Chapter # 5

Demand Management, Order Management &

Customer Service
Learning Objectives
 How a firm processes incoming orders

 Importance of customer service to a firm’s marketing

activities

 Role of logistics in the customer service area

 Why customer service standards should be specific

and measurable

 How a customer service program is established and

maintained

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Order Management and Customer
Service
Key Terms Key Terms
 Customer service  Order delivery
 Efficient Consumer  Order entry
 Response (ECR)  Order handling
 Load planning  Order management
 Order cycle  Order picking and
 Quick Response (QR)  Assembly
 Replenishment cycle  Order processing
 Order transmittal

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Demand Management in Logistics

 Defined as “focused efforts to estimate and manage

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

 Recent practice has been just the opposite, with the

manufacturer determining the what, where, when,
and how many of the sale through Distribution or
POS.

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Demand Management Objectives
 Gathering and analyzing knowledge about consumers, their
problems, and their unmet needs.

 Identifying partners to perform the functions needed in the

demand chain.

 Moving the functions that need to be done to the channel

member that can perform them most effectively and
efficiently.

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Demand Management Objectives
 Sharing with other supply chain members knowledge about
consumers and customers, available technology, and logistics
challenges and opportunities.

 Developing products and services that solve customers’

problems.

 Developing and executing the best logistics, transportation,

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

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Demand Management Issues
 Lack of communication between departments results in little
or no coordinated response to demand information.

 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 information is often used more for tactical and

operations purposes than for strategic purposes.

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Demand Management Issues
 Primary emphasis should be on using demand information to
create likely scenarios of the future as they relate to product
supply alternatives.

 Resulting business successes will be a outcome of the better

match of demand to product availability.

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Order Management
Order management is the activities that take place in the period
between the time a firm receives an order and the time a
warehouse is notified to ship the goods to fill that order

Firms analyze their customer service standards in terms of five

aspects or stages, of the order cycle

1) Order planning-connected to sales forecasting

2) Order transmittal
3) Order processing
4) Order picking and assembly
5) Order delivery
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 Order Management
 Order cycle defined by the seller: time from when an
order is received to when the goods arrive at the
customer’s dock

 Order cycle defined by the buyer: time from when an

order is placed to when the goods are received. Also
called replenishment cycle
◦ Cycle Getting shorter
◦ More precise delivery times
◦ Customer can track orders
◦ Quality is important and is benchmarked

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Order Management
1) Order Planning
Needs an efficient order handling system to prevent
bunching

Methods to reduce bunching

 Use of field salespeople (Customer place direct order to them)

 Use of phone salespeople (Tele-sales / marketing)
 Price discounts to customers placing regular orders

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Order Management
2) Order transmittal
The series of events that occur between the time a
customer places or sends an order and the time the seller
receives the order

Methods of order transmittal

 Phone
 FAX
 Mail
 Scanning bar codes-electronic submission
 POS registers
 Internet

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Order Management
3) Order processing
It includes such activities as follows:

◦ Completeness and accuracy

◦ Customer credit check
◦ Order entry into the computer system
◦ Marketing department credits salesperson
◦ Accounting department records transaction
◦ Inventory department locates nearest warehouse to
customer and advises them to pick the order
◦ Transportation department arranges for shipment

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Figure 4-3: Flowchart of Order
Handling (Order Processing) System

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Order Management
3) Order processing
If there is a stockout
 Notify the customer as soon as possible of stockout
 Notify when shipment will occur
 Give the customer the option of accepting in-stock, similar
products

Export orders
 Need a letter of credit
 International freight forwarders prepare documents and arrange
shipment

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Order Management
4) Order picking and assembly

◦ Notifying the warehouse to assemble a given order

◦ Providing an order picking list, indicating items and order to
pick by a warehouse employee
◦ Checking picked orders for accuracy
◦ Stockout information sent to order handling department so that
documents can be adjusted
◦ Packing list enclosed with order including employee initials of
person who packed order

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Order Management
5) Order delivery
The time from when a carrier picks up the shipment until it is
delivered to the customer’s receiving dock

◦ Load planning is the arrangement of goods within the trailer or

container
◦ Carriers establish their own service standards
◦ Some customers pick up their orders

