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Chapter 10dp&c10-1
“Education in Pursuit of Supply Chain Leadership”
Chapter 10
Chapter 10dp&c
Customer Management
Chapter 10dp&c10-2
Learning Objectives (cont.)
• Understanding today’s customer dynamics
• Identifying the customer
• Understanding customer wants and needs
• Marketing to today’s customer
• Creating lifetime customers
• Dimensions of customer values
• Creating the customer-centric organization
• Defining customer relationship management (CRM)
• Components of CRM
• The range of CRM functions
Chapter 10dp&c10-3
Learning Objectives
• Charting customer order management attributes
• Working with the order management process
• Working with the order management cycle
• Creating the perfect order
• Aligning order and fulfillment supply channels
• Defining customer service management
• Defining the elements of effective service management
Chapter 10dp&c10-4
Inventory Management Basics
Chapter 10
Customer Management
The Revolution in Customer
Management
Chapter 10dp&c10-5
Understanding Today’s Customer
The relationship of power between the customer and the business have dramatically changed and will continue to evolve into radically new forms presenting exciting new challenges
Today’s customers are exerting an ever-expanding influence over product development, the way content concerning product and service is communicated, and the terms of order management
The power of the customer has been heightened by their ability to use networking technologies to source their products and services from a range of delivery mediums, providing access to potential suppliers from anywhere, at any time on the earth
Customers increasingly feel that the individualized buying experience, whether online or in person, should be as value-packed and fulfilling as the product or service received itself
Chapter 10dp&c10-6
Defining the Customer
Goal of Customer Management
Retaining and making more profitable existing customers and utilizing whatever means possible to acquire new customers
Definition of the Customer
A person or organization receiving a good, service, or information
Chapter 10dp&c10-7
Product/Service Flow
Supplier Integrator DistributorEnd-
Customer
InternalCustomer
Retailer
Cyber-mediary
Jobber/Broker
Types of Customers
Chapter 10dp&c10-8
Customer Groups
Business Customers
Consists of supply chain participants—suppliers, integrators, distributors, and retailers. For the most part, these customers are characterized as consumers of goods and services for the purpose of value-added processing or movement to the end-customer
End-Use Customers
Consists of individual consumers resident at the termination of the supply chain process who use goods and services for their personal use
Chapter 10dp&c10-9
Supply Chain Customer Strategies
Vertically integrated
Producer performs all customer value-satisfying activities, beginning with receipt of customer demand, continuing with product configuration, pricing, delivery promising, discounting, and other services, and concluding with product delivery and after sales services
Third-party delegated
The producer relies on channel partners to perform all customer delivery functions. In this model the producer rarely has direct contact with the end-customer
Hybrid selling model
The producer selectively performs some of the customer management functions while surrendering control of the remaining activities to sell-side channel partners
Chapter 10dp&c10-10
Customer Wants and Needs
What do Customers Want?
Complete solutions to their wants and needs that create superior value at the lowest cost attained with the minimum in effort and time expended
What is Customer Value?
