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CHAPTER 7

Demand Management, Order

Management, and Customer Service

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Learning Objectives

To understand the linkages between demand

management, order management, and

customer service

To learn about demand forecasting models

To examine the order cycle and its four

components

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Learning Objectives

To understand the four dimensions of

customer service as they pertain to logistics

To familiarize you with select managerial

issues associated with customer service

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Order Management and Customer Service

Key Terms

Activity-based costing

Benchmarking

Cause-and-effect

(associative)forecasting

Collaborative planning,forecasting, and

replenishment (CPFR) Customer profitability

analysis (CPA)

Customer service

Demandmanagement

Judgmentalforecasting

Make-to-order

Make-to-stock Multichannel

marketing systems Order cycle

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Order Management and Customer Service

Key Terms

Order delivery

Order fill rate

Order management

Order picking andassembly

Order processing

Order to cash cycle

Order transmittal

Order triage

Pick-to-lighttechnology

Service recovery

Time seriesforecasting

Voice-based orderpicking

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Demand Management

Demand management can be defined as the

creation across the supply chain and its markets

of a coordinated flow of demand.

Source: John T. Mentzer, A Telling Fortune, Industrial Engineer, April 2006, 42-47.

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Demand Management

Demand (sales) forecasting

Refers to an effort to project future demand

Is a key component in demand management

Is helpful in make-to-stocksituations

Is helpful in make-to-ordersituations

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Demand Management

Three basic types of demand forecasting models:

Judgemental

Time series

Cause and effect (associative)

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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 is the activities that take

place in the period between the time a firm

receives an order and the time a warehouse isnotified to ship the goods to fill that order

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Order Management

Order management refers to management of thevarious activities associated with the order cycle

Order cycle (replenishment cycle or lead time)refers to the time from when a customer placesan order to when goods are received

Some organizations include order to cash cycle intheir 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 transmittalis the series of events thatoccur between the time a customer places orsends an order and the time the seller receivesthe order

Methods of order transmittal In person

Mail

Telephone

FAX

Electronically

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Order Management

Order processing refers to the time from whenthe seller receives an order until an appropriatelocation (i.e. warehouse) is authorized to fill the

order

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Order Management

Order processing includes:

Checking for completeness and accuracy

A customer credit check

Order entry into the computer system Marketing department credits salesperson

Accounting department records transaction

Inventory department locates nearest warehouse tocustomer and advises them to pick the order

Transportation department arranges for shipment

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Figure 7-1: Flowchart of Order Handling

(Order Processing) System

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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 facilitys operating

cost and timeSource: Susan Lacefield, Ten Tips for Faster Picking, Logistics Management, July 2005, 71-76.

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Order Management

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 carrier

picks up the shipment until it is received by the

customer.

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Customer Service

Customer service is the ability of logistics

management to satisfy users in terms of time,

dependability, communication , and

convenience.Source: Roger A. Kerwin, Steve W. Hartley, and William Rudelius, Marketing, 9th ed. (Boston,

MA: McGraw-Hill/Irwin, 2009), Chapter 16.

Customer service is much more difficult for

competitors to imitate than price cuts or othercompetitive strategies

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Customer Service

Four dimensions of customer service include:

Time

Dependability

Communication

Convenience

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Managing Customer Service

Four specific customer service considerations

include:

Customer profitability analysis (CPA)

Establishing customer service objectives

Measuring customer service

Service failure and recovery

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Managing Customer Service

Customer Profitability Analysis(CPA) is theallocation of revenues and costs to customer

segments or individual customers to calculate the

profitability of the segments or customers

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Managing Customer Service

Customer Profitability Analysis (CPA) Suggests that different customers consume differing

amounts and types of resources

Recognizes that all customers are not the same andsome customers are more valuable than others to anorganization

Can help to identify when an organization shouldpursue different logistical approaches for differentcustomer groups

Has been facilitated by the acceptance of activity-based costing

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Managing Customer Service

Establishing Customer Service Objectives

Specific

Measurable

Achievable

Cost-effective

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Managing Customer Service

Measuring Customer Service

you cant manage what you cant measure

Must determine data sources to be used

Must determine what factors to measure

Organizations must resist excessive measurement

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Managing Customer Service

Service Failure and Recovery Situations will occur where actual performance does

not meet the customers expected performance (i.e.

service failure) Examples of order-related service failures include:

Lost delivery

Late delivery

Early delivery

Damaged delivery

Incorrect delivery quantity

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Managing Customer Service

Service Failure and Recovery

Service recovery

Process for returning a customer to a state of

satisfaction after a service or product has failed tolive up to expectations

Is often costly

May lead to increases customer loyalty Unsatisfactory service recovery magnifies the

initial failure

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Copyright Notice

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All rights reserved. No part of this publication may be reproduced, stored in a

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