Supply Chain Management 11e PDF Chapter 8

Supply Chain Management, 11e Chapter 8: Order Mana...

Supply Chain Management, 11e Chapter 8: Order Management and Customer Service ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1  Discussion Outline Order management and customer service: Concept and relationships Order management Customer Service Order management influences on customer service Service recovery ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2  Order Management Concept Two Phases of Order Management Phase 1: Influence and Order Organization attempts to change the manner by which its customers place orders. Phase 2: Execute the Order Order receipt − Electronically vs. manually Order fulfillment − Inventory policy; number & location of warehouses Order shipments − Transport mode choice ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3  Customer Service Concept Customer service is anything that touches the customer, including all activities that impact information flow, product flow, and cash flow between the organization and its customers. Customer service as a philosophy − Elevates customer service as an organization-wide commitment. Customer service as performance measures − Emphasizes customer service as specific performance measures. Customer service as an activity − Treats customer service as a particular task that an organization must perform. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4 Relationship between Order Management and Customer Service Source Figure 8.1: Robert A. Novack, Ph.D. Used with permission. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5  Order Management Influencing the Order: Customer Relationship Management (CRM) Executing the Order: Order Management & Order Fulfillment ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6 Order Management: Influencing Order (1 of 5) Customer Relationship Management The concept behind customer relationship management (CRM) is simple: Align the supplier’s resources with its customers in a manner that increases both customer satisfaction and supplier profits. How? How much? What? When? CRM Maximize the efficiencies of the shipping organization’s logistics network ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7 Order Management: Influencing Order (2 of 5) Customer Relationship Management Four basic steps in the implementation of the CRM process Step 1: Segment the Customer Base by Profitability Use techniques such as activity-based costing and cost-to-serve (CTS) model Step 2: Identify the Product/Service Package for Each Customer Segment Determine what each customer segment values in its relationship with the supplier based on feedback from customers and sales representatives Step 3: Develop and Execute the Best Processes Deliver on customer expectations determined and set in Step 2 Step 4: Measure Performance and Continuously Improve Determining if (1) the different customer segments are satisfied and (2) the supplier’s overall profitability has improved. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8 Order Management: Influencing Order (3 of 5) Customer Relationship Management Product/Service Package Examples: Option 1 (most commonly used) Offer the same product/service offering to each customer segment, while varying the product quality or service levels. Pro: Easy for the supplier to manage. Con: Assumes that all customer segments value the same types of supplier offerings. Source Table 8.1: Robert A. Novack, Ph.D. Used with permission. PRODUCT/SERVICE CUSTOMER CUSTOMER CUSTOMER OFFERING SEGMENT A SEGMENT B SEGMENT C Product quality (% Less than 1% 5%–10% 10%–15% defects) Order fill 98% 92% 88% Lead time 3 days 7 days 14 days Delivery time Within 1 hour of request On day requested During week requested Payment terms 4/10 net 30 3/10 net 30 2/10 net 30 Customer service support Dedicated rep Next available rep Through Web site ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9  Order Management: Influencing Order (4 of 5) Customer Relationship Management Product/Service Package Examples: Option 2 Vary the service offerings for each customer segment. Pro: Meet the needs of each segment. Con: Difficult for the supplier to manage. CUSTOMER SEGMENT A Product quality (% defects) Less than 1% Order fill 98% Lead time 3 days Delivery time Within 1 hour of request Payment terms 4/10 net 30 Customer service support Dedicated rep Source Table 8.2: Robert A. Novack, Ph.D. Used with permission. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10  Order Management: Influencing Order (5 of 5) Customer Relationship Management Product/Service Package Examples: Option 2 Vary the service offerings for each customer segment. Pro: Meet the needs of each segment. Con: Difficult for the supplier to manage. CUSTOMER SEGMENT B Product quality (% defects) 5%–10% Credit hold Less than 48 hours Return policy Up to 10 days after delivery CUSTOMER SEGMENT C Order fill 88% Ordering process Through Web site Source Table 8.2: Robert A. Novack, Ph.D. Used with permission. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11  Order Management: Influencing Order Activity-Based Costing and Customer Profitability Combining Activity-Based Costing (ABC), customer profitability, and customer segmentation tools to build profitable revenue is a strategy being utilized by an increasing number of organizations today. Source Figure 8.2: Robert A. Novack, Ph.D. Used with permission. