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Chapter 3

Chapter 3. Demand Management and Customer Service. Topics to discuss. I. Demand Management II Customer Services. I Demand Management. The concepts of outbound and inbound management. I. Customer Logistics Systems. Two main types:

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Chapter 3

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  1. Chapter 3 Demand Management and Customer Service

  2. Topics to discuss • I. Demand Management • II Customer Services Management of Business Logistics, 7th Ed.

  3. I Demand Management The concepts of outbound and inbound management Management of Business Logistics, 7th Ed.

  4. 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 Management of Business Logistics, 7th Ed.

  5. 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. Management of Business Logistics, 7th Ed.

  6. 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. Management of Business Logistics, 7th Ed.

  7. 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. Management of Business Logistics, 7th Ed.

  8. 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. Management of Business Logistics, 7th Ed.

  9. 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. Management of Business Logistics, 7th Ed.

  10. On the Line: Ingram Micro Management of Business Logistics, 7th Ed.

  11. 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. Management of Business Logistics, 7th Ed.

  12. 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. Management of Business Logistics, 7th Ed.

  13. Demand Management • What causes the chaos of Demand Management? Management of Business Logistics, 7th Ed.

  14. 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. Management of Business Logistics, 7th Ed.

  15. 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. Management of Business Logistics, 7th Ed.

  16. Demand Management: example • What are the major logistical problem that may arise when demand management (demand) and procurement (supply) does not align? Management of Business Logistics, 7th Ed.

  17. 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) Management of Business Logistics, 7th Ed.

  18. Logistical problems • Lack of coordination between departments • Too much emphasis placed on forecasts of demand • Information used more tactical and operational than strategic purposes Figure 3.1 illustrates the misalignment problems Figure 3.2 shows traditional integrated forecasting Table 3.1 provides a view of how demand data may be used strategically. Management of Business Logistics, 7th Ed.

  19. Figure 3-1 Supply-Demand Misalignment Management of Business Logistics, 7th Ed.

  20. Table 3-1 How Demand Management Supports Business Strategy Management of Business Logistics, 7th Ed.

  21. 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. Management of Business Logistics, 7th Ed.

  22. Figure 3-2 Integration of Sales Forecasting and Production Management of Business Logistics, 7th Ed.

  23. Achieving true supply chain integration • Collaborative planning, forecasting, and replenishment (CPFR) Management of Business Logistics, 7th Ed.

  24. 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. Management of Business Logistics, 7th Ed.

  25. 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. Management of Business Logistics, 7th Ed.

  26. Figure 3-3 CPFR Business Model Management of Business Logistics, 7th Ed.

  27. 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. Management of Business Logistics, 7th Ed.

  28. 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. Management of Business Logistics, 7th Ed.

  29. How to meet the customer orders/services? Management of Business Logistics, 7th Ed.

  30. 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. Management of Business Logistics, 7th Ed.

  31. Figure 3-4 Collaborative Planning Management of Business Logistics, 7th Ed.

  32. 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. Management of Business Logistics, 7th Ed.

  33. Figure 3-5 Stages of Order Fulfillment Management of Business Logistics, 7th Ed.

  34. 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. Management of Business Logistics, 7th Ed.

  35. Figure 3-6 Order-Management Functions Management of Business Logistics, 7th Ed.

  36. 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. Management of Business Logistics, 7th Ed.

  37. Figure 3-7 Major Components of the Order Cycle Management of Business Logistics, 7th Ed.

  38. 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. Management of Business Logistics, 7th Ed.

  39. Figure 3-8 Order-Placement Trends Management of Business Logistics, 7th Ed.

  40. Order Fulfillment and Order Management: Other Issues • Order processing • Order preparation • Order shipment • 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. Management of Business Logistics, 7th Ed.

  41. Figure 3-9 Example of Order Cycle Time Analysis Management of Business Logistics, 7th Ed.

  42. Figure 3-10 Order Cycle Length and Variability E-based Ordering System (next slide) Management of Business Logistics, 7th Ed.

  43. 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) Management of Business Logistics, 7th Ed.

  44. Five Alternative Fulfillment Strategies for E-Commerce • Distributed delivery centers • Partner fulfillment operations • Dedicated Fulfillment centers • Third-party fulfillment centers • Build to order Management of Business Logistics, 7th Ed.

  45. II Customer Services Management of Business Logistics, 7th Ed.

  46. 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. Management of Business Logistics, 7th Ed.

  47. Figure 3-11 The Traditional Logistics/Marketing Interface Major link Management of Business Logistics, 7th Ed.

  48. 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. Management of Business Logistics, 7th Ed.

  49. 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 Management of Business Logistics, 7th Ed.

  50. 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) Management of Business Logistics, 7th Ed.

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