426 W3: Case Discussion
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Ch08PPT10e.pptxCHAPTER 8
Order Management and Customer Service
Supply Chain Management: A Logistics Perspective (10e)
Coyle, Langley, Novack, and Gibson
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May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Discussion Outline
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Order management and customer service: Concept and relationships
Order management
Customer Service
Order management influences on customer service
Service recovery
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Order Management Concept
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Two Phases of Order Management
Order shipments
Order fulfillment
Order receipt
Phase 1: Influence the Order
Organization attempts to change the manner by which its customers place orders.
Phase 2: Execute the Order
Electronically vs. Manually
Inventory policy; number & location of warehouses
Transport mode choice
Customer Service Concept
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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.
Relationship between Order Management and Customer Service
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Source: Figure 8.1
Customer Relationship Management (CRM)
Determine Performance Measures/Levels
Provide Pretransaction Order Information
Service Recovery
Manage to/Measure Performance Levels
Order Execution
Order Management
Influence the Order
Execute the Order
As Philosophy
As Performance Measures
As an Activity
Customer Service
Order Management
Influencing the Order: Customer Relationship Management (CRM)
Executing the Order: Order Management & Order Fulfillment
Order Management: Influencing Order 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.
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CRM
How
How much
What
When
Maximize the efficiencies of the shipping organization’s logistics network
Order Management: Influencing Order Customer Relationship Management (continued)
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Four basic steps in the implementation of the CRM process
Segment the Customer Base by Profitability
Step 1
Use techniques such as activity-based costing and cost-to-serve (CTS) model
Identify the Product/Service Package for Each Customer Segment
Step 2
Determine what each customer segment values in its relationship with the supplier based on feedback from customers and sales representatives
Develop and Execute the Best Processes
Step 3
Deliver on customer expectations determined and set in Step 2
Measure Performance and Continuously Improve
Step 4
Determining if (1) the different customer segments are satisfied and (2) the supplier’s overall profitability has improved.
Order Management: Influencing Order Customer Relationship Management (continued)
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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.
Order Management: Influencing Order Customer Relationship Management (continued)
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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 |
| 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 |
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.
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Source: Figure 8.2
Order Management: Influencing Order ABC and Customer Profitability (continued)
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Source: Figure 8.4
ABC Example: Flow-Through Costing for a Distribution Center
Order Management: Influencing Order Customer Profitability Analysis
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Start with gross sales less returns and allowances (net sales) and subtract the cost of goods sold to arrive at a gross margin figure.
Traditional Customer Profitability Analyses
Identifies many other cost drivers that are impacted by customers and how they interact with the shipper.
Cost-to-Serve Model
Provides a general guideline for the profitability of a customer, but falls short on capturing the real costs of serving a customer.
Order Management: Influencing Order Customer Segmentation
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Protect
Most profitable
Cost Engineer
Build
Danger Zone
Least profitable
Net Sales Value of Customer
High
Low
Low
High
Cost to Serve
Source: Figure 8.5
Danger zone segment strategies are: (1) Change the manner in which the customer interacts with the shipper to move the 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.
Order Management: Executing Order Order-to-Cash (OTC) vs. Replenishment Cycles
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OTC: Refer to outbound-to-customer shipments. The order to cash (or order cycle) is all of the activities that occur from when an order is received by a seller until the product is received by the buyer, plus the flow of funds back to the seller based on the invoice.
Replenishment Cycle: The term replenishment cycle is used more frequently when referring to the acquisition of additional inventory as in materials management.
Basically, one organization’s order cycle is another’s replenishment cycle.
Order Management: Executing Order Order-to-Cash (OTC) Cycle
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Process D1: The Order to Cash (Process in a Deliver from Stock Environment)
D1.1 through D1.7
Information Flow
D1.8 through D1.14
Product Flow
D1.15
Cash Flow
Illustration modified from image courtesy of CSCMP”s Supply Chain Quarterly
Order Management: Executing Order Length and Variability of the OTC Cycle
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Source: Figure 8.7
Customer Service
Customer Service The Logistics/Marketing Interface
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Source: Figure 8.8
Marketing Objective: Allocate resources to the marketing mix to maximize long-term profitability of the firm.
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
Customer Service Customer Service and ROI
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Source: Figure 8.9
Service Level (%)
Suppliers must recognize the importance of balancing the tradeoffs between service levels and the cost of providing that service.
100
0
50
100
ROI (%)
Customer Service Elements of Customer Service
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From the perspective of logistics, customer service can be viewed as having four distinct dimensions.
1
3
2
4
Communications
(pretransaction, transaction, & posttransaction)
Convenience
(flexible logistics service level)
Dependability
(consistent lead time, safe delivery, correct orders)
Time
(absolute length of lead time)
Customer Service Elements of Customer Service (continued)
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Lead Time Frequency Distribution Example
Source: Figure 8.10
Customer Service Performance Measures: SCOR Metrics Level 1
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Supply Chain Responsiveness
Order fulfillment cycle time
Supply Chain Agility
Upside SC flexibility
Supply Chain Costs
SC management costs
Upside SC adaptability
Downside SC adaptability
COGS
Supply Chain Asset Management
Cash to cash cycle time
Return on SC fixed assets
Supply Chain Reliability
Perfect order
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.
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Stockout
1
2
3
4
The seller loses a buyer and future revenue.
The buyer waits until the product is available.
The buyer back-orders the product.
The seller loses current revenue.
Order Management Influences on Customer Service
Order Management Influences on Customer Service Linking Order Management Outputs
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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.
Product Availability
Postsale Logistics Support
Order Cycle Time
Logistics Operations Responsiveness
Logistics System Information
Source: Figure 8.12
Order Management Influences on Customer Service Product Availability Metrics
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Source: Figure 8.12
Fill Rate (%)
Increasing fill rates has a direct effect on a seller’s inventories.
100
85
95
100
Inventory Investment ($)
90
Product Availability Metrics
Internal Metrics
Item fill rate
Line fill rate
External Metrics
Order fill rate
Perfect order
Cash Flow Lost vs. Inventory Investment Tradeoff
Order Management Influences on Customer Service Product Availability Financial Impacts
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Source: Figure 8.14
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.
Order Management Influences on Customer Service Order Cycle Time Metric: Customer Wait Time
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Source: Figure 8.15
Often overlooked definition of order cycle time is customer wait time (CWT). CWT includes not only order cycle time but also maintenance time.
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.
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Order Management Influences on Customer Service Logistics Operations Responsiveness Metrics
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Images courtesy of ispionage.com, SPC, and alarmbiller.net
Metrics for LOR
Flexibility/
Adaptability of Process
Customization of Product/Service
Delivery Agility Metrics
Upside deliver adaptability
Downside deliver adaptability
Upside deliver flexibility
Customization Metrics
The time it takes the seller to offer a new package for sale in the retailers’ stores.
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.
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Source: Table 8.9
Order Management Influences on Customer Service Logistics System Information Metrics
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).
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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.
Image courtesy of brainscape.com
Order Management Influences on Customer Service Postsale Logistics Support and Metrics
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The management of product returns from the customer to the supplier
Metrics for a PLS that manages spare parts are the same as those used for all products, but availability and time are relatively more critical for spare parts logistics.
The delivery and installation of spare parts
For the most part, the PLS that manages product returns is measured by the ease with which a customer can return a product.
Two Forms of Postsale Logistics Support (PLS)
Images courtesy of mntcoupons.com, dreamstime.com
Service Recovery
Service Recovery
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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.
Images courtesy of qainfotech.com, innorange.fi, studiotheory.net
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.