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12 Order Management: Influencing Order ABC and Customer Profitability ABC Example: Flow-Through Costing for a Distribution Center Source Figure 8.4: Robert A. Novack, Ph.D. Used with permission. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13  Order Management: Influencing Order Customer Profitability Analysis Traditional Customer Cost-to-Serve Model Profitability Analyses Start with gross sales less returns and Identifies many other cost drivers that allowances (net sales) and subtract the are impacted by customers and how cost of goods sold to arrive at a gross they interact with the shipper. margin figure. Provides a general guideline for the profitability of a customer, but falls short on capturing the real costs of serving a customer. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14 Order Management: Influencing Order Customer Segmentation Danger zone segment strategies are: (1) Change the manner in which the customer interacts with the shipper to move the Source Figure 8.5: Robert A. Novack, Ph.D. Used with permission. customer to another segment; (2) Charge the customer the actual cost of doing; or (3) Switch the customer to an alternative distribution channel. Build segment strategies aim to maintain the cost to serve but build net sales value to help drive the customer into the “Protect” segment. Cost engineer segment strategies aim to find more efficient ways for the customer to interact with the shipper. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15  Order Management: Executing Order Order-to-Cash (OTC) vs. Replenishment Cycles OTC: Refer to outbound-to- Replenishment Cycle: The customer shipments. The order term replenishment cycle is to cash (or order cycle) is all of used more frequently when the activities that occur from referring to the acquisition of when an order is received by a additional inventory as in seller until the product is materials management. received by the buyer, plus the flow of funds back to the seller based on the invoice. Basically, one organization’s order cycle is another’s replenishment cycle. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16  Order Management: Executing Order Order-to-Cash (OTC) Cycle Process D1: The Order to Cash (Process in a Deliver from Stock Environment) Illustration modified from image courtesy of CSCMP”s Supply Chain Quarterly ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17  Source Figure 8.7: Adapted from Douglas M. Lambert and James R. Stock, “Using Advanced Order-Processing Systems to Improve Profitability,” Business (April–June 1982): 26. Copyright © 1982 by Douglas Lambert. Reproduced by permission. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Length and Variability of the OTC Cycle Order Management: Executing Order 18  Customer Service ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19  Customer Service The Logistics/Marketing Interface Marketing Objective: Source Figure 8.8: Adapted from Douglas M. Lambert, The Development of an Inventory Costing Methodology: A Study of the Costs Associated with Holding Inventory (Chicago: Allocate resources to the National Council of Physical Distribution Management, 1976): 7. Reproduced with marketing mix to maximize long-term profitability of the firm. permission of Council of Supply Chain Management Professionals. Logistics Objective: Minimize total costs, given customer service objective, where: Total costs = Transportation costs + Warehousing costs + Order processing & Information costs + Lot quantity costs + Inventory carrying costs ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20  Customer Service Customer Service and ROI Source Figure 8.9: Robert A. Novack, Ph.D. Used with permission. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21  Customer Service (1 of 2) Elements of Customer Service From the perspective of logistics, customer service can be viewed as having four distinct dimensions. 1. Time (absolute length of lead time) 2. Dependability (consistent lead time, safe delivery, correct orders) 3. Communications (pretransaction, transaction, & posttransaction) 4. Convenience (flexible logistics service level) ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22  Customer Service (2 of 2) Elements of Customer Service Lead Time Frequency Distribution Example Source Figure 8.10: Robert A. Novack, Ph.D. Used with permission. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23  Customer Service Performance Measures: SCOR Metrics Level 1 Supply Chain Responsiveness Supply Chain Asset Management Order fulfillment cycle time Cash to cash cycle time Return on SC fixed assets Supply Chain Agility Upside SC flexibility Supply Chain Reliability Upside SC adaptability Perfect order Downside SC adaptability Supply Chain Costs SC management costs COGS ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 24  Customer Service Stockout Issues A stockout occurs when desired quantities of finished goods are not available when or where a customer needs them. As a result, one of four possible events might occur. 1. The buyer waits until the product is available. 2. The buyer back-orders the product. 3. The seller loses current revenue. 4. The seller loses a buyer and future revenue. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25  Order Management Influences on Customer Service ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26 Order Management Influences on Customer Service Linking Order Management Outputs Each of the five major outputs of order management impacts customer service/satisfaction, and the performance of each is determined by the seller’s order management and logistics systems. Source Figure 8.12: Robert A. Novack, Ph.D. Used with permission. