

Any attention paid to demand management will likely result in benefits flowing through the supply chain.


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On the Line: Ingram Micro

Took leadership in creating a demand chain among its supply chain partners.

$22 billion sales of 200,000 products from 1,500 manufacturers to 140,000 resellers in 130 countries.

Ingram Micro is using a demand chain, rather than a supply chain, to focus on meeting consumer demand.


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On the Line: Ingram Micro


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Demand Management Objectives(6 main objectives) 1 .Gathering and analyzing knowledge

about consumers, their problems, and their unmet needs.

2. Identifying partners to perform the functions needed in the demand chain.

3. Moving the functions that need to be done to the channel member that can perform them most effectively and efficiently.


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Demand Management Objectives 4. Sharing with other supply chain

members knowledge about consumers and customers, available technology, and logistics challenges and opportunities.

5. Developing products and services that solve customers’ problems.

6. Developing and executing the best logistics, transportation, and distribution methods to deliver products and services to consumers in the desired format.


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Demand Management

What causes the chaos of Demand Management?


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Demand Management:5 Related Issues 1. Lack of communication between

departments results in little or no coordinated response to demand information.

2. 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.


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Demand Management:5 Related Issues 3. Demand information is often used

more for tactical and operations purposes than for strategic purposes.

4. Primary emphasis should be on using demand information to create likely scenarios of the future as they relate to product supply alternatives.

5. Resulting business successes will be a outcome of the better match of demand to product availability.


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Demand Management: example What are the major logistical

problem that may arise when demand management (demand) and procurement (supply) does not align?


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Traditional Forecasting:Demand Forecasting A major component of demand

management is forecasting the amount of product that will be purchased by consumers or end users.

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

A key objective is to anticipate and respond to primary demand as it occurs in the marketplace.

Misalignment (see next slide)


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Logistical problems1. Lack of coordination between departments2. Too much emphasis placed on forecasts of

demand3. Information used more tactical and

operational than strategic purposesFigure 3.1 illustrates the misalignment

problemsFigure 3.2 shows traditional integrated

forecastingTable 3.1 provides a view of how demand data

may be used strategically.


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Figure 3-1 Supply-Demand Misalignment


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Table 3-1 How Demand Management Supports Business Strategy


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Traditional Forecasting An example of integrating forecasting

with production is illustrated by Figure 3-2.

Long-term (more than three years), midrange (one to three years), and short-term forecasting are each important contributors to the forecasting process.


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Figure 3-2 Integration of Sales Forecasting and Production


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Achieving true supply chain integration

Collaborative planning, forecasting, and replenishment (CPFR)


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Collaborative Planning, Forecasting, and Replenishment CDFR is recognized as a breakthrough

business model for planning, forecasting, and replenishment.

Uses available Internet-based technologies to collaborate from operational planning through execution.

Developed by Wal-Mart and Warner-Lambert in 1995.


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Collaborative Planning, Forecasting, and Replenishment The CDFR model is illustrated in Figure

3-3. Emphasizes a sharing of consumer

purchasing data among and between supply chain partners.

Creates a direct link between the consumer and the supply chain.


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Figure 3-3 CPFR Business Model


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Collaborative Planning, Forecasting, and Replenishment The plan and the forecast are entered

by suppliers and buyers into an Internet accessible system.

Within established parameters, any of the participating partners is empowered to change the forecast.

Only a few CPFR initiatives have been made public, but results are impressive.


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Supply Chain Technology: Midwest Pharmaceuticals Using a statistically advanced demand-

management system the company discovered that in one of its five 3,000 product families, 72% of the products were in the mature phase and 14% were in decline.

Management modified and improved its product investment strategy.

In essence, demand management helped make the company more profitable and effective.


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How to meet the customer orders/services?


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Order Fulfillment and Order Management Collaborative planning improves the

quality of the demand signal for the entire supply chain through a constant exchange of information from one end to the other.

Goes beyond the traditional practice. Examine the three critical elements of

collaborative planning in Figure 3-4.


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Figure 3-4 Collaborative Planning


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Order Fulfillment and Order Management Order fulfillment activities differ as

a supply chain matures through transactional to interactive to interdependent levels.

Examine the four key stages of order fulfillment in Figure 3-5.


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Figure 3-5 Stages of Order Fulfillment


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Order Fulfillment and Order Management Order-management systems represent

the principal means by which buyers and sellers communicate information relating to individual product orders and is key to operational efficiency and customer satisfaction.

Examine the characteristics of order-management functions in Figure 3-6.


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Figure 3-6 Order-Management Functions


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Order Fulfillment and Order Management The order cycle traditionally

includes only those activities that occur from the time an order is placed to the time it is received by the customer.

Examine the four principal activities of the order cycle in Figure 3-7.