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Order Management
Importance of the order cycle
◦ Short cycle time used as a marketing and sales tool
◦ Monitoring the order cycle can increase firm efficiency

◦ Efficient Consumer Response (ECR)/Quick Response

(QR)
 Used in grocery industry and by mass merchandisers
 POS data used to trigger order
 Keyed to more orderly, regular flow of product, smaller inventory

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 Customer Services
 Customer services (CS) represents logistics’ role in fulfilling
marketing objectives

 Strategies must be identified & prioritized which can fulfill

customer logistical requirements better than the competitors

 Customer service is much more difficult for competitors to

imitate than price cuts or other competitive strategies
 [

Comprehensive evaluation
must be done before adopting
any strategy, whether it
represents sound investment
or not!

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 Cost Versus Customer Service
 Reducing inventories, manufacturing cost and transportation cost
typically comes at the expense of customer services

 Direct shipping from company to customer’s home may also

improve customer services

 Sears ensure customer service by delivering appliances directly to

the customer, while keeping inventory levels low

Centralized
Warehouse
Cost / Inventory Customer
Service

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Customer Service
Establishing Objectives
Firms needs to identify some specific objectives to
achieve their company’s goals.

◦ Specific
◦ Measurable
◦ Achievable
◦ Consistent with broader firm goals
◦ Must consider competitor’s objectives
◦ Provide guidance to operating personnel

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Role of Logistics in Establishing
Customer Service Levels
Advisor to marketing

Establishing a customer service program

◦ Ask the customer what is important to them
◦ Investigate the service offered by competitors
◦ Consider the cost of alternative service programs
◦ Analyze the information and write the objectives

Using the Internet to improve customer service

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Customer Service: Logistics/Marketing
Interface

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Customer Service: Logistics/Marketing
Interface

 Elements of Customer Service

◦ Time
◦ Dependability
 Cycle time
 Safe delivery
 Correct orders
◦ Communications
◦ Convenience

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Value-adding Activities in Logistics
Customer Service

 Customer service is a process for providing significant value-

added benefits to the supply chain in a cost-effective way.

◦ Placing bar code labels on cartons

◦ Arranging a carton, pallet, or truck in the sequence the customer
would like to unload it
◦ Shrink-wrapping
◦ Inserting documents into cartons
◦ Blending products
◦ Adding price tags
◦ Adding graphics for export goods
◦ Assembling kits
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Customer Service
Returned Products
One important post-transactional customer service activity
is the handling of returned materials or merchandise.

◦ New flow of products are set up

◦ New infrastructure is required
◦ Goods and materials are returned for various reasons
◦ Grocery industry uses reclamation centers for returns

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Performance Measurement of Customer
Services in Logistics
1. Availability
◦ Capacity to have inventory when it is required by customer
◦ To ensure availability, organizations have stocked products
◦ Goal is to achieve high availability levels while keeping low investments
◦ Performance measures of availability are:
 Stockout Frequency
 Fill Rate
 Orders Shipped Complete

a) Stockout Frequency
 Term usually refers when firm has no product available to fulfill demand
 Approx. 5% of items at super markets are out of stocks when they are
planned to be on shelves
 Products wise inventory availability must be critically reviewed
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Performance Measurement of
Customer Services in Logistics
1. Availability
b) Fill Rate
 Fill rate measures the magnitude or impact of stockouts over
time

 It is not necessary that being stockout will affect service

performance every time

 If a customer wants 100 units of an item and only 97 are

available, the fill rate is 97%. Fill rate performance can be
evaluated for a specific customer, product, or for any
combination of customers, products, or business segments

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Performance Measurement of
Customer Services in Logistics
1. Availability
Fill Rate (Example)

100 products order by customer  Critical for customer  97% of fill rate
results in a situation of stockout…

Assembly line scheduled to produce 100 automobiles that receives only

97 of its required brake assemblies. In situations where some of the items
are not critical to performance, a fill rate of 97 percent may be acceptable.
The customer may accept a back order or be willing to reorder the short
items at a later time.

Fill rate strategies need to consider customer requirements for products.

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Performance Measurement of Customer
Services in Logistics
1. Availability
C. Orders Shipped Complete
The most precise measure of performance in product availability is
Order Shipped Complete

It views having everything that a customer orders as the standard of

acceptable performance.

