3.management of Business Logistics - Demand Management

Management of Business Logistics
Demand Management and

3
Customer Service
Matching supply and demand
Logistics – Going to market
!
Expected learning outcomes
After studying this chapter, students would be able to
n Explain the critical importance of outbound-to-customer logistics

systems.
n Appreciate the growing need for effective demand management.
n Distinguished the types of forecasts that may be needed and
explain how collaboration among trading partners will help the
overall forecasting and demand management process.
n Identify the key steps in the order fulfillment process and explain
how effective order management can create value for a firm and
its customers.
n Realize the meaning of customer service and explain its
importance to logistics and supply chain management.
n Explain 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 Management of Business Logistics 2

Remind Intra Logistics/
VALUE ADDED
Inhouse/
In-plant
movement and
storage of raw movement and
materials storage of finished
goods
n Approaches to Analyzing Logistics Systems:

n Materials Management v. Physical Distribution
Four different classifications of logistics systems

n Balanced system - e.g., consumer products
n Heavy inbound - e.g., aircraft, construction
n Heavy outbound - e.g., chemicals
n Reverse systems - e.g., returnable products

Outbound-to-Customer Logistics Systems
n To increase levels of customer service, significant emphasis is
placed on outbound-to-customer logistics systems.
n Product availability
n On-time delivery
n Timely and accurate logistics information
n Post-sale customer support
n …
n These systems refer to the set of processes, systems, and

capabilities that enhance the firm’s ability to serve its customers.
n This topic also is of historical interest in the study of physical
distribution, logistics, and supply chain management.

Inbound-to-Operations Logistics Systems
n These systems refer to the set of processes that precede and
facilitate value-adding activities such as manufacturing, assembly,
and so on.
n This topic also is of historical interest in the study of the supply
chain and includes materials management and physical supply.
n The study of inbound-to-operations logistics systems will be
presented in the next chapter.

Logistics Profile: Dreyer’s
n Instituted scan-based trading (SBT).

n Scan-based trading: Pay per scan.
n Manufacturer (Dreyer’s) is paid based on what is actually

scanned at the checkout counter.
n Customer takeaway drives manufacturing and delivery.
n Freed resources for use elsewhere.
n Win-win partnership arrangement.

Demand Management
n Defined as “focused efforts to estimate and

manage customers’ demand, with the
intention of using this information to shape
operating decisions.”3

Demand Management
n It is this disconnect between manufacturing and the demand at the

point of consumption that attracts attention to demand
management.
n Any attention paid to demand management will likely result in

benefits flowing through the supply chain.

On the Line:
Ingram Micro
n Took leadership in creating a demand chain

among its supply chain partners.
n $22 billion sales of 200,000 products from 1,500
manufacturers to 140,000 resellers in 130
countries.
n Ingram Micro is using a demand chain, rather
than a supply chain, to focus on meeting
consumer demand.

On the Line: Ingram Micro

Demand Management Objectives
n Gathering and analyzing knowledge about consumers,
their problems, and their unmet needs.
n Identifying partners to perform the functions needed in

the demand chain.
n Moving the functions that need to be done to the

channel member that can perform them most
effectively and efficiently.

Demand Management Objectives
n Sharing with other supply chain members knowledge about
consumers and customers, available technology, and logistics
challenges and opportunities.
n Developing products and services that solve customers’ problems.
n Developing and executing the best logistics, transportation, and

distribution methods to deliver products and services to
consumers in the desired format.

Demand Management:
Related Issues
n Lack of communication between departments results in

little or no coordinated response to demand
information.
n 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.

Demand Management:
Related Issues
n Demand information is often used more for tactical and
operations purposes than for strategic purposes.
n Primary emphasis should be on using demand

information to create likely scenarios of the future as
they relate to product supply alternatives.
n Resulting business successes will be an outcome of

the better match of demand to product availability.

Traditional Forecasting:
Demand Forecasting
n A major component of demand management is
forecasting the amount of product that will be
purchased by consumers or end users.
n In the integrated supply chain all other demand will be

derived from the primary demand.
n A key objective is to anticipate and respond to primary

demand as it occurs in the marketplace.

