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Unformatted text preview: (Determining what customers want and facilitating getting customers what they want) Demand Management and Customer Service 1 Demand Management “Focused efforts to estimate and manage customers’ demand, with the intention of using this information to shape operating decisions.” Historically, there has been a disconnect between manufacturing and consumer demand; more emphasis on supply side (just making stuff). 2 LANDED vs. PROCUREMENT COSTS
Computer Chip Maker DELL Iowa State University
• Who is supplying (supplier)? • Who is demanding (procuring)? • Landed cost = costs of all inputs + cost of manufacturing + shipping costs (SELLER PAYS SHIPPING!!!!) • Procurement cost = landed cost + margin = cost of suppliers input, manufacturing, and shipping costs + margin 3 Computer Chip Maker – – – – DELL Iowa State University Chip maker – – – – DELL Input cost = $1.00 Manufacturing costs = $100 Transportation costs = $300 per 100 chips (FOB origin) Margin = $96 per chip Procurement (input) costs for chips = ? Other procurement costs = $500 Transportation costs = $50 per computer (FOB destination terms) Margin = $450 per computer 4 Computer Chip Maker – DELL Iowa State University Chip Maker DELL
– Landed costs = $1 input + $100 manufacturing + $0 shipping = $101 Procurement costs = $101 chip maker landed costs + $96 chip maker margin + $3 shipping costs = $200 + $500 other procurement = $700 Landed costs = $700 DELL Procurement costs + $50 Dell shipping costs = $750 Procurement costs = $750 DELL landed costs + $450 DELL margin = $1200 5 – – ISU Demand Management Objectives Developing products and services that solve customers’ problems. Developing and executing the best logistics methods to deliver products and services to consumers in the desired format. 6 Achieving DM Objectives Gathering, sharing, and analyzing knowledge about consumers and customers, available technology, and logistics challenges and opportunities. Moving demand functions to channel member that can best perform them. 7 DM Challenges Lack of communication between departments: little or no coordinated response to demand information. Too much emphasis on forecasts of demand: little attention on collaborative efforts and developing strategic plans. Result: supplydemand misalignment 8 SupplyDemand Misalignment (Surplus) 9 Traditional Demand Forecasting Traditionally, demand management was about forecasting end user demand, relying on historical data. – Historical demand is not always a good predictor of the future. BUT… In the integrated supply chain all demand (for channel members) is derived from the primary (final) demand and supply chain partners work together to determine primary demand. 10 Integration of Sales Forecasting and Production 11 Collaborative Planning, Forecasting, and Replenishment (CPFR) A breakthrough business model that anticipates and responds to primary demand as it occurs in the marketplace. – Sharing of consumer purchasing data among and between supply chain partners. – Factors in promotional plans, production capabilities/limitations, POS data, and other factors that influence demand & supply. – Uses Internetbased technologies to collaborate from operational planning through execution. – Developed by WalMart and WarnerLambert in 1995. 12 CPFR The plan and forecast are entered into an Internet accessible system. Within established parameters, any partner is empowered to change the forecast. 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. Only a few CPFR initiatives have been made public, but results are impressive. 13 Figure 33 CPFR Business Model 14 Collaborative Planning 15 Changing Gears: Order Fulfillment Order fulfillment activities differ as a supply chain matures through transactional to interactive to interdependent levels. 16 Stages of Order Fulfillment 17 Order Management Ordermanagement systems (OMS) 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. 18 OrderManagement Functions 19 Order Cycle The order cycle is the time it takes from when an order is placed to when the order is received. 20 Major Components of the Order Cycle 21 OrderPlacement Trends 22 Order Fulfillment Performance Measure Order Cycle performance from customer’s perspective! Both Time and Variability are important measures of order fulfillment performance
– Time: Cycle stock – Variability: Safety stock 23 Length and Variability of Order Cycle Time 24 Order Cycle Length & Variability 25 Example of the Frequency Distribution of Lead Time 26 Customer Service Customer service is the output of logistics! Defining customer service in terms of – Importance of product – Types of customer support/service (CRM) – Involvement – Complexity of customer service
– Activity, Performance Measure, Philosophy 27 Customer Service Elements Time Dependability Cycle time Safe delivery Communications Convenience (i.e., flexibility) 28 Correct orders 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 New – Orders received on time – Orders received complete – Orders received damage free – Orders filled accurately – Orders billed accurately
29 Customer Service Elements for the Food Industry 30 Customer Service Summary Customers may define service differently. All customer accounts are not equal. Relationships are not one dimensional: use of multiple performance criteria is common and a challenge (i.e., “perfect order” concept) Partnerships and added value can “lock up” customers. 31 Customer Reactions to Stockouts Four possible outcomes from a stockout, and each has different cost – Customers wait – Back orders – Lost sales – Lost customers What determines customer reaction to a stockout? 32 Estimating Expected Costs of Stockouts
Event Back Order Lost Sale Lost Customer Estimated cost per stockout Probability Costs Expected Costs 33 Same Scenario but Losing Customers More Likely
Event Back Order Lost Sale Lost Customer Estimated cost per stockout Probability Costs Expected Costs 34 Channels of Distribution One or more companies or individuals who participate in the flow of goods and services from the producer tothe final user or consumer. Wide variety of firms comprise these channels. 35 Distribution Channel Separation 36 Examples of Channels of Distribution for the Food Products Manufacturing Industry 37 Growth and Importance of Channels of Distribution Retail channels showing dramatic growth. Mass merchandisers such as WalMart, Kmart, Sears, and Target squeezing smaller retailers . Nature of logistics changing to accommodate customized systems. Successful retailers base efficiency on logistics systems.
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This note was uploaded on 03/05/2010 for the course LSCM 360 taught by Professor Martins during the Fall '08 term at Iowa State.
- Fall '08