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Business Logistics

Chapter 4 The Outbound Logistics System Adam Conrad

Learning Objectives


Understand the important role of outbound logistics in the logistics supply chain Explain the differences that exist among companies in terms of the scope, complexity, and significance of their outbound logistics system Understand major trends in outbound logistics strategies Discuss the importance, contribution, and role of customer service in outbound logistics systems

Learning Objectives (cont.)


Define customer service from different perspectives Understand the basic elements of customer service that are important to logistics managers Explain the standards of performance that are used to measure and evaluate customer service Discuss how companies use customer service to achieve and sustain competitive advantage

Learning Objectives (cont.)

Understand the nature and role of channels of distribution in outbound logistics systems and the relationships among channels of distribution  Discuss alternative channel systems  Explain the strategic impact of integrating channel systems

Outbound Logistics

Early interest
Higher inventory costs due to higher value products

Inbound systems important

Customers touched by outbound complaints Managing makes it easier to achieve and sustain market share

Synergism of inbound and outbound

Must be coordinated due to reduced cycle times

Outbound Logistics

National Semiconductor
45 day turnaround for 95% of orders not good Four day service Lower cost, higher revenue

Outbound Logistics

Richfood Logistics Profile Cross Docking McKesson and Fleming suppliers New method of distribution less on hand Educate stores on new procedure More doors for trailers to wait for cross dock

OL Along the Supply Chain

Food supply chain

Retail stores only concerned with half of the logistics system inbound Customers assume logistics role (Sams)


Steel Company
Outbound receives more attention

Food Producer
Most challenging outbound due to number of SKUs

OL Along the Supply Chain

Efficient Consumer Response

Potential to improve this area of the supply chain is significant Packaged goods industry estimated savings of $30B / year

Customer Service

Getting close to customers

Peters and Waterman ALIGN yourself with the BUYER

Market driven quality

IBM bundle of quality related services Complete solution customer satisfaction

Consumer awareness
Mass Customization
Neal Stephenson Diamond Age Matter Compiler/Decompiler & Ractives

Logistics/Marketing Interface

Traditional view
Increasing level of customer satisfaction should equal cost increases

New vision
Competitive advantage

Defining Customer Service

Levels of product - 3
1. Core benefit or service 2. Tangible product, physical product or service 3. Augmented product secondary benefits
Installation, warranties, service after sale

Defining Customer Service

Types of customer support/service

Revamp billing procedures EBPP Credit terms Repair parts inventories -Sears

Levels of involvement
CS as an Activity
Order processing / Billing / Handling returns

CS as Performance Measure
Percentage of orders shipped on time Calls answered in 1 hour NOTE, ACTUAL benefits must be double checked (telephone support example)

Defining Customer Service

CS as a Philosophy
Company wide dedication to customer satisfaction through superior CS

Elements of Customer Service

Food Industry Example  Four Main dimensions  Control over lead time  Use of Computers  Productivity Gains  Transit Times

Defining Customer Service

Inventory level and stockout costs  Stockout costs  Claims  Lost sales or lost production

Defining Customer Service

Order Information  Seller-customer channel  Two-way street  Flexibility  Different customer requirements  Customer Profitability

Performance Measures for CS

Setting standards  Levels of quality  Communication with customers  Control of customer service

A Note on Inbound System Service Levels


Cost of physical supply stockout Overview of Customer Service

If the basics of CS arent in place, nothing else matters Customers define service differently All customer accounts are not the same Relationships are not one-dimensional Partnerships and added value can lock up customers

Channels of Distribution
Channel efficiency  Growth and Importance of Channels of Distribution  A special Note on Inventory for Outbound Systems  Expected Cost of Stockouts

Channels of Distribution

Back Order
Nature of Cost

Lost Sales
Direct Loss Special explanation Calculation

Lost Customer
Difficult Nature

Channels of Distribution

Determining the Expected Cost of Stockouts


Distribution Resource Planning (DRP)

DRP develops a projection for each SKU and requires
Forecast of demand for each SKU Current inventory level of the SKU (balance on hand, BOH) Target safety stock Recommended replenishment quantity Lead time for replenishment