• Value arises in the transfer of possession of the physical “worth” or “usefulness” of a good or service for the comparable “worth” or “usefulness” found in another good or service
• The transfer of the value found in a physical good or service for the acquisition of abstract value, such as status, want, perceived need, or caprice, deemed desirable by the buyer
Chapter 10dp&c10-11
Customer’s Role in Value Creation
Instead of a passive recipient of standardized
goods and services, today’s customer has
become an active driver in the structuring of the
exchange event itself as well as in the design,
manufacture, and distribution of products and
services. The customer is increasingly demanding
a say in issues relating to pricing, the use of
technology, order management, delivery, reverse
logistics, and what brands they will or will not give
their loyalty
Chapter 10dp&c10-12
Value of Lifetime Customers
Lowering the total cost of marketing
Since the majority of the cost in customer management occurs in customer acquisition, the greater the proportion of lifetime customers, the less the long-term total costs of marketing and sales
Facilitating satisfying customer
experiences
The longer customers do business with a supplier, the easier it is for marketers to create unique product, pricing, discounting, and other offerings targeted at individual customers
Increased revenue and
profit opportunities
As lifetime customers increase their purchase of company products and services, revenue grows, the cost of customer maintenance declines, and profits and margins increases
Chapter 10dp&c10-13
Customer Management Metrics
Life-time customer value (LCV)
A prediction of the net present value of the future profits attributed to the entire future relationship with a customer
Customer Profitability Analysis
When developing markets, planners must be careful to measure customer profitability. In every customer base there are "stars" that provide the bulk of the firm's sales, a broad mass of customers whose revenue contribution varies from good to fair, and a group of "dogs" that are not only a severe drain on resources but also divert effort away from servicing the "stars" and expose them to be lost to competitors
Chapter 10dp&c10-14
Operating Profit Contribution
Simple Equation
Gross profit (12 months) - [Invoices (12 months) x Average Cost Per Invoice]
Ranking Customers
• Customers in top 10 percent provide 90 percent of the profits
• Customers in top 20 percent provide 130 percent of the profits
• Customers in top 40 percent provide 140 percent of the profits
• Customers in bottom 60 percent provide (- 40 percent) of the profits
Chapter 10dp&c10-15
Dimensions of Customer Value
CustomerValue
BuyingExperience
ValueDimension
Peace ofMind
Relationships SmartTechnologies
Chapter 10dp&c10-16
Forms of Customer Value
Economic Value
Customers receive economic value when they leverage a product or service to generate additional value beyond the initial cost
Solution Value
The acquisition of a product or service can provide benefit to the customer by providing access to certain functions, features, or attributes that provide a level of desired performance or capability
Psychological
Psychological preferences are often subliminal (e.g. brand loyalty or image), and lead customers to believe they are receiving value beyond direct economic or solution-driven benefits
Chapter 10dp&c10-17
Factors of Customer “Pease of Mind”
Product and Service Conformance
How effectively the product or service consistently matches the expected specifications without the customer continuously verifying the contents of the goods or measuring the results once applied to the want or need
• Performance or the capability of the product or service to consistently perform as it has in the past or will perform according to new features
• Reliability or the capability of the product or service to always perform within a previously identified and acceptable range without failure
• Durability or the expectation that a product or service will continue to provide value in terms of both its technical and economic dimensions
• Aesthetics or how the physical appearance or the harmonious complexity of a product awakens a sense of pleasure in the customer
• Value/price tradeoff or whether the customer feels the price of a product or service is worth the value received
Chapter 10dp&c10-18
Factors of Customer “Peace of Mind”
Product and Service Assurance
Assurance is focused more on the confidence or trust, often subliminal, that dealing with a tried-and-true product or supplier brings to a transaction
• Acceptability of risk or freedom from worry about the efficacy of the value or usefulness of a product or service
• Tangibles or the image of quality (state-of-the-art or availability of highly qualified personnel) or permanence (facilities or a strong history) a customer receives from a supplier
• Responsiveness or the consistency and promptness with which customers expect their post-transaction service needs will be meet
• Competence or the knowledge that the supplier possesses the required skills and knowledge that extends from the design of the product or service through post-sales support
Chapter 10dp&c10-19
Factors of Customer “Peace of Mind” (cont.)
