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Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you...

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Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the relationships between order management and customer service. Appreciate how organizations influence customers’ ordering patterns as well as how they execute customers’ orders. Realize that activity-based costing (ABC) plays a critical role in order management and customer service. Identify the various activities in the SCOR process D1 (deliver stocked product) and how it relates to the order-to-cash cycle.
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Page 1: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Chapter 8 Order Management and Customer Service

Learning Objectives After reading this chapter, you should be able to do the

following: Understand the relationships between order management and

customer service. Appreciate how organizations influence customers’ ordering

patterns as well as how they execute customers’ orders. Realize that activity-based costing (ABC) plays a critical role in

order management and customer service. Identify the various activities in the SCOR process D1 (deliver

stocked product) and how it relates to the order-to-cash cycle.

Page 2: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Learning Objectives (cont.) After reading this chapter, you should be able to do the

following: Know the various elements of customer service and how they

impact both buyers and sellers. Calculate the cost of a stockout. Understand the major outputs of order management, how they

are measured, and how their financial impacts on buyers and sellers are calculated.

Be familiar with the concept of service recovery and how it is being implemented in organizations today.

Page 3: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Influencing the Order This is the phase where an organization attempts to change the

manner by which its customers place orders.

Order Execution This occurs when the order is received.

Page 4: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Customer service: is anything that touches the customer. This

includes all activities that impact information flow, product flow, and cash flow between the organization and its customers.

PhilosophyPhilosophy elevates customer service to an

organization-wide commitment to providing customer satisfaction through superior customer service.

Page 5: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Customer service: Performance emphasizes customer service as specific performance

measures that pervade all three definitions of customer service and address strategic, tactical, and operational aspects of order management.

Activity treats customer service as a particular task that an

organization must perform to satisfy a customer’s order requirements.

Page 6: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 7: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Customer relationship management: is the art and science of strategically positioning customers to

improve the profitability of the organization and enhance its

relationships with its customer base. is not a new concept used by service industries. has not been widely used in the business-to business

environment until lately.

Customer action affects firm’s cost how customers order how much customers order what customers order when customers order an order

Page 8: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Four basic steps in the implementation of the CRM

Step 1: Segment the Customer Base by Profitability

Step 2: Identify the Product/Service Package for Each Customer Segment

Step 3: Develop and Execute the Best Processes

Step 4: Measure Performance and Continuously Improve

Page 9: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 10: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 11: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Activity-Based Costing

ABC measures the cost and performance of activities, resources, and cost objects. Resources are assigned to activities, then activities are assigned to cost objects based on their use

Traditional cost accounting is well suited to situations where an output and an allocation process are highly correlated.

Traditional cost accounting is not very effective in situations where the output is not correlated with the allocation base.

Page 12: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 13: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

The Management of Business Logistics Chapter 8

Page 14: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 15: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 16: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 17: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 18: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 19: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

One method to classify customers by profitability. Protect Zone Those customers who fall into the “Protect” segment are the most profitable.

Danger Zone Customers in the “Danger Zone” segment are the least profitable and incur a

loss.

The firm has has three alternatives for danger zone customers: (1) change customer interaction with firm so the customer can move to

another segment (2) charge the customer the actual cost of doing business (3) switch the customer to an alternative distribution channel

Build Zone These customers have a low cost to serve and a low net sales value, so the firm

should maintain the cost to serve and build net sales value to help drive the customer into the “Protect” segment.

Page 20: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 21: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Order Management

This system represents the principle means by which buyers and sellers communicate information regarding orders.

Effective order management is key to operational efficiency and customer satisfaction.

Logistics needs timely and accurate information relating to orders so many firms place order management in the logistics area.

Page 22: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Order to cash Thirteen principle activities constitute the OTC cycle:

D1.1 through D1.7 represent information flows D1.8 through D1.12 represent product flows D1.13 represents cash flow

Order cycle all activities that occur from when an order is received until the

product is received

Replenishment cycle refers to acquisition of additional inventory one firm’s order cycle is another’s replenishment cycle

Page 23: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Order To Cash cycle:

recent attention has centered on the variability or consistency of this process

absolute length of time is important, variability is more important

a driving force is safety stock, as absolute length of the order cycle will influence demand inventory

Page 24: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

E-Commerce Order Fulfillment Strategies

Many firms use Internet technology to capture order information for fulfillment systems for picking, packing, and shipping.

Internet allows faster collection of cash by the seller.

Page 25: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 26: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

The Logistics/Marketing Interface

Customer service is the key link between logistics and marketing within an organization.

Manufacturing can produce a quality product at the right cost and marketing can sell it, but if logistics does not deliver it when and where promised, the customer will not be satisfied.

