DMandMgtCustSvc

Chapter 3
Demand Management and

Customer Service
Learning Objectives
Understand the critical importance of

outbound-to-customer logistics systems.
Appreciate the growing need for
effective demand management.
Know the types of forecasts that may be
needed, and understand how
collaboration among trading partners
will help the overall forecasting and
demand management process.
Chapter 3
Management of Business Logistics,

7th Ed.
Learning Objectives
Identify the key steps in the order

fulfillment process, and understand how
effective order management can create
value for a firm and its customers.
Realize the meaning of customer
service, and understand its importance
to logistics and supply chain
management.
Chapter 3

7th Ed.
Learning Objectives
Understand the difference between

logistics and marketing channels, and
understand that goods may reach their
intended customer via a number of
alternative channels of distribution.
Chapter 3

7th Ed.
Logistics Profile:
Dreyers
Instituted scan-based trading.

Manufacturer (Dreyers) is paid
based on what is actually scanned at
the checkout counter.
Customer takeaway drives
manufacturing and delivery.
Freed resources for use elsewhere.
Win-win partnership arrangement.
Chapter 3

7th Ed.
Outbound-to-Customer
Logistics Systems
To increase levels of customer service,

significant emphasis is placed on outboundto-customer logistics systems.
These systems refer to the set of processes,
systems, and capabilities that enhance the
firms ability to serve its customers.
This topic also is of historical interest in the
study of physical distribution, logistics, and
supply chain management.
Chapter 3

7th Ed.
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.
Chapter 3

7th Ed.
Demand Management
Defined as focused efforts to estimate

and manage customers demand, with
the intention of using this information to
shape operating decisions.3
Recent practice has been just the
opposite, with the manufacturer
determining the what, where, when, and
how many of the sale.
Chapter 3

7th Ed.
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.
Chapter 3

7th Ed.
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.
Chapter 3

7th Ed.
10
On the Line:
Ingram Micro
Chapter 3

7th Ed.
11
Demand Management
Objectives
Gathering and analyzing knowledge

about consumers, their problems, and
their unmet needs.
Identifying partners to perform the
functions needed in the demand chain.
Moving the functions that need to be
done to the channel member that can
perform them most effectively and
efficiently.
Chapter 3

7th Ed.
12
Demand Management
Objectives
Sharing with other supply chain members

knowledge about consumers and
customers, available technology, and
logistics challenges and opportunities.
Developing products and services that
solve customers problems.
Developing and executing the best
logistics, transportation, and distribution
methods to deliver products and services
to consumers in the desired format.
Chapter 3

7th Ed.
13
Demand Management:
Related Issues
Lack of communication between

departments results in little or no
coordinated response to demand
information.
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.
Chapter 3

7th Ed.
14
Demand Management:
Related Issues
Demand information is often used more

for tactical and operations purposes than
for strategic purposes.
Primary emphasis should be on using
demand information to create likely
scenarios of the future as they relate to
product supply alternatives.
Resulting business successes will be a
outcome of the better match of demand
to product availability.
Chapter 3

7th Ed.
15
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.
Chapter 3

7th Ed.
16
Figure 3-1
Supply-Demand Misalignment
Chapter 3

7th Ed.
17
Table 3-1 How Demand

Management Supports Business
Strategy
Chapter 3

7th Ed.
18
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.
Chapter 3

7th Ed.
19
Figure 3-2 Integration of Sales

Forecasting and Production
Chapter 3

7th Ed.
20
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 WarnerLambert in 1995.
Chapter 3

7th Ed.
21
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.
Chapter 3

7th Ed.
22
Figure 3-3
CPFR Business Model
Chapter 3

7th Ed.
23
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.
Chapter 3

7th Ed.
24
Supply Chain Technology:

Midwest Pharmaceuticals
Using a statistically advanced demandmanagement 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.
Chapter 3

7th Ed.
25
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.
Chapter 3

7th Ed.
26
Figure 3-4
Collaborative Planning
Chapter 3

7th Ed.
27

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.
Chapter 3

7th Ed.
28
Figure 3-5
Stages of Order Fulfillment
Chapter 3

7th Ed.
29

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 ordermanagement functions in Figure 3-6.
Chapter 3

7th Ed.
30
Figure 3-6
Order-Management Functions
Chapter 3

7th Ed.
31

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.
Chapter 3

7th Ed.
32
Figure 3-7
Major Components of the Order
Cycle
Chapter 3

7th Ed.
33

Management
Order placement methods seem to be

changing to accommodate new
technologies.
Examine order placement trends in
Figure 3-8.
Chapter 3

7th Ed.
34
Figure 3-8
Order-Placement Trends
Chapter 3

7th Ed.
35

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.
Chapter 3

7th Ed.
36
Figure 3-9
Example of Order Cycle Time
Analysis
Chapter 3

7th Ed.
37
Figure 3-10
Order Cycle Length and
Variability
Chapter 3

7th Ed.
38

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?
Chapter 3

7th Ed.
39
Five Alternative Fulfillment

Strategies for E-Commerce
1.
2.
3.
4.
5.
Distributed delivery centers

Partner fulfillment operations
Dedicated Fulfillment centers
Third-party fulfillment centers
Build to order
Chapter 3

7th Ed.
40
Customer Service:
The Logistics/Marketing
Interface
Customer service is often the key link

between logistics and marketing.
Examine the traditional logisticsmarketing interface in Figure 3-11.
Chapter 3

