SCM METRICS-Presentation 3

BY

K.SASHI RAO

MANAGEMENT CONSULTANT

Presentation-3 Coverage

Customer Service Value Analysis Alignment of Metrics with Business

Strategy IT and Business Process Management

K.Sashi Rao/2011

Customer Service Value Analysis

Customer Value Analysis

Involves basic recognition of customers in any business activity

Serving the customer is fundamental Customer service should add value over lifetime

ownership and use of a product/service Happy customers don’t happen by chance, but by

deliberate design and effort !! Customer satisfaction is largely built around product

quality, usage experience and total customer service

K.Sashi Rao/2011

Customer Service

Why “customer service” ? Distance between seller and buyer Distance between customer and supplier Organization purpose lies outside the

business Customer service differences- goods and

services

K.Sashi Rao/2011

.

Product Gap ModelConsumer

Word of mouthcommunication Product Needs

Past ProductExperience

Received Product

Delivered Product

Product Delivery(including pre-and post-contacts)

Translation of perceptionInto product quality specifications

Management perception ofConsumer product expectations

ExternalCommunicationTo consumers

……………………………………………………………………………………………………………………………………Marketer

Gap 1

Gap 2

Gap 3

Gap 4

Gap 5

K.Sashi Rao/2011

Customer Service

A set of activities to make buying experience rewarding

Very important dimension of offered products/services

Value added services to gain competitive advantage

Building customer loyalty and attracting new customers

Base for all customer relationship programs

K.Sashi Rao/2011

Defining ‘Customer Service’

‘As a set of activities and programs designed and implemented to make the ‘buying’ and ‘owning’ experience memorable

‘As a complex set of activities involving all areas of the business which combine to deliver and invoice the product in a fashion that is perceived to be satisfactory by the customer, and which advances the company’s objectives’( La londe Bernard. J)

Customer service is not just a function or an activity. It is a philosophy and an attitude

K.Sashi Rao/2011

Customer Service- Link to Business Strategy

Provides time utility to supplied product/service

Provides place utility to delivered

product/service

Provides product utility thro the delivered

physical package of ordered product/service

Overall transactional experience

K.Sashi Rao/2011

Customer (Dis-Service)

Customer dissatisfaction Non- conformance to agreed deal Gap between product promise and performance Variable service/delivery standards Customer expectations unmet Steady deterioration/ increasing complaints Lack of/Inadequate level of responsiveness

K.Sashi Rao/2011

Customer Service Phases

Pre-transaction Phase

Transaction Phase

Post- transaction Phase

K.Sashi Rao/2011

Customer Service- Pre-transaction Phase(1)

Creating service organization

Setting service standards

Structuring service components

Building customer knowledge

Evolving systems design

K.Sashi Rao/2011

Customer Service- Pre-transaction Phase(2)

Awareness creation

Accessibility

Customer- interfacing systems and processes

Inducements/incentives to bring potential buyer

closer to actual buying

K.Sashi Rao/2011

Customer Service Phases-Transaction Phase(1)

Order fulfillment reliability Delivery consistency Order convenience Order postponement Product substitutes

K.Sashi Rao/2011

Customer Service Phases-Transaction Phase(2) User-friendly ordering process Order acceptance with firm supply commitment Ongoing information on order execution/delivery

status Proper dispatch/invoice/quality documentation

K.Sashi Rao/2011

Customer Service- Post-transaction Phase

Order Status Information

Product Receiving and Documentation

Installation, Commissioning Trials , Performance

Guarantees

Customer Complaints/Claims/Returns

Customer/User Education & Training

K.Sashi Rao/2011

Customer Service-Measurement All such phases involve many processes These need to be measured for performance

using suitable metrics/criteria These would cover: Product Performance Aspects Distribution Aspects Commercial/Trading Aspects

K.Sashi Rao/2011

Customer Service- Product Aspects

Conformance to agreed specifications/placed orders

Product Performance in use

Warranty Clauses/conditions

Guarantee Clauses/conditions

Repair/Replacement Provisions

K.Sashi Rao/2011

Customer Service Attributes- Distribution Aspects

Delivery commitment and consistency Delivery frequency Order process time Stock availability to supply at all times Flexibility to meet any changed requirements

K.Sashi Rao/2011

Customer Service Attributes- Commercial/Trading Aspects

Credit facility vs. advances/ Credit period/terms and conditions Stock financing- supplier managed inventory Service support- scope and period Handling convenience Offering more competitive terms

K.Sashi Rao/2011

Customer Service- Service Quality

Competence- customer information Reliability-promised delivery in place, time and quality Responsiveness- customer communications, complaint handling Transaction security- confidentiality of customer info and

transactions Trustworthiness- policies on returns, warranty, keeping

commitments Information update -on order/complaint processing status Also refer to Service Quality Measurement in Presentation 2 of this

course

K.Sashi Rao/2011

Typical Customer Service Metrics

% compliance to quality/delivery/responsiveness criteria Meeting customer inventory needs by measuring (a) stock-out

frequency/probability (b) fill rate to measure impact of stock-outs over time ( c) % full order deliveries