Product and Service Assurance
• Courtesy or the level of politeness, respect, consideration, and professionalism customers have consistently come to expect from their top suppliers
• Credibility or the high standards of honesty, trustworthiness, and believability customers feel when dealing with their best suppliers
• Security or the knowledge that sensitive data customers share with their suppliers will be kept in confidence and will not be compromised
• Access or the degree of ease by which customers can order and communicate with their suppliers and receive their purchases within a desired time limit
Chapter 10dp&c10-20
Customer Experience management (CEM)
The customer’s perception of interactions with
a brand, from marketing communications to
sales and service processes to the use of the
product or service. CEM is about
understanding the content of and effectively
managing customer interactions while building
brand equity and long-term profitability
Chapter 10dp&c10-21
Principles of Lean Consumption
1. Customers want suppliers to provide them with a complete solution to their problems. A partial solution is no solution
2. The solution should be attained and implemented with as little cost, time, and effort on the part of the customer as possible
3. All of the components necessary to provide the solution need to be available exactly when they are needed
4. Suppliers need to provide a complete solution where the customer expects to find it without having to merge disconnected sources
5. The components of the solution must be available when the customer wants it
6. Bundle products and services so that the solution can be acquired by the customer with a minimum number of decisions and with ease of effort
Chapter 10dp&c10-22
Smart TechnologiesCustomer-
centric value chains
Agile and scalable suppliers
Fast flow fulfillment
Digitizing sourcing
Every node in the supply chain be capable of linking in real time with every channel resource to provide the best and fastest solution to their needs
Nimble supply chains that can quickly adapt to provide unique product and service solutions that are low-cost and capable of rapid change as the needs of the customer evolve through time
Today’s customer expects products and services to be delivered as quickly and completely as possible
The Internet has enabled customers to utilize applications that provide simple, self-directed tools for browsing and locating solutions to product and service needs from anywhere on the globe
NetworkingNetworking enables buyer and supplier can now communicate information directly without regard to system architectures
Chapter 10dp&c10-23
Creating the Customer-Centric Organization
Establish a customer-centric organization. Literally every customer touch point needs to be oriented around how each business function can continuously delight the customer with an exception experience and world-class service
Determine existing customer positioning. The goal is to unearth what each individual customer values and to design the products, services, and communication infrastructure that will drive increasing customer loyalty
Devise a map of customer segments. The qualitative and quantitative data arising from step 2 should provide a clear geography of the customer base and illuminate key drivers, such as convenience, price, reliability, and so on, of loyalty, value, and satisfaction
Chapter 10dp&c10-24
Creating the Customer-Centric Organization
Develop and implement the solution. An effective customer management program should enable meaningful marketplace initiatives, promotions, and supply chain points of customer contact that improve company visibility, confirm customer value expectations, and cement loyalties is the next step in the process of generating a customer-centric organization
Monitor, Measure, and Refine. The driver of customer management review is the metrics arising out of the record of customer contact and exchange. Marketers must be careful to continuously research and document what is working and what is not by utilizing the analytical tools. These technologies provide continuous quantitative tracking of buying patterns, customer attitudes, and degrees of satisfaction for all market segments and points of contact
Chapter 10dp&c10-25
Inventory Management Basics
Chapter 10
Customer Management
Customer Relationship Management
Chapter 10dp&c10-26
Defining CRM
CRM is a complete system that (1) provides a means and method to enhance the experience of the individual customers so that they will remain customers for life, (2) provides both technological and functional means of identifying, capturing, and retaining customers, and (3) provides a unified view of the customer across an enterprise
Paul Greenberg, CRM at the Speed of Light
A marketing philosophy based on putting the customer first. The collection and analysis of information designed for sales and marketing decision support to understand and support existing and potential customer needs. It includes account management, catalog and order entry, payment processing, credits and adjustments, and other functions
APICS Dictionary
Chapter 10dp&c10-27
Key Elements of CRM
