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OUTBOUND-TO-CUSTOMER LOGISTICS SYSTEMS
To increase levels of customer service, significant emphasis
is placed on Outbound-to-Customer logistics systems
Outbound-to-Customer Logistics Systems refer to the set of
processes, systems and capabilities that enhance the
companys ability to serve its customers
This area plays a major role in the companys revenues,
profits and overall image
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DEMAND MANAGEMENT
Demand Management can be defined as focusedefforts
to estimate and manage customers demand with the
intention of using this information to shape operating
decisions
Demand Management strives to reduce total costs for acompany and its supply chain
Demand Management must be a collaborative process
A major driver of the recession in 2008 was the increase
of error in forecasts due to which bi l li ons of dollars worth
of inventor ies had accumulated in several supply chains
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DEMAND MANAGEMENT OBJECTIVES
Gathering and analyzing knowledge from all possible sources aboutconsumers, their problems and their unmet needs
Sharing with other functions the knowledge about consumers,available technology and logistical challenges
Coordinate with other functions in developing the best products andservices
Ensuring the distribution of products and services to consumers in
the desired format
Develop and execute contingency plans with other functions toallow modification of short-term schedules when necessary
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ISSUES IN DEMAND MANAGEMENT
Lack of communication between departments results in little or nocoordinated 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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o Example of Apple:
In the 1990s, Apple had several problems in forecasting demand
Many components were sourced fr om 1 suppl ier therefore accurate
forecasts were cr itical
Over $1 bil l ion in un-ful f il led orders dur ing the crucial holiday season
resul ting in the CEO (Spindler) getting ousted a few months later
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TRADITIONAL FORECASTING A major component of demand management is forecastingthe amount of
product that will be purchased by consumers or end users
Involves around how a firm integrates information about its customers
into the manufacturing planning and control systems
In the integrated supply chain , all other demand will be derived from the
primary demand
As forecast horizon increases, accuracy decreases
o Example of IBM :
Badly misjudged the demand for its PC business
Went f rom highly profi table to a loss of $200 mill ion
F inal ly had to sel l off the PC business to Lenovo
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TRADITIONAL FORECASTING CONTINUED
An example of integrating Sales Forecasting with
Production is illustrated on the next page
Points to note are:
Long-term (more than three years), M idrange (one to
three years) and Shor t-term (less than 1 year)
forecasting are each important contr ibutors to the
forecasting process
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INTEGRATION OF SALES FORECASTING AND PRODUCTION
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COLLABORATIVE PLANNING, FORECASTING AND REPLENISHMENT
(CPFR)
CPFR is recognized as a breakthrough business model forplanning, forecasting and replenishment
Uses available Internet-based technologies to collaborate
from operational planning through execution
Emphasizes a sharing of consumer purchasing data
between supply chain partners
Creates a direct link between the consumer and the supply
chain
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COLLABORATIVE PLANNING, FORECASTING AND REPLENISHMENT
(CPFR)
The plan and the forecast are input by suppliers and buyersinto an Internet accessible system
Within established parameters, any of the participating
partners is empowered to change the forecast
Collaborative planning improves the quality of the demandfor the entire supply chain through a constant exchange ofinformation from one end to the other
Example: Wal-M art and P&G
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MAJOR COMPONENTS OF THE ORDER CYCLE
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CUSTOMER SERVICE CONTINUED
Defining customer service: In terms of levels of product - Core, Basic, Expected, Augmented, Potential
In terms of types of customer support/service - Technical, Non-Technical
In terms of levels of involvement
In terms of complexity of customer service
Elements of Customer Service:
Time
Dependability
Cycle time
Safe delivery
Correct orders
Communications
Convenience
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CUSTOMER SERVICE: PERFORMANCE MEASURES
New:
Orders received on time
Orders received
complete (OTI F )
Orders received damage
free
Orders f il led accurately
Orders bil led accurately
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Traditional: % availability in units
Speed, accuracy and consistency
Response time to special requests
Response and recovery time
requirements
Quality of response
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CUSTOMER SERVICE: TAKEAWAYS If the basics of customer service are not in place,
nothing else matters !
Customers may define service differently
All customer accounts are not the same
Relationships are not one dimensional
Partnerships and continuous value additions immenselyhelp to retain customers
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STOCKOUTS
A Stockout is a situation in which the demand or requirement for an item cannot be
fulfilled from the current inventory
While stockouts can occur along the entire supply chain, the most visible kind are in the
fast moving consumer goods (FMCG) industry (e.g. Toothpastes, Soaps)
Stockouts happen due to unexpected demand, ineffective inventory management,
production delays or replenishment issues
Research findings show that a retailer loses about 4 percent of sales annually due to
stockouts
Possible outcomes from a Stockout:
Back orders- A customer order that cannot be filled immediately and for which the
customer is prepared to wait for some time
Lost sales
Dissatisf ied customers
Diminish store loyalty
Obstruct Sales and Marketing plans
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EXPECTED COSTS OF STOCKOUTS
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Cost of Stockouts consist of:
Internal costs (delays, labour time wastage, lost
production)
External costs (loss of profit from lost sales, and loss of
future profit due to loss of goodwill)
Event Probability Costs Expected Costs
Back Order 70% $ 6.00 $ 4.20
Lost Sale 20% $20.00 $ 4.00
Lost Customer 10% $200.00 $ 20.00
Estimated costper stockout
100% --- $ 28.20
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CHANNELS OF DISTRIBUTION
A Distribution Channel or Trade Channel is defined as theroute along which goods move from manufacturers to end
consumers
This channel consists of various middlemen like Wholesalers,Stockists, Agents and Retailers who intervene between the
producers and consumers
The channel serves to bridge the gap between the point of
production and the point of consumption thereby creating time,place and possession utilities (value additions)
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DISTRIBUTION CHANNEL SEPARATION
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EXAMPLE OF DISTRIBUTION CHANNEL FOR THE FOOD PRODUCTS
MANUFACTURING INDUSTRY
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BENEFITS OFFERED BY CHANNEL MEMBERS
Cost Savings in Specialization -Members of the distribution channel arespecialists in what they do
Reduce Exchange Time -They often perform their job more rapidly resulting infaster product delivery
Customers Want to Convenientl y Shop for VarietyAssortments at a singlelocation
Resellers sell Small er Quanti ties
Create Sales -Encourage sales of the product through their own advertisingefforts and using other promotional means such as special product displays
Offer F inancial Support -Purchase on credit; purchase using a payment plan;delay the start of payments; and allowing trade-in or exchange options
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GROWTH AND IMPORTANCE OF DISTRIBUTION
CHANNELS
Retail channels showing dramatic growth
Mass merchandisers such as Wal-Mart, Carrefour, Sears and
Target constricting growth of smaller retailers
Nature of logistics changing to accommodate customized
systems
Successful retailers base efficiency on logistics systems
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