Class 2

1. Class 2 Logistics Done Well is all but Invisible! In other words, no one really gets concerned about logistics and supply chain issues until something goes wrong!

2. Ways to Get Cost Savings in Supply Chains Reduced inventory levels reduced stockouts - less expediting cross docking - reduced links in chain reduced number of inventories reduction in order processing Shipping consolidation better workforce planning less travel time less injuries increased production from measuring workers name the aisle returnable, reusable totes CPFR

3. CHAPTER 3 Customer Service

4. Walden’s Definition of Customer Service Give the customer what they want in such a manner that they want to come back - what ever it takes • Dell – were getting better but have moved • backwards in last couple of years – way back in • over the past year • Amazon - recommendations • Starbucks – remember name and favorite drink

5. Product Order processing and information costs Price MARKETING Place/customer service levels Inventory carrying costs Transportation costs LOGISTICS Lot quantity costs Warehousing costs Order processing and information costs Cost trade-offs in Marketing and Logistics

6. Elements of Customer Service Pretransaction elements Transaction elements Posttransaction elements • Written statement of policy • Customer receipt of policy statement • Organization structure • System flexibility • Management services • Stockout levels • Order information • Elements of order cycle • Expedited shipments • Transshipment • System accuracy • Order convenience • Product substitution • Installation, warranty, alterations, repairs, parts • Product tracing • Customer claims, complaints, returns • Temporary replacement of products

7. Logistics/Supply Chain Customer Service “Logistics is no longer the ‘last frontier of cost reduction,’ it’s the new frontier of demand generation.”

8. Customer Service Defined · Customer service is generally presumed to be a means by which companies attempt to differentiate their product, keep customers loyal, increase sales, and improve profits. · Its elements are: Price - Product quality - Service - · It is an integral part of the marketing mix of: Price - Customer service here Product - Promotion - Physical Distribution - · Relative importance of service elements Physical distribution variables dominate price, product, and - promotional considerations as customer service considerations Product availability and order cycle time are dominant physical - distribution variables

9. Customer Service • Customer serviceis a collection of activities performed in a way that keeps customers happy and creates in the customer’s mind the perception of an organization that is easy to do business with. • Customer service is much more difficult for competitors to imitate than price cuts or other competitive strategies.

10. Customer Service • Value-added activities provided by customer service • Placing bar code labels on cartons • Arranging a carton, pallet, or truck in the sequence the customer would like to unload it • Shrink-wrapping • Inserting documents into cartons • Blending products • Adding price tags • Adding graphics for export goods • Assembling kits Also known as postponement when done at the distribution center

11. Importance of Logistics Customer Service

12. 31% Product or quality mistakes 12% Damaged goods 7% Other 6% Frequently cut items 44% Late delivery Common Customer Service Complaints

13. Penalties for Customer Service Failures CR (2004) Prentice Hall, Inc.

14. Most Important Customer Service Elements • On-time delivery • Order fill rate • Product condition • Accurate documentation • Out of stock rates • - # of items • - which items • - how long

15. Order Cycle Time CR (2004) Prentice Hall, Inc.

16. Order Management • Order management is the activities that take place in the period between the time a firm receives an order and the time a warehouse is notified to ship the goods to fill that order. • Order planning-connected to sales forecasting • Order transmittal • Order processing • Order picking and assembly • Order delivery

17. Order Management • Order cycle defined by the seller: time from when an order is received to when the goods arrive at the customer’s dock. • Order cycle defined by the buyer: time from when an order is placed to when the goods are received. Also called replenishment cycle • Getting shorter • More precise delivery times • Customer can track orders • Quality is important and is benchmarked

18. Order Management • Order planning • Needs an efficient order handling system to prevent bunching • Methods to reduce bunching • Use of field salespeople • Use of phone salespeople • Price discounts to customers placing regular orders

19. Order Management • Order transmittal is the series of events that occur between the time a customer places or sends an order and the time the seller receives the order. • Methods of order transmittal • Phone • FAX • Mail • Scanning bar codes-electronic submission • POS registers • Internet

20. Order Management • Order processing includes • Checking for completeness and accuracy • A customer credit check • Order entry into the computer system • Marketing department credits salesperson • Accounting department records transaction • Inventory department locates nearest warehouse to customer and advises them to pick the order • Transportation department arranges for shipment

21. Order Management • Order processing • If there is a stockout • Notify the customer as soon as possible of stockout • Notify when shipment will occur • Give the customer the option of accepting in stock similar products • Export orders • Need a letter of credit • international freight forwarders prepare documents and arrange shipment

22. Order Management • Order picking and assembly includes • Notifying the warehouse to assemble a given order • Providing an order picking list, indicating items and order of pick to a warehouse employee • Checking picked orders for accuracy • Stockout information sent to order handling department so that documents can be adjusted • Packing list enclosed with order including employee initials of person who packed order

23. Order Management • Order delivery is the time from when a carrier picks up the shipment until it is delivered to the customer’s receiving dock. • Load planning is the arrangement of goods within the trailer or container. • Carriers establish their own service standards. • Some customers pick up their orders.