Page 27: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 28: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Three different perspectives on customer service: Three different perspectives on customer service

philosophy

as a set of performance measures

as an activity

Customer service needs to be put into perspective as including anything that touches the customer

Page 29: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Three levels of a product

(1) the core benefit or service, which constitutes what the buyer is really buying

(2) the tangible product, or the physical product or service itself

(3) the augmented product, which includes benefits, adds value for the customer

Page 30: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 31: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Four distinct dimensions of customer service:

Time cycle time safe delivery correct orders

Dependability more important than the absolute length of lead time

Communications pretransaction transaction posttransaction

Convenience service level must be flexible

Page 32: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 33: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Customer Service Performance Measures from buyer’s view

Orders received on time

Orders received complete

Orders received damage

Orders filled accurately

Orders billed accurately

Page 34: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 35: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 36: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Expected Cost of Stockouts: Stockout occurs when desired quantities are not

available Four possible events:

the buyer waits until the product is available

the buyer back-orders the product

the seller loses current revenue

the seller loses a buyer and future revenue

Page 37: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Back Orders: occurs when a seller has only a portion of the

products ordered by the buyer are created to secure the portion of the inventory that

is currently not available

Lost Sales: some customers will turn to alternative supply sources

Lost Customers: customer permanently switches to another supplier

Page 38: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Determining the Expected Cost of Stockouts back order

lost sale

lost customer identify potential consequences calculate each result’s expense or lost profit

Page 39: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 40: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Product availability from customer perspective:

Did I get what I wanted?

When I wanted it?

In the quantity I wanted?

Product availability is the ultimate measure of logistics and supply chain performance.

Page 41: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Metrics four are widely used across multiple industries:

internal metrics item fill rate line fill rate

external metrics order fill rate perfect order

Page 42: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 43: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 44: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Calculation for lost cash flow:

Cash Flow Lost = (Number of Incomplete Orders Back- Ordered x Back Order Cost per Order) + (Number of Incomplete Orders Cancelled x Lost Pretax Profit per Order) + (Number of Incomplete Back- Ordered x Invoice Deduction per Order)

Page 45: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 46: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 47: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Order Cycle Time:

the time that elapses from when a buyer places an order until receipt of the order

absolute length and reliability of order cycle time influences both firm’s inventories, resulting in impacts on both revenues and profits for both organizations

Page 48: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 49: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Two inventory cost reduction calculations reduced standard deviation of order cycle time on safety stocks Safety Stock = {Demand per Day x [OCT + (z x Standard

Deviation of OCT)]} – (Demand per Day x OCT)

determine the impact of the reduction of absolute order cycle time on demand inventoriesDemand Inventory Cost Reduction = Difference in Absolute OCT

x Demand per Day x Cost per Unit x Inventory Carrying Cost Percent

Page 50: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Logistics operations responsiveness (LOR) Examines how well a seller can respond to a buyer’s

needs. This “response” can take two forms:

LOR can be how well a seller can customize its service offerings to the unique requirements of a buyer

LOR can be how quickly a seller can respond to a sudden change in a buyer’s demand pattern.

Page 51: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Logistics System Information:

is critical to the logistics and order management processes

underlies ability to provide quality product availability, order cycle time, logistics operations responsiveness, and post-sale logistics support

timely and accurate information can reduce inventories in the supply chain and improve cash flow to all supply chain partners

Page 52: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.
Page 53: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Financial Impact The calculation used to measure the result on cash

flow for decreasing the order-to-cash cycle is as follows:

Cast Flow Increase = Invoice Value x (Cost of Capital/365) x Difference

in Days in the Order-to-Cash Cycle

Page 54: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Postsale logistics support (PLS) can take two forms:

PLS can be the management of product returns from the customer to the supplier.

The second form of PLS is product support through the delivery and installation of spare parts.

Calculation to determine the spare part service cost is as follows:Service Cost = Penalty Cost + Lost Purchase Margin + Lost

Support Margin

Page 55: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Service Recovery

No matter how well an organization plans to provide excellent service, mistakes will occur.

Recovery requires a firm to realize that mistakes will occur and have plans in place to fix them.

Page 56: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Summary Order management and customer service are not mutually exclusive;

there is a direct and critical relationship between these two concepts. There are two distinct, yet related, aspects of order management:

influencing the customer’s order and executing the customer’s order. Customer relationship management (CRM) is a concept being used

today by organizations to help them better understand their customers’ requirements and understand how these requirements integrate back into their internal operations processes.

Activity-based costing (ABC) is being used today to help organizations develop customer profitability profiles which allow for customer segmentation strategies.

Order management, or order execution, is the interface between buyers and sellers in the market and directly influences customer service.

Order management can be measured in various ways. Traditionally, however, buyers will assess the effectiveness of order management using order cycle time and dependability as the metric, while sellers will use the order-to-cash cycle as their metric.

Page 57: Chapter 8 Order Management and Customer Service Learning Objectives After reading this chapter, you should be able to do the following: Understand the.

Summary (cont.) Customer service is considered the interface between logistics and

marketing in seller organizations. The three definitions of customer service are: (1) as an activity, (2) as a

set of performance metrics, and (3) as a philosophy. The major elements of customer service are time, dependability,

communications, and convenience. Stockout costs can be calculated as back order costs, the cost of lost

sales, and/or the cost of a lost customer. The five outputs from order management that influence customer

service, customer satisfaction, and profitability are: (1) product availability, (2) order cycle time, (3) logistics operations responsiveness, (4) logistics system information, and (5) postsale logistics support.

The concept of service recovery is being used by organizations today to help identify service failure areas in their order management process and to develop plans to address them quickly and accurately.


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