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 27 Order Management Influences on Customer Service Product Availability Metrics Product Availability Metrics Internal Metrics − Item fill rate − Line fill rate External Metrics − Order fill rate − Perfect order Source Figure 8.13: Robert A. Novack, Ph.D. Used with permission. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 28 Order Management Influences on Customer Service Product Availability Financial Impacts Financial Impact of Order Fill Rate Improvement in order fill results in improvement in cash flow, but might require some type of investment in inventories and/or technology. Source Figure 8.14: Robert A. Novack, Ph.D. Used with permission. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 29  Order Management Influences on Customer Service Order Cycle Time Metric: Customer Wait Time Often overlooked definition of order cycle time is customer wait time (CWT). CWT includes not only order cycle time but also maintenance time. Source Figure 8.15: Robert A. Novack, Ph.D. Used with permission. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 30 Order Management Influences on Customer Service Logistics Operations Responsiveness The concept of logistics operations responsiveness (LOR) examines how well a seller can respond to a buyer’s needs. This “response” can take two forms: How well a seller can customize its service offerings to the unique requirements of a buyer How quickly a seller can respond to a sudden change in a buyer’s demand pattern. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 31 Order Management Influences on Customer Service Logistics Operations Responsiveness Metrics Metrics for LOR Flexibility/Adaptability of Process Delivery Agility Metrics − Upside deliver adaptability − Downside deliver adaptability − Upside deliver flexibility Customization of Product/Service Customization Metrics − The time it takes the seller to offer a new package for sale in the retailers’ stores. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 32 Order Management Influences on Customer Service Logistics System Information LSI is critical to successful order management and customer service. 1. Pretransaction information is used for planning, 2. Transaction information is used for execution 3. Posttransaction information is used for evaluation. Source Table 8.9: Robert A. Novack, Ph.D. Used with permission. INFORMATION USER TRANSPORTATION SHIPPER CARRIER RECEIVER ACTIVITY Pretransaction P.O. Information BOL Information Advance Forecasts Forecasts Advance Ship Notice Equipment Availability Pickup/Delivery Time Transaction Shipment Status Shipment Status Shipment Status Posttransaction Freight Bill Payment Claim Carrier Performance Carrier Performance Information Proof of Delivery Claim Proof of Delivery Information Claim Information ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 33 Order Management Influences on Customer Service Logistics System Information Metrics Most metrics involved with LSI address how accurate and timely the data are to allow a decision to be made or an activity to be performed. Examples Forecast accuracy (measure accuracy of data on past consumption and predictions on future consumption) Inventory accuracy (measure accuracy of inventory counts in a distribution center) Data integrity (measure the quality/accuracy of inputs to an LSI) EDI compliance (measure how well trading partners are complying with EDI standards when sharing data). ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 34 Order Management Influences on Customer Service Postsale Logistics Support and Metrics Two Forms of Postsale Logistics Support (PLS) The management of product The delivery and installation of returns from the customer to the spare parts supplier For the most part, the PLS Metrics for a PLS that that manages product manages spare parts are returns is measured by the the same as those used for ease with which a all products, but availability customer can return a and time are relatively product. more critical for spare parts logistics. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 35  Service Recovery ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 36  Service Recovery Key Aspects Service recovery requires an organization to realize that mistakes will occur and to have plans in place to fix them. Key Aspects of Service Recovery Measuring the costs of poor service. Anticipating the needs for recovery. Developing employee training and empowerment. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 37  Summary Order management and customer service are not mutually exclusive; there is a direct and critical relationship between these two concepts. Two distinct, yet related, aspects of order management are: influencing the customer’s order and executing the customer’s order. − Combining ABC, customer profitability, and customer segmentation tools with CRM allows companies to differentiate their offerings to different customer segments. − Order execution is the buyer-seller interface in the market and directly influences customer service (time, dependability, communications, and convenience). Five outputs from order management influencing customer service, customer satisfaction, and profitability are: (1) Product availability, (2) Order cycle time, (3) Logistics operations responsiveness, (4) Logistics system information, and (5) Postsale logistics support. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 38