CRM is both a management concept and a software technology. As a management concept, CRM is a philosophy that requires companies to migrate to a customer-driven way of doing business. As a technology, CRM describes a set of software applications used to manage and analyze marketplace sales, promotion, pricing, and shipment history to gain greater insight and intimacy into customer buying habits
CRM is a strategic management tool. CRM is a strategic technology focused on increasing profitability, enhancing the marketing plan, and expanding competitiveness by understanding and growing the customer
Chapter 10dp&c10-28
Key Elements of CRM (cont.)CRM is focused on facilitating the customer service process. Being more responsive to the customer requires that sales and service be able to make effective customer management decisions and design superior responsiveness based on their capability to identify what brings value to the customer
CRM is focused on optimizing the customer’s experience. CRM enables companies to continually win customers through an array of objectives from providing a level of personalized service and customized products to utilizing advertising, ease in ordering a product, or ensuring a service call-back that will positively influence a customer’s perception of the buying experienceCRM provides a window into the customer. CRM functions ensure that all service nodes along the supply chain that can enhance the customer experience are provided with critical information about the customer, what that customer values the most, and how they can ensure the customer has a positive buying experience each and every time
Chapter 10dp&c10-29
Key Elements of CRM (cont.)CRM assists suppliers to measure customer profitability. CRM enables companies to determine which customer segments are profitable and which are not, what product and service values drive profitability for each customer, and how marketers can architect processes that consistently deliver to each customer the values they desire the most
CRM is about partnership management. CRM is about nurturing mutually beneficial, long-term relationships intimate enough to provide improvement opportunities and tailored solutions
CRM is a major facilitator of supply chain collaboration. Firms that create integrated, synchronized processes that satisfy the customer seamlessly across the supply channel network will be the ones that will have the most loyal customers, are the most attractive to new customers, have the deepest collaborative relationships, generate the highest revenues, and have sustainable competitive advantage
Chapter 10dp&c10-30
CRM Major Functions
Service Sales
Performance Analytics
Marketing
relationship building, creating company branding, identifying the
customer, selecting product/service offerings, and
designing promotions, advertising, and pricing
customer support, call-center management, and customer
communicationdatabase inquiry and reporting tools
selling and distribution of products
CRM
Chapter 10dp&c10-31
Range of CRP Application Functions
CRMMarketing
CustomerService
Management(CSM)
RelationshipBuilding
Sales ForceAutomation
(SFA)
PartnerRelationshipManagement
(PRM)
Analytics
CustomerRelationshipManagement
(CRM)
CustomerExperience
Management(CEM)
Chapter 10dp&c10-32
CRM Relationship Building – Toolsets
• Real-time updates on contacts, accounts, opportunities and documents
• Ability to consolidate account history, customer communications, and contacts
• Social media insight
• Integrated reporting, analytics, data mining, list management, segmentation, campaign management, and closed-loop reporting
• Create business connections across CRM activities and entities
• Measure performance of organizations, business units, teams, and individuals
• Central application where all departments of a company can share necessary information to collaborate and provide detailed communication with customers
Chapter 10dp&c10-33
CRM Marketing Automation – Toolsets
• Customer intelligence and data extraction
• Integrated reporting, analytics, data mining, list management, segmentation, and closed-loop reporting
• Campaign definition, planning and program launch
• Scheduling of activities and continuous performance measurement
• Manage and track campaigns across multiple channels
• Collaborative communications via the customer's preferred method of contact
• Drive customer loyalty and demand through targeted, personalized e-marketing campaigns
Chapter 10dp&c10-34
CRM Sales Force Automation – Toolsets
• Contact management. The basic function of the software is to enable the organization and management of prospect and customer data
• Account Management. This application is designed to provide detail information regarding account data and sales activity that can be accessed on-demand
• Sales Process/Activity Management. Applications providing imbedded, customizable sales process methodologies designed to serve as a road map guiding sales activity management
• Opportunity Management. Also known as pipeline management, this aspect of SFA is concerned with applications that assist in converting leads into sales
Chapter 10dp&c10-35
CRM Sales Force Automation – Toolsets (cont.)