24. Order Management • Importance of the order cycle • Short cycle time used as a marketing and sales tool • Monitoring the order cycle can increase firm efficiency • Efficient Consumer Response (ECR)/Quick Response (QR) • Used in grocery industry and by mass merchandisers • POS data used to trigger order • Keyed to more orderly, regular flow of product, smaller inventory

25. Customer Service • Establishing Objectives • Specific • Measurable • Achievable • Consistent with broader firm goals • Must consider competitor’s objectives • Provide guidance to operating personnel

26. Customer Service • Returned Products • New flow of products are set up • New infrastructure is required • Goods and materials are returned for various reasons • Grocery industry uses reclamation centers for returns • Home Depot now reserves right to limit returns • How returns are handled part of customer service • Thoughts?

27. Role of Logistics in Establishing Customer Service Levels • Advisor to marketing • Establishing a customer service program • Ask the customer what is important to them. • Investigate the service offered by competitors. • Consider the cost of alternative service programs. • Analyze the information and write the objectives. • Customer feedback • Using the Internet to improve customer service

28. Meeting Customer Demands • Control the process • Firms demanding higher levels of customer service • With reliable service, the firm can maintain lower inventory levels • Resellers monitor vendor quality looking for those with unacceptable quality levels • Process is often dehumanized; service can make it more personal

29. Service Observations • The dominant customer service elements are logistical in nature • Late delivery is the most common service complaint and speed of delivery is the most important service element • The penalty for service failure is primarily reduced patronage, i.e., lost sales • The logistics customer service effect on sales is difficult to determine

30. Service Contingencies System Breakdown Actions • Insure the risk • Plan for alternate supply sources • Arrange alternate transportation • Shift demand • Build quick response to demand shifts • Set inventories for disruptions • Product Recall Actions • Establish a task force committee • Trace the product • Design a reverse logistics channel

31. Methods of Establishing a Customer Service Strategy • Determining channel service levels based on knowledge of consumer reactions to stockouts • Analyzing cost/revenue trade-offs • Using ABC analysis of customer service • Conducting a customer service audit

32. Model of Consumer Reaction to a Repeated Stockout 1 Higher Switch price ? Yes 2 Same Switch brand ? Yes Substitute ? 3 Lower No Customer Switch stores ? No No 4 Other size Yes 5 Special order Substitute ? 6 Ask here again Yes No Another store Source: Clyde K. Walter, “An Empirical Analysis of Two Stockout Models,” unpublished Ph. D. Dissertation, Ohio State University, 1971.

33. Internal Audit External Audit Evaluate Customer Perceptions Differentiate Channel Levels & Market Segments Identify Opportunities Determine Marketing Services Mix & Levels Stages of the Customer Service Audit

34. Internal Audit Questions • How is customer service currently measured? • What are the units of measurement? • What are the performance standards? • What is the current level of attainment?

35. Internal Audit Questions cont. • How are these measures derived from corporate information flows and the order processing system? • What is the internal customer service reporting system? • How do the functional areas of the business perceive customer service? • What is the relation between these functional areas in terms of communication and control?

36. Measuring and Controlling Customer Service Performance • Establish quantitative standards of performance for each service element. • Measure actual performance for each service element. • Analyze variance between actual service provided and standard. • Take corrective action as needed to bring actual performance into line.

37. Customer Service Standards • Reflect the customer’s point of view. • Provide an operational and objective measure of service performance. • Provide management with cues for corrective action.

38. Select performance measures carefully; people perform to look good on them

39. Thoughts on Chapter 3 • What sets your supply chain apart from others? Who knows it? • Sam Walton • How many times will a customer tolerate a stockout? • What is the cost of a stockout vs. the cost of customer service?

40. More Thoughts • How well do you take care of the customer after the sale? Post transaction • What are the impacts of safety/buffer stocks on customer service? • P 104 - Book says: in most stockouts consumers will not switch stores - depends on how bad you want the item and how many times products are not available -

41. Thoughts part 3 • Vendor Managed Inventory • Metrics • ABC Classifications: customers, products, inventory - cost, velocity, volume • Keys to success on page 125 - WIIFM? • Perfect order fulfillment - on time, quantity, condition, right item • p 146 - JIT, ECR, QR not really systems

42. CHAPTER 4 Order Processing and Information Systems

43. Order Processing and Information Systems The difference between mediocre and excellent logistics is often the firm’s information technology capabilities. Dale S. Rogers Richard L. Dawe Patrick Guerra

44. Typical Elements of Order Processing

45. Order Filling • Processing rules affect order filling speed • First-received, first-processed • Shortest processing time first • Specified priority number • Smaller, less complicated orders first • Earliest promised delivery date • Orders having the least time before promised delivery date

46. Factors Affecting Order Processing Time • Processing priorities • Parallel versus sequential processing • Order-filling accuracy • Order batching • Lot sizing • Shipment consolidation

47. The Logistics Information System

48. Order Management System Module • Elements • Stock availability • Credit checking • Invoicing • Product allocation to customers • Fulfillment location

49. Warehouse Management System Module • Elements • Receiving • Putaway • Inventory management • Order processing and retrieving • Shipment preparation

50. Transportation Management System Module • Elements • Mode selection • Freight consolidation • Routing and scheduling shipments • Claims processing • Shipment tracking • Bill payment and auditing