1. Demand Management, Order Management, and Customer Service
CHAPTER 7
Demand Management, Order Management, and Customer Service
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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
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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
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4. 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
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5. 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
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Demand Management
Demand management can be defined as “the creation across the supply chain and its markets of a coordinated flow of demand.”
Source: John T. Mentzer, “A Telling Fortune”, Industrial Engineer, April 2006,
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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
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Demand Management
Three basic types of demand forecasting models:
Judgemental
Time series
Cause and effect (associative)
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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
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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
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Demand Management
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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
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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
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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
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Order Management
Four stages of the order cycle include:
Order transmittal
Order processing
Order picking and assembly
Order delivery
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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
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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
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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
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19. Figure 7.1: Flowchart of Order Handling (Order Processing) System
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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
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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
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Order Management
Examples of Order Picking and Assembly technology:
Handheld scanners
Radio-frequency identification (RFID)
Voice-based order picking
Pick-to-light
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Order Management
Order delivery is the time from when a transportation carrier picks up the shipment until it is received by the customer.
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Order Management
Three key order delivery issues:
Variety of options in terms of transit time are now available such as delivery by 12 noon and delivery by 4:30 P.M.
A number of shippers are emphasizing both elapsed transit time as well as transit time reliability
Transportation carriers are revamping their operations to provide faster transit times to customers
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Customer Service
Customer service is “the ability of logistics management to satisfy users in terms of time, dependability, communication , and convenience.”
Source: Roger A. Kerwin, Steve W. Hartley, and William Rudelius, Marketing, 9th ed. (Boston, MA: McGraw-Hill/Irwin, 2009), Chapter 16.
Customer service is much more difficult for competitors to imitate than other marketing mix variables such as price and promotion
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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
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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
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28. Managing Customer Service
Four specific customer service considerations include:
Establishing customer service objectives
Measuring customer service
Customer profitability analysis (CPA)
Service failure and recovery
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29. Managing Customer Service
Objectives for establishing customer service
Specific
Measurable
Achievable
Cost-effective
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30. 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
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31. Managing Customer Service
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32. Managing Customer Service
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33. Managing Customer Service
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34. 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
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35. 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
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36. 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
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37. Managing Customer Service
Service Failure and Service Recovery
Examples of order-related service failures include:
Lost delivery
Late delivery
Early delivery
Damaged delivery
Incorrect delivery quantity
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38. 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
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