• Quotation Management. SFA systems can assist in the development of quotations for complex orders requiring product configuration and pricing
• Knowledge Management. Applications providing sources of information and documentation such as policy handbooks, sales/marketing presentation materials, standardized forms and templates for contracts and estimating, historical sales and marketing reporting, and industry and competitor analysis
Chapter 10dp&c10-36
CRM Customer Service – Toolsets
• Case management. Technologies to cut service costs and improve workflow management by automating processes associated with customer support case assignment, management, and escalation
• Case history knowledge base. Technologies to build and comprehensive online knowledge base to provide customers with 24/7 access to case knowledge repositories
• Customer portal. Technologies enabling customers to enter problem tickets online; customer real-time access to order status, order status tracking, and returns authorization; and the ability to create one-to-one marketing campaigns targeted at specific prospects, customers, or market groups
Chapter 10dp&c10-37
CRM Customer Service – Toolsets (cont.)
• Time tracking. Technologies to automate and streamline the time-tracking process, consolidating it with reporting and billing in the CRM system; enable complete visibility into how service and support teams are apportioning their time; and track time more accurately and use real-time metrics to improve time management practices
Chapter 10dp&c10-38
CRM Customer Experience Management – Toolsets
• ERP system backbone. ERP acts as a transaction engine and information repository for the establishment of critical customer database information
• Demand sensing. Demand sensing tools illuminating customer experiences with products, services, and information constitute a critical CRM component
• Operations optimization. Once repositories of customer information are available, marketers can network their business system backbones to streamline pipeline supply and delivery processes that exactly match customer requirements
Chapter 10dp&c10-39
CRM Customer Experience Management – Toolsets (cont.)
• Demand shaping. As intelligence about actual demand arising from customer buying events is broadcast through the supply chain, order management and pricing software can be used to open new opportunities for cross-selling and up-selling
Chapter 10dp&c10-40
CRM Partner Relationship Management – Toolsets
• Partner recruitment, development, and profiling. Technologies providing the ability assist in the recruitment and qualification of potential channel partners
• Lead and marketing management. Technologies concerned with communicating marketplace opportunities to the partner network. Lead generation enables parent companies to match customer leads with partners based on their capability profiles
• Sales management. Technologies enabling team selling, catalog management, needs analysis, commission management, and partner-driven order management and tracking. Other toolsets provide for quotation management and configuration capabilities that can activate interactive selling tools to customize partner and marketplace needs
Chapter 10dp&c10-41
CRM Partner Relationship Management – Toolsets (cont.)
• Services management. Technologies providing for the on-going training and certification of partners and activation of support capabilities
• PRM collaboration. PRM systems should also facilitate the co-develop marketing programs and joint business plans among channel partners
Chapter 10dp&c10-42
CRM Analytics – Toolsets
• Real-time CRM dashboards. Applications providing real-time dashboards for sales, customer service, marketing, and executives providing information such as actual sales vs. sales forecasts, call volumes and tends, and financial measurements such as bookings and billing, sales pipeline, measures, and customer service performance
• Daily activities. Applications providing sales, service, and marketing teams with the latest information to manage their day-to-day activities, whether viewing opportunities, closing business, or closing customer tickets
• Ad hoc reporting. Applications enabling customer-facing teams to create custom reports and manage their performance without waiting for IT to develop the needed reports or depending on spreadsheets
Chapter 10dp&c10-43
CRM Analytics – Technical Architecture
ERPTransactionDatabase
OperationalCRMData
MarketingData
Warehouse
CRMAnalytical
Engine
MarketingActions
Customers
CRMReporting
CRMApplications
Chapter 10dp&c10-44
Inventory Management Basics
Chapter 10
Customer Management
Customer Order Management
Chapter 10dp&c10-45
Order Management, Fulfillment and Distribution Issues
43%Fulfilling more orders, faster, and at
lower costs
39%Increasing profitability/reducing cost
on a per-order basis
37%Improving customer service
35%Real-time visibility of inventory at all
stages of the supply chain
34%Simplifying order management
processes
34%Reducing errors in order
processing/improving order accuracy
Chapter 10dp&c10-46
Customer Order Management Attributes
Cycle time
Inventory availability Dependability
Customer Order
Attributes
Convenience Performance
Chapter 10dp&c10-47
Exercise 10-1 Financial Impact of Cycle Time Reduction
Product Family Data
Data Current/days Proposed/daysAverage order cycle time 13 6Standard deviation 4 2Demand per day (units) 250 250 z-valueService level 98.0% 98.0% 2.05Unit cost 350.00$ 350.00$ Carrying cost 21% 21%
Step 1: Calculate current and proposed safety stocks
SS = [((Demand per day x ((OCT + (z x standard deviation of OCT))] - (Demand per day x OCT)
Formula:
Chapter 10dp&c10-48
Exercise 10-1 Financial Impact of Cycle Time Reduction (cont.)