Failure to provide even one item on a customer's order results in that

order being recorded as zero in terms of complete shipment.

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Performance Measurement of
Customer Services in Logistics
1. Availability
The 3 measures of availability combine to establish the extent to which a
firm's inventory strategy is accommodating customer demand

High levels of inventory have typically been viewed as the means to

increasing availability

New strategies that use information technology to identify customer

demand in advance of actual customer orders have allowed some
organizations to reach very high levels of basic service performance without
corresponding increases in inventory

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Performance Measurement of
Customer Services in Logistics
2.Operational Performance

 Operational performance deals with the time required to

deliver a customer's order.

 Whether the performance cycle in question is market

distribution, manufacturing support, or procurement.

 Operational performance is specified in terms of speed of

performance, consistency, flexibility, and malfunction
recovery.

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Performance Measurement of
Customer Services in Logistics
2. Operational Performance
a) Speed
 Time elapsed from customer order placement until the product is delivered
& is ready to use

 Logistical system design determines the elapsed time for completion of the
process

 Faster speeds, results in higher costs to the consumer but it may be

justified by the consumer when faster delivery has perceived benefits

 In JIT & QR logistical strategies, speed plays a vital role in order to

reduce customer inventory requirements.

 Speed of service is typically costly: Not all customers need or want

maximum speed if it means increased total cost.

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Performance Measurement of
Customer Services in Logistics
2. Operational Performance
b) Consistency
 Order cycle consistency is measured by the number of times that
actual cycles meet the time planned for completion

 Logistical managers place greater value on consistency as it

directly impacts a customer's ability to plan and perform its own
activities.

 If delivery cycle vary, customer needs to maintain safety stock.

 The degree of variability in deliveries impact safety stock

requirements and increase inventory carrying cost

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Performance Measurement of Customer
Services in Logistics
2. Operational Performance
c) Flexibility
 A firm's ability to accommodate special situations and unusual or unexpected
customer requests.

 For example, full-trailer quantities is a standard to service customer but

customer demands time to time some small shipments directly to retail
locations

Typical events requiring flexible operations are:

(1) Modification to basic service agreements such as a change in ship-to location
(2) Support of unique sales or marketing programs
(3) New-product introduction
(4) Product recall
(5) Disruption in supply
(6) One-time customization of basic service for specific customers or segments
(7) Product modification or customization performed while in the logistics system,
such as price marking, mixing, or packaging.
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Performance Measurement of
Customer Services in Logistics
2. Operational Performance
d) Malfunction Recovery
 Malfunction occurs in any firm’s fine-tuned logistical system, as
continuous performance on a day-in, day-out basis is a difficult task.

For example,
 If a stockout of an essential item occurs at a distribution facility that
normally services a customer, the item may be obtained from an
alternative facility utilizing some form of expedited transportation.

 Effective logistical operations anticipates that there will be service

breakdowns which requires contingency plan to ensure customer service

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Customer Satisfaction
If customer expectations are met or exceeded by the supplier, the
customer will be Satisfied. When building a customer service
platform in logistics, the following must be considered:

1. Customer Expectations
2. Customer Success

Voice of Customer “Sunay Aap Ki Awaz”.

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Customer Satisfaction
1. Customer Expectations

Customer always holds some expectations from their suppliers

Customers are very much concerned about supplier’s ability to meet

customers need, performance of logistical operations according to
their agreement and ensure effective & timely communication.

In a pioneering study of service expectations and service quality

with respect to logistics there are 10 categories:

(i) Reliability (ii) Responsiveness (iii) Access (iv) Communication

(v) Credibility (vi) Security (vii) Courtesy (viii) Competency
(ix) Tangibles (x) Knowing the customer
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Customer Satisfaction
2. Customer Success
Firms must recognize that whether they have the ability to grow and
expand market share at the same time its ability to attract and hold the
industry's most successful customers.

3. Achieving Customer Success

To ensure that a customer is successful may require a firm to reinvent the
way a product is produced, market distributed, or offered for sale.

One important way that many firms have responded to the challenge
of customer success is through the development of value-added
services.

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Customer Satisfaction
Customer Success

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