Time taken to meet 20% extra order quantities Operational metrics like (a) % on-time full delivery (b) delivery

consistency over time Overall key is to make all performance criteria measurable and

capable of monitoring, preferably on on-line, real-time basis Other service quality dimensions/metrics covered in Presentation 2

of this course

K.Sashi Rao/2011

Customer Retention/Loyalty Satisfied customers will be repeat customers, while unhappy ones

are lost to competition Bad customer experiences travel faster than good ones Retaining customers more important than winning new customers Value –added services are key to building customer loyalty e.g.

valet car parking, assistance with shopping bags Relationship marketing ‘new mantra’- sustained thro special

membership offers, discounts et al Superior SCM metrics leads to added customer value

K.Sashi Rao/2011

Customer Service- Value Added Logistical Services Basic purpose to add superior value to customers Move from customer satisfaction to customer delight( but

at what cost ?) Operate seamlessly as part of customer’s supply chain

e.g. multilevel supply chains Making logistics the key business process to win and

retain customers

K.Sashi Rao/2011

Metrics Alignment with Business Strategy

Supply Chain Strategy and Business Strategy

Any organization’s business strategy is driven by its growth objectives

Ultimately, this means to achieve a certain ROI and/or ROA Supply chain strategy should follow from business strategy For instance, market penetration objective could suggest lower

prices or more warehouses/stock-points; conversely, profitability focus could mean closing unprofitable warehouse locations or raising prices

Offering superior value to customers( eg, by bundling of goods/services) costs more money; so should we only “satisfy” customers or “delight” them ? ?

K.Sashi Rao/2011

Customer Service and Cost Trade-offs(1) Customers always want more for less Want more variety and quicker delivery but at lower

prices Trade-off between customer service level and

associated costs will need to be made All SC processes and decisions will lose their

competitiveness if not aligned with business strategy Challenge always is to see how to improve performance

on both cost and service fronts

K.Sashi Rao/2011

Customer Service and Cost Trade-offs(2) Increasing competition driven by demanding customers,

forces firms to make supply chain innovations and initiatives

Such chosen moves will need to improve one or both of cost and service elements

Well managed firms identify and develop external market opportunities and internal SC capabilities to be mutually consistent

Business strategies determine the level at which SC efficiency point( cost-benefit) to operate

K.Sashi Rao/2011

Supply Chain Trade- offs

Service LevelHighLow

Cost/Revenue

Low

High

CostRevenue

ProfitContribution

MaximumProfit

K.Sashi Rao/2011

IT and Business Process Management

IT Role in SCM Metrics(1)

Proper information flow is fundamental to all good SC IT plays a crucial role in first capturing all transactions

data across the SC SC data accuracy and transparency are the major pluses

that IT brings into it; and their absence its major flaw ! Major IT tools used in SCM are ERP, EDI, E-commerce,

CPFR amongst others

K.Sashi Rao/2011

IT Role in SCM Metrics(2)

Demand forecasting, demand-supply management, production planning and control and work flow management all make good use of IT

Physically-enabling technologies like GPS/WMS/RFID/Bar-coding used for in material tracing and tracking systems use IT

Macro-processes in SCM like (a) Supply Relationship Management (SRM) (b) Internal SCM and ( c) Customer Relationship Management( CRM) are now manageable thro IT integration software

IT’s information capabilities goes beyond SC transactions providing tracking and monitoring features; and also analytical functionalities of SCM metrics

K.Sashi Rao/2011

Business Process Management (BPM) BPM is a management approach focused on aligning all aspects of

an organization to its customer/client needs

It is ‘holistic’ as promotes overall effectiveness and efficiency of all

operations

It is meant to encourage innovation, creativity, flexibility and

integration to use modern evolving technologies

Focus on” process orientation and process optimization” rather than

having a traditional “ functional hierarchical’ approach

K.Sashi Rao/2011

Process Focus in BPM

“Processes” are the strategic assets of a firm, which need to be understood, mapped, managed and improved to deliver value-added products/services

The process approach enables it to be supported thro information and technology to ensure viability even in times of constant change

It makes possible the integration of a ‘change capability’ covering both technology and human process dimensions as found in SCM operations

K.Sashi Rao/2011

BPM Life-Cycle

Design- identification of ‘existing’ processes and designing ‘desirable’ processes

Modeling- theoretical design and modeling to consider all variables/their combinations; and doing ’sensitivity analysis/alternative scenario building’ to study their impact/consequences

Execution- translating the developed models thro systems/software to generate outputs/reports for action

Monitoring- tracking of performance measures/metrics to serve as ‘dashboards’

Optimization- retrieving and interpreting performance data to identify bottlenecks, problem areas and opportunities for cost savings and/or service improvements

‘Process improvements and optimization’ are all finally meant to add to overall business value

K.Sashi Rao/2011

BPM components

Process engine- robust platform for modeling and executing process-based applications including business rules/algorithms

Business analytics- to identify business issues and trends as ‘dashboards’ for needed actions

Content management- system for storing and securing electronic documents, files and images

Collaboration tools- remove communication barriers thro’ discussion forums, dynamic workspaces and message boards

K.Sashi Rao/2011

BPM and IT integration

Managing end-to-end customer-facing processes Consolidating data and increasing visibility and access to

associated data/information Increasing flexibility and functionality of current data and data

infrastructure Integrating with existing systems and leveraging their data service

capability Establishing a common language/platform for business- IT

alignment

K.Sashi Rao/2011