Current SS = [((250 x ((13 + (2.05 x 4))] - (250 x 13) = 2,050 units
Proposed SS = [((250 x ((6 + (2.05 x 2) - (250 x 6) = 1,025 units
Step 2: Calculate value of the proposed safety stock reduction
1,025 units x US$350 x 21% = US$75,337.50
Step 3: Calculate absolute order cycle time
(13 days - 6 days = 7 days) x 250 x US$350 x 21% = US$128,625
Step 4: Calculate improvement in cash flow
US$75,337.50 + US$128,625 = US$203,962.50
Chapter 10dp&c10-49
Order Management Process
Data OK?
Demand Plan
Order Close
Orders OK?
Performance OK?
Priorities OK?
Data Base Maintenance
Order processing
Cycles
Order Monitoring
Performance Measurement
Chapter 10dp&c10-50
Benefits of World-Class Order Processing
Continuous decline in average order cycle lead times. This is the span of time from the moment an order arrives until it delivered and accepted by the customer
Improved customer relations. Effective order processing provides customer service with critical information necessary to service the customer in as expeditious a manner as possible
Increased order accuracy. Online data validation and system record defaults not only improve accuracy order entry activities but also speed up the entire order processing cycle
Decrease in operating costs. With the ability to process orders quickly and accurately, order processing systems eliminate internal costs associated with order review and expediting
Chapter 10dp&c10-51
Benefits of World-Class Order Processing (cont.)
Timely invoicing and accounting. Effective order processing systems accelerate the transfer of accounts receivable, discounting, and other financial data resulting from order shipment. Improvements in order shipment accuracy decrease the occurrences of invoice errors and improve on receivables collection
Chapter 10dp&c10-52
Subprocesses of a Perfect Order
Perfect Order
Order ManagementExperience
Pre-Transaction
Phase
Transaction Phase
Post-Transaction
PhaseOrder Financial
Settlement
Chapter 10dp&c10-53
Pre-Transaction Phase – Elements
Written customer service policy. A clear and concise definition of customer service objectives provides a formalized approach to guide all customer service activities
Service policy communication. Once a detailed service policy has been devised, it must be communicated to the customer. A formal service policy enables customers to define the boundaries of the expectations they have as to the level of service performance as well as to detail the proper channels to communicate with company services if specific performance standards are not being met.
Organization structure. The identity of the management and staff of the service organization must be communicated to the customer base, as well as the means by which they can be contacted
Chapter 10dp&c10-54
Pre-Transaction Phase – Elements
Organizational flexibility. The design of the service organization must be flexible enough to enable response to customer requirements regardless of environmental factors
Management services. Availability of supplier training and printed materials to assist customers in performing their own product problem-solving diagnostics. Education courses, training seminars, and training manuals are key components of management services.
Chapter 10dp&c10-55
Transaction Phase – Elements
Stock out level. The availability of products in the right quantity and at the right place is at the core of effective order management. Customer serviceability levels are the key performance measurement for this element
Order information. Ability of order management to respond quickly and accurately to customer inquiries during order placement
Expedite shipments. Expediting through the order processing cycle those customer orders that are to receive special handling and when a customer backorder occurs
Elements of order cycle time. Defined as the time that transpires between the moment a order is placed until the date it is delivered
Chapter 10dp&c10-56
Transaction Phase – Elements (cont.)
Transshipments. The transfer of inventory between stocking points in the distribution channel necessary to meet customer demand
System accuracy. Order processing inaccuracies, such as incorrect items, prices, quantities, shipping information, due dates, and billing
Product substitution. The ability to offer product substitutes can have a dramatic impact on total inventory investment as well as the level of attained customer service
Order convenience. Refers to the degree of ease by which customers can place orders and have access to open order information
Chapter 10dp&c10-57
Post-Transaction Phase – Elements
Installation, warranty, alterations, repairs, and service parts. These post-sales elements are value-added to the product and are part of the reason why customers will choose to purchase from a specific firm
Product tracing. Many products such as food, pharmaceuticals, medical supplies, and large-ticket items require maintenance of lot and/or serial number tracing
Product replacement. In some cases, products that are required but are not in stock or that must be repaired require the firm to offer a temporary replacement
Customer claims, complaints, and returns. These services must be rigorously followed if the firm's reliability, responsiveness, and credibility is to be maintained.
Chapter 10dp&c10-58
Inventory Management Basics
Chapter 10
Customer Management
Customer Service
Management
Chapter 10dp&c10-59
Customer Service Elements
Tangibles
The appearance a firm's service functions project to the customer such as new facilities, state-of-the-art technology, highly qualified personnel, and the latest equipment
ReliabilityService must continually perform the promised service dependably and accurately each and every time
Responsive-ness
The ability of a supply chain to respond to customer needs quickly and concisely lets customers know that their time and costs are important
CompetenceCustomers need to feel assured that the supplier possesses the required skills and knowledge to assist them when product or support issues arise
Chapter 10dp&c10-60
Customer Service Elements (cont.)
CourtesyCompanies who do not respond to their customers with politeness, respect, consideration, and professionalism are destined to lose them to competitors who do
CredibilityService leaders base their success on high standards of honesty, trustworthiness, and believability
SecuritySecurity frees customers from doubts and provides "peace of mind" for the products and accompanying services they purchase
Access
Access is the degree of ease by which customers can purchase products or contact sales and service functions. Access can also refer to the availability of goods and services within a time limit generally accepted by the industry
Chapter 10dp&c10-61
Customer Service Elements (cont.)
Communi-cation
Availability of services to respond quickly and intelligently to customer questions concerning products, services, account status, and the status of open orders
Understand the
Customer
Unearthing and responding to the needs, desires, and expectations of the customer is the first element in effective sales and service
Chapter 10dp&c10-62
Elements of CSM
Incorporate continuous improvement philosophy
Measure current performance
Identify and measure customer requirements and expectations
Determine industry benchmarks
Identify gaps to be eliminated
Determine service/cost relationship
Identify CSM technologies
Implement
CSM performance measurement
1
2
3
4
5
6
7
8
9
Chapter 10dp&c10-63
Customer Buying Criteria
Service Buying Criteria
Product quality and reliability
•Repeatability•Improvement•Serviceability
Product features and options
•Compatibility•Expandability•Migration
Customer service•Delivery•Response•Lead time•Packaging
Price•Discounting•Promotions•Financial terms
Availability•Inventory•Delivery•Value-
added services
Chapter 10dp&c10-64
Formula
Cost = (Carrying cost x unit cost) x standard lot / (1 – CSL) x average demand per year
Exercise 10-2 Service Factor and Fill Rates for a Safety Stock Policy
Data
DataCustomer service level (CSL) 98.5%Yearly sales/units 6,300Unit cost 235.00$ Lot size/units 25Carrying cost 21%
(21% x US$235) x 25 / (1 - .985) x 6,300 = $13.06
Chapter 10dp&c10-65
CSM Attribute Matrix
Grey Zone
CompetitiveVulnerability
CompetitiveStrengths
RelativeImportance
IrrelevantSuperiority
Performance
ImportanceTo Customer
High
High
Low
Low
Chapter 10dp&c10-66
Service Quality Model
CustomerRequirements
CustomerExpectations
MarketplaceReputation
MarketplaceReputation
MarketplacePerception
Conversion of Perceptioninto Quality Specifications
Management Perception ofCustomer Expectations
CustomerExpectations
Gap 1
Gap 2
Gap 3
Gap 4
Gap 5
Perceived Service
Service Expectations
Chapter 10dp&c10-67
Charting the Cost of Service Levels
Salesand
Costs
Service Level
Optimum Service Level
Cost
Sales
FacilitiesInventory Carrying CostsTransportationAdministration/OverheadInformation TechnologyOperations costs
Chapter 10dp&c10-68
Exercise 10-3 Service Factor and Fill Rates for a Safety Stock Policy
Data
Step 1: Calculate safety stock and reorder point
a. Demand (D) during the lead time (L) = 1,500 units x 2 weeks = 3,000 units.