7th Ed.
41
Figure 3-11 The Traditional

Logistics/Marketing Interface
Chapter 3

7th Ed.
42
Customer Service:
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.
Chapter 3

7th Ed.
43
Customer Service:
Interface
Becton Dickinsons commitment resulted

in the creation of a Supply Chain Services
operating division of the company.
This new perspective emphasizing valueadded is providing the basis for other
companies such as Sears, Proctor &
Gamble, Nabisco, Hershey, and Dell
Computer to improve both efficiency
and effectiveness.
Chapter 3

7th Ed.
44
Customer Service:
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
Chapter 3

7th Ed.
45
Customer Service:
Interface
Elements of Customer Service

Time
Dependability
Cycle time
Safe delivery
Correct orders
Communications
Convenience
Chapter 3

7th Ed.
46
Table 3-2 Customer Service Elements

for the Food Industry
Chapter 3

7th Ed.
47
Figure 3-12 Example of the

Frequency Distribution of Lead
Time
Chapter 3

7th Ed.
48
Customer Service:
Performance Measures
Traditional
% availability in base units

Speed and consistency
Response time to special
requests
Speed, accuracy, and
message detail of response
Response and recovery
time requirements
Response time, quality of
response
Chapter 3
New
Orders received on
time
Orders received
complete
Orders received
damage free
Orders filled
accurately
Orders billed
accurately

7th Ed.
49
Table 3-3 Elements and

Measurement of Customer Service
Chapter 3

7th Ed.
50
Customer Service:
Implementation of Standards
Set standards at realistic levels.

Quality levels set below 100% can be
problematic.
Consult customers on policies and
standards.
Communicate standards to customers.
Measure, monitor, and
control customer service
standards.
Chapter 3

7th Ed.
51
Customer Service: Overview
If the basics of customer service are not

in place, nothing else matters.
Customers may define service
differently.
All customer accounts are not the same.
Relationships are not one dimensional.
Partnerships and added value can lock
up customers.
Chapter 3

7th Ed.
52
Figure 3-13
Customer Service Issues
Chapter 3

7th Ed.
53
Stockouts
Four possible outcomes from a

stockout
Customers wait
Back orders
Lost sales
Lost customers
Chapter 3

7th Ed.
54
Expected Costs of Stockouts

Event
Probability
Costs
Expected
Costs
Back
Order
70%
$ 6.00
$ 4.20
Lost Sale
20%
$20.00
$ 4.00
Lost
Customer
10%
$200.00
$ 20.00
Estimated
cost per
stockout
100%
---
$ 28.20
Chapter 3

7th Ed.
55
Channels of Distribution
One or more companies or individuals

who participate in the flow of goods and
services from the producer to the final
user or consumer.
Wide variety of firms comprise these
channels.
Examine Figures 3-14 & 3-15.
Chapter 3

7th Ed.
56
Figure 3-14
Distribution Channel Separation
Chapter 3

7th Ed.
57
Figure 3-15
Examples of Channels of Distribution for
the Food Products Manufacturing Industry
Chapter 3

7th Ed.
58
Growth and Importance of

Channels of Distribution
Retail channels
showing dramatic
growth.
Mass
merchandisers
such as Wal-Mart,
Kmart, Sears, and
Target squeezing
smaller retailers .
Chapter 3
Nature of logistics
changing to
accommodate
customized
systems.
Successful
retailers base
efficiency on
logistics systems.

7th Ed.
59
Chapter 3:
Summary and Review
Questions
Students should review their
knowledge of the chapter by
checking out the Summary and
Study Questions for Chapter 3.
This is the last slide for
Chapter 3
60
End of Chapter 3 Slides

Demand
Management and
Customer Service
61

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Chapter 3

Demand Management and

Understand the critical importance of

Management of Business Logistics,

Identify the key steps in the order

Management of Business Logistics,

Understand the difference between

Management of Business Logistics,

Instituted scan-based trading.

Management of Business Logistics,

To increase levels of customer service,

Management of Business Logistics,

These systems refer to the set of processes

Management of Business Logistics,

Defined as focused efforts to estimate

Management of Business Logistics,

It is this disconnect between

Management of Business Logistics,

Took leadership in creating a demand

Management of Business Logistics,

Management of Business Logistics,

Gathering and analyzing knowledge

Management of Business Logistics,

Sharing with other supply chain members

Management of Business Logistics,

Lack of communication between

Management of Business Logistics,

Demand information is often used more

Management of Business Logistics,

A major component of demand management

Management of Business Logistics,

Management of Business Logistics,

Table 3-1 How Demand

Management of Business Logistics,

An example of integrating forecasting

Management of Business Logistics,

Figure 3-2 Integration of Sales

Management of Business Logistics,

CDFR is recognized as a breakthrough

Management of Business Logistics,

The CDFR model is illustrated in Figure

Management of Business Logistics,

Management of Business Logistics,

The plan and the forecast are entered

Management of Business Logistics,

Supply Chain Technology:

Using a statistically advanced demandmanagement system the company

Management of Business Logistics,

Order Fulfillment and Order

Collaborative planning improves the

Management of Business Logistics,

Management of Business Logistics,

Order Fulfillment and Order

Order fulfillment activities differ as

Management of Business Logistics,

Management of Business Logistics,

Order Fulfillment and Order

Order-management systems represent

Management of Business Logistics,

Management of Business Logistics,

Order Fulfillment and Order

The order cycle traditionally