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Figure 3-7 Major Components of the Order Cycle


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Order Fulfillment and Order Management

Order placement methods seem to be changing to accommodate new technologies.

Examine order placement trends in Figure 3-8, e-commerce based.


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Figure 3-8 Order-Placement Trends


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Order Fulfillment and Order Management: Other Issues

1. Order processing2. Order preparation3. Order shipment4. Length and variability of the order

cycle Examine the order cycle time

analysis in Figure 3-9 and order cycle length and variability in Figure 3-10.


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Figure 3-9 Example of Order Cycle Time Analysis


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Figure 3-10 Order Cycle Length and Variability

E-basedOrderingSystem(next slide)


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Order Fulfillment and Order Management: E-Commerce Success is just as much about designing and

implementing the basic principles of logistics and supply chain management as it is about marketing the latest technologies.

According to Richer and Kalatora10, some of the critical decisions are related to the evaluation of multiple fulfillment planning strategies.

What are the reasonable alternative fulfillment strategies? (next slide)


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Five Alternative Fulfillment Strategies for E-Commerce1. Distributed delivery centers2. Partner fulfillment operations3. Dedicated Fulfillment centers4. Third-party fulfillment centers5. Build to order


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II Customer Services


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II. Customer Service: The Logistics/Marketing Interface Customer service is often the key link

between logistics and marketing. Examine the traditional logistics-

marketing interface in Figure 3-11.


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Figure 3-11 The Traditional Logistics/Marketing Interface

Major link


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Customer Service: The Logistics/Marketing Interface A new vision of the interface is

represented by National Semiconductor, whose re-engineering of the supply chain reduced overall logistics cost.

Required a more dynamic, proactive approach that recognized the value-added role of logistics supply chains in creating and sustaining competitive advantage and providing win-win outcomes.


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Customer Service: The Logistics/Marketing Interface Defining customer service

In terms of levels of product In terms of types of customer

support/service In terms of levels of involvement In terms of complexity of customer

service


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Customer Service: The Logistics/Marketing Interface Elements of Customer Service

1. Time (order cycle lead time) 2. Dependability (accountability)

Cycle time Safe delivery Correct orders

3. Communications (information exchange) 4. Convenience (logistics service level must be flexible to all

channels)


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Table 3-2 Customer Service Elements for the Food Industry


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Figure 3-12 Example of the Frequency Distribution of Lead Time


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Customer service: 3 levels of involvement

1. customer service as an activity ( such as order processing, billing, product returns etc)

2. customer service as performance measures (See next slide)

3. customer services as a philosophy (to a firm-wide commitment to providing customer satisfaction through superior customer service)


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Customer Service:2. Performance Measures

Traditional % availability in base units Speed and consistency Response time to special

requests Speed, accuracy, and

message detail of response Response and recovery

time requirements Response time, quality of

response

New Orders received on

time Orders received

complete Orders received

damage free Orders filled

accurately Orders billed

accurately


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Table 3-3 Elements and Measurement of Customer Service


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Customer Service: Implementation of Standards Set standards at realistic levels. Quality levels set below 100% can be

problematic. Consult customers on policies and

standards. Communicate standards to customers. Measure, monitor, and

control customer service standards.


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Customer Service: Overview 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 added value can “lock

up” customers.


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Figure 3-13 Customer Service Issues


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Stockouts Four possible outcomes from a

stockout Customers wait Back orders Lost sales Lost customers


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Expected Costs of Stockouts

Event Probability Costs Expected Costs

Back Order 70% $ 6.00 $ 4.20

Lost Sale 20% $20.00 $ 4.00Lost

Customer 10% $200.00 $ 20.00Estimated cost per stockout

100% --- $ 28.20


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Channels of Distribution One or more companies or individuals

who participate in the flow of goods and services from the producer to the final user or consumer.

Wide variety of firms comprise these channels.

Examine Figures 3-14 & 3-15.


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Figure 3-14 Distribution Channel Separation


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Figure 3-15Examples of Channels of Distribution for the Food Products Manufacturing Industry


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Growth and Importance of Channels of Distribution Retail channels

showing dramatic growth.

Mass merchandisers such as Wal-Mart, Kmart, Sears, and Target squeezing smaller retailers .

Nature of logistics changing to accommodate customized systems.

Successful retailers base efficiency on logistics systems.

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Chapter 3: Summary and Review

QuestionsStudents should review their knowledge of the chapter by

checking out the Summary and Study Questions for Chapter 3.

This is the last slide for Chapter 3

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End of Chapter 3 Slides

Demand Management and Customer Service

chapter 3

Documents

demand chain

customers demand

demand information

forecasts of demand

demand managementwhat

demand managementdefined

demand managementit

chaos of demand management