Figure 3-1
Supply-Demand Misalignment

Table 3-1 How Demand Management
Supports Business Strategy

Traditional Forecasting
n An example of integrating forecasting with production
is illustrated by Figure 3-2.
n Long-term (more than three years), midrange (one to

three years), and short-term forecasting are each
important contributors to the forecasting process.

Figure 3-2 Integration of Sales
Forecasting and Production

Collaborative Planning,
Forecasting, and Replenishment
n CDFR is recognized as a breakthrough
business model for planning, forecasting, and
replenishment.
n Uses available Internet-based technologies to
collaborate from operational planning through
execution.
n Developed by Wal-Mart and Warner-Lambert
in 1995.

n The CPFR model is illustrated in Figure 3-3.
n Emphasizes a sharing of consumer purchasing
data among and between supply chain
partners.
n Creates a direct link between the consumer
and the supply chain.

Figure 3-3
CPFR Business Model
Chapter 3 Management of Business Logistics, 7th Ed. 22

n The plan and the forecast are entered by suppliers and
buyers into an Internet accessible system.
n Within established parameters, any of the participating

partners is empowered to change the forecast.
n Only a few CPFR initiatives have been made public,

but results are impressive.

Supply Chain Technology:
Midwest Pharmaceuticals
n 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.
n Management modified and improved its product

investment strategy.
n In essence, demand management helped make the

company more profitable and effective.

Order Fulfillment and Order
Management
n 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.
n Goes beyond the traditional practice.
n Examine the three critical elements of collaborative

planning in Figure 3-4.

Figure 3-4
Collaborative Planning

Management
n Order fulfillment activities differ as a supply
chain matures through transactional to
interactive to interdependent levels.
n Examine the four key stages of order

fulfillment in Figure 3-5.

Figure 3-5
Stages of Order Fulfillment

Management
n 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.
n Examine the characteristics of order-

management functions in Figure 3-6.

Figure 3-6
Order-Management Functions

Management
n 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.
n Examine the four principal activities of

the order cycle in Figure 3-7.

Figure 3-7
Major Components of the Order Cycle

Management
n Order placement methods seem to be
changing to accommodate new technologies.
n Examine order placement trends in Figure 3-8.

Figure 3-8
Order-Placement Trends
How’s about 2021??

Management: Other Issues
n Order processing
n Order preparation
n Order shipment
n Length and variability of the order cycle
n Examine the order cycle time analysis in
Figure 3-9 and order cycle length and

variability in Figure 3-10.

Figure 3-9
Example of Order Cycle Time Analysis

Figure 3-10
Order Cycle Length and Variability

Management: E-Commerce
n 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.
n According to Richer and Kalatora10, some of
the critical decisions are related to the
evaluation of multiple fulfillment planning
strategies.
n What are the reasonable alternative fulfillment
strategies?

Five Alternative Fulfillment
Strategies for E-Commerce
1. Distributed delivery centers
2. Partner fulfillment operations
3. Dedicated Fulfillment centers
4. Third-party fulfillment centers
5. Build to order

Customer Service:
The Logistics/Marketing Interface
n Customer service is often the key link between

logistics and marketing.
n Examine the traditional logistics- marketing
interface in Figure 3-11.

Figure 3-11 The Traditional
Logistics/Marketing Interface

Customer Service:
n A new vision of the interface is represented by
National Semiconductor, whose re-engineering
of the supply chain reduced overall logistics
cost.
n 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.

Customer Service:
n Becton Dickinson’s commitment resulted in the
creation of a Supply Chain Services operating
division of the company.
n This new perspective emphasizing value-
added is providing the basis for other
companies – such as Sears, Proctor &
Gamble, Nabisco, Hershey, and Dell Computer
– to improve both efficiency and effectiveness.

Customer Service:
n Defining customer service
n In terms of levels of product
n In terms of types of customer
support/service
n In terms of levels of involvement
n In terms of complexity of customer service

Customer Service:
n Elements of Customer Service
n Time
n Dependability
n Cycle time
n Safe delivery
n Correct orders
n Communications
n Convenience

Table 3-2 Customer Service Elements
for the Food Industry

Figure 3-12 Example of the
Frequency Distribution of Lead Time

Customer Service:
Performance Measures
n Traditional n New
n % availability in base units n Orders received on
n Speed and consistency time
n Response time to special n Orders received
requests complete
n Speed, accuracy, and n Orders received
message detail of response damage free
n Response and recovery time n Orders filled accurately
requirements n Orders billed
n Response time, quality of accurately
response
Table 3-3 Elements and Measurement
of Customer Service

Customer Service:
Implementation of Standards
n Set standards at realistic levels.
n Quality levels set below 100% can be
problematic.
n Consult customers on policies and standards.
n Communicate standards to customers.
n Measure, monitor, and control customer
service standards.

Customer Service: Overview
n If the basics of customer service are not in
place, nothing else matters.
n Customers may define service differently.
n All customer accounts are not the same.
n Relationships are not one dimensional.
n Partnerships and added value can “lock up”
customers.

Figure 3-13
Customer Service Issues

Stockouts
n Four possible outcomes from a stockout
n Customers wait
n Back orders
n Lost sales
n Lost customers

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

Channels of Distribution
n One or more companies or individuals who
participate in the flow of goods and services
from the producer to the final user or
consumer.
n Wide variety of firms comprise these channels.
n Examine Figures 3-14 & 3-15.

Figure 3-14
Distribution Channel Separation

Figure 3-15
Examples of Channels of Distribution for the
Food Products Manufacturing Industry

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

End of Chapter 3 Slides
Demand Management
and Customer Service
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Management of Business Logistics

Demand Management and

n Explain the critical importance of outbound-to-customer logistics

Chapter 3 Management of Business Logistics 2

n Approaches to Analyzing Logistics Systems:

Four different classifications of logistics systems

n Heavy inbound - e.g., aircraft, construction

n Heavy outbound - e.g., chemicals

n Reverse systems - e.g., returnable products

Chapter 3 Management of Business Logistics 3

n Timely and accurate logistics information

n Post-sale customer support

n These systems refer to the set of processes, systems, and

Chapter 3 Management of Business Logistics 4

Chapter 3 Management of Business Logistics 5

n Instituted scan-based trading (SBT).

n Manufacturer (Dreyer’s) is paid based on what is actually

n Customer takeaway drives manufacturing and delivery.

n Freed resources for use elsewhere.

n Win-win partnership arrangement.

Chapter 3 Management of Business Logistics 6

n Defined as “focused efforts to estimate and

Chapter 3 Management of Business Logistics 7

n It is this disconnect between manufacturing and the demand at the

n Any attention paid to demand management will likely result in

Chapter 3 Management of Business Logistics 8

n Took leadership in creating a demand chain

Chapter 3 Management of Business Logistics 9

Chapter 3 Management of Business Logistics 10

n Identifying partners to perform the functions needed in

n Moving the functions that need to be done to the

Chapter 3 Management of Business Logistics 11

n Developing products and services that solve customers’ problems.

n Developing and executing the best logistics, transportation, and

Chapter 3 Management of Business Logistics 12

n Lack of communication between departments results in

n Too much emphasis is often placed on forecasts of

Chapter 3 Management of Business Logistics 13

n Primary emphasis should be on using demand

n Resulting business successes will be an outcome of

Chapter 3 Management of Business Logistics 14

n In the integrated supply chain all other demand will be

n A key objective is to anticipate and respond to primary

Chapter 3 Management of Business Logistics 15

Chapter 3 Management of Business Logistics 16

Chapter 3 Management of Business Logistics 17

n Long-term (more than three years), midrange (one to

Chapter 3 Management of Business Logistics 18

Chapter 3 Management of Business Logistics 19

Chapter 3 Management of Business Logistics 20

Chapter 3 Management of Business Logistics 21

Chapter 3 Management of Business Logistics, 7th Ed. 22

n Within established parameters, any of the participating

n Only a few CPFR initiatives have been made public,

Chapter 3 Management of Business Logistics 23

n Management modified and improved its product

n In essence, demand management helped make the

Chapter 3 Management of Business Logistics 24

n Goes beyond the traditional practice.

n Examine the three critical elements of collaborative

Chapter 3 Management of Business Logistics 25

Chapter 3 Management of Business Logistics 26

n Examine the four key stages of order