Chapter 7 – Demand Management, Order Management, and Customer Service

Demand Management
The creation across the supply chain and its markets of a coordinated flow of demand
Make-to-stock
When finished goods are produced prior to receiving a customer order
Make-to-order
When finished goods are produced after receiving a customer order
Time series forecasting
Future demand is solely dependent on past demand
Cause-and-effect (associative) forecasting
Assumes that one or more factors are related to demand and that the relationship between cause and effect can be used to estimate future demand
CPFR (collaborative planning, forecasting, and replenishment)
Supply chain partners share planning and forecasting data to better match up supply and demand
Order management
Management of the various activities associated with the order cycle
Order cycle
The time from when a customer places an order to when the order is received

Four stages:
1) Order transmittal
2) Order processing
3) Order picking and assembly
4) Order delivery

Total, ~13 days

Order to cash cycle
The length of time it takes an organization to receive payment for an order
Order transmittal
Time from when the customer places an order until the seller receives the order

Methods:
-in person
-mail
-telephone
-fax
-Internet

~2 days

Order processing
The time from when the seller receives an order until an appropriate location is authorized to fill the order

~1 day

Order triage
Classifying orders according to pre-established guidelines so that a company can prioritize how orders should be filled
Order picking and assembly
Includes all activities from when an appropriate location is authorized to fill the order until goods are loaded aboard an outbound carrier

~5 days

Voice-based order picking
The use of speech to guide order picking activities
Pick-to-light technology
Orders to be picked are identified by lights placed on shelves or racks
Order delivery
The time from when a transportation carrier picks up the shipment until it is received by the customer
Customer service
The ability of logistics management to satisfy users in terms of time, dependability, communication, and convenience, product availability, system accuracy and performance, service failure recovery
Order fill rate
The percentage of orders that can be completely and immediately filled from existing stock
Multichannel marketing systems
Separate marketing channels to serve customers
Benchmarking
A process that continuously identifies, understands, and adapts outstanding processes found inside and outside an organization
Customer profitability analysis (CPA)
Allocation of revenues and costs to customer segments or individual customers to calculate the profitability of the segments or customers
Service recovery
A process for returning a customer to a state of satisfaction after a service or product has failed to live up to expectations
Demand (sales) forecasting
-Refers to an effort to project future demand
-Is a key component in demand management
-Is helpful in managing all forms of supply chain strategy
Product Lifestyle
Plays a vital part in forecasting and type of model used. Is tied to the product growth matrix. Product’s “life stage” and accurate demand management assist in moving products into and out of growth matrix quadrants

Development
Introduction
Growth
Maturity
Decline

Three basic types of demand forecasting models:
-Judgmental: Qualitative (non-quantitative)
-Time-series: Uses historical data on the item
-Cause-and-effect (associative): Looks at related factors to determine anticipated sales for an item
Demand forecasting issues:
-Selection of forecasting technique(s) depends on many factors
-Selecting an inappropriate technique will reduce forecast accuracy
-Forecast accuracy can have important logistical implications
-Computer forecasting software unable to completely eliminate forecast errors
Pre-transaction elements
-Written statement of CS policy
-Customer receives policy statement
-Organizational structure
-System flexibility
-Management services
Transaction elements
-In-stock performance
-Order information
-Elements of order cycle
-Transship (if necessary)
-System accuracy
-Order convenience
-Product substitution
Post-transaction elements
-Installation, warranty, alternations, repairs, parts
-Product tracing
-Customer claims, complaints, returns (and recyclables)
-Temporary replacement of products
Service Failure and Recovery
Situations will occur where actual performance does not meet the customer’s expected performance

Lost delivery
Late delivery
Early delivery
Damaged delivery
Incorrect delivery quantity

Lifetime value of customer =
Ave transaction size x annual transaction frequency x customer life expectancy
Differentiation
Occurs when a supplier provides unique, value-added service in some area important to the customer
Order qualifier
Operational excellence

-Customers expect near-perfect execution
-Service providers must promise (and back up) near-perfect execution to even be considered

Order winner
Relationship excellence

-The service provider that understands customers’ changing needs and proves responsive will be the best provider
-An excellent relationship prevents complacency and ensures relevancy

Sales and Operations Planning (S&OP)
An integrated business management process through which the executive leadership team continually achieves focus alignment and synchronization among all functions of the organization
S&OP Process
1. Product Review
2. Demand Review
3. Supply Review
4. Integrated Reconciliation
5. Management Business Review
S&OP Key Benefits
-Balance supply and demand within organizations
-Smarter and faster production decisions
-Focus on new and/or promoted products
-Minimize stock-outs
-Reduce excessive inventory
-More efficient procurement
-Short customer lead times
-Optimized transportation and other logistics costs