Basics of Logistics

Chapter 2
Demand Management, Order Management, and Customer
Service

Dr. Maha Morssi

Demand Management
 Demand management can be defined as “the
creation across the supply chain and its markets
of a coordinated flow of demand.”

 Demand (sales) forecasting

• Refers to an effort to project future demand
• Is a key component in demand management
• Is helpful in make-to-stock situations
• Is helpful in make-to-order situations
Three basic types of demand forecasting models:

 Judgmental

 Time series

 Cause and effect (associative Judgemental

Demand Management
Judgmental demand forecasting model:
 Involves using judgment or intuition
 Preferred in situations where there is limited or no historical data
 Techniques include surveys, the analog technique, and others
 Surveys used to learn about customer preferences and intentions
 An analog (similar item to that being forecasted) is used as the basis for
demand history

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Demand Management
Time series forecasting model:
 Underlying assumption is that future demand is solely dependent on past
demand
 Some techniques include:
 Simple moving averages
 Weighted moving averages

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Demand Management
Cause-and-effect forecasting model:
 Also referred to as 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
 Some techniques include:
 Simple regression
 Multiple regression

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Demand Management

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

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Order Management

 Order management refers to management of the

various activities associated with the order cycle

 Order cycle (replenishment cycle or lead time) refers

to the time from when a customer places an order to
when goods are received

 Some organizations include order to cash cycle in

their order management model
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Order Management
 Four stages of the order cycle include:
• Order transmittal
• Order processing
• Order picking and assembly
• Order delivery

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Order Management
 Order transmittal refers to the time from when the customer places
an order until the seller receives the order
 Methods of order transmittal
• In person
• Mail
• Telephone
• FAX
• Electronically

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Order Management
 Order processing refers to the time from when the seller receives an order until an
appropriate location (i.e. warehouse) is authorized to fill the order..
 Order processing includes:
• Checking for completeness and accuracy
• A customer credit check
• Order entry into the computer system
• Crediting salesperson with the sale
• Recording the transaction
• Determining inventory location
• Arranging for outbound transportation

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Order Management
 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

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Order Management
 Order picking and assembly
 Often represents the best opportunity to improve the effectiveness and efficiency of an
order cycle
 Can account for up to 2/3 of a facility’s operating cost and time

Examples of Order Picking and Assembly technology:

 Handheld scanners
 Radio-frequency identification (RFID)
 Voice-based order picking
 Pick-to-light

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Order Management
 Order delivery is the time from when a transportation carrier picks up the shipment
until it is received by the customer.

Three key order delivery issues:

 Variety of options in terms of transit time are now available such as delivery by 12
noon and delivery by 4:30 P.M.
 A number of shippers are emphasizing both elapsed transit time as well as transit time
reliability.
 Transportation carriers are revamping their operations to provide faster transit times
to customers.

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