b. Safety stock = CSL safety factor x s L = NORMSINV(.965) x 495 = 896.9 units.
Average demand/unit per week 1,500 Lead time/weeks 2Mean demand during lead time/units 3,000SD of demand per week 350SD of demand during lead time 495.0Replenishment lot size/units 5,000 Customer service percent 96.5%Replenishment Cycle Shortage/units 0Unit cost 50.00$
Chapter 10dp&c10-69
Exercise 10-3 Service Factor and Fill Rates for a Safety Stock Policy (cont.)
Step 1: Calculate safety stock and reorder point
c. Reorder point = DL + SS = 3,000 + 896.9 = 3,896.9 units.
d. Safety stock cost = Unit cost x SS = US$50 x 896.9 units = US$44,842.50.
Step 2: Calculate the fill rate
Formula:
Order qty – replenishment cycle shortage / order qty
5,000 units – 7 units / 5,000 units = .9986 = 99.86 % fill rate
Chapter 10dp&c10-70
Exercise 10-3 Service Factor and Fill Rates for a Safety Stock Policy (cont.)
Step 3: Calculate safety stock for 99% service rate
NORMSINV(.99) x 495 = 1,151.5
Step 4: Calculate replenishment cycle shortage for 99% rate
1,151.5[1 - NORMDIST(1,151,5/495, 0,1,1)] + 495 NORMDIST (1,151.5/495, 0, 1, 0) = 1.68 shortages
Step 5: Calculate cost of 99% service rate
a. 96.5% service rate cost = 896.9 x US$50 = US$44,842.5
b. 99% service rate cost = 1,151.5 x US$50 = US$57,574.17
c. Total cost = US$57,574.17 – US$44,842.5 = US$12,731.67
Chapter 10dp&c10-71
CSM Technologies
Automatic call distribution (ACD). This technology provides for the automatic routing of incoming customer calls to the proper service resources based on call content
Interactive voice response (IVR). This toolsets enables 24/7/365 service access by typing the appropriate keys on a telephone. The goal is to provide access to service information or to qualify and route a call without human interaction
Internet call management. The use of Web-based self-service has enabled customers to escape from the tedious entry of data characteristic of IVR systems. The advantage of Web-activated service is that customers can enjoy a significant level of self-driven interaction with the service system
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CSM Technologies (cont.)
Service cyberagents, bots, and avatars. While mostly futuristic, the use of intelligent agents capable of performing automated service tasks is expected to expand dramatically
Call center analytics. While CRM analytics focus on tracking the marketing side of the customer, the capability to record and analyze the vast amount of service-related data from each customer will be essential for CSM leadership
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Supply Chain Service Groups
Enterprise
Customer Shareholder
Supply Chain
Employee
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Service Strategy Questions
Customer/channel relationship. What are the current levels of communications and expectations between the customer and the supply chain? Have customer product and service requirements been clearly communicated, and what mechanisms are in place to ensure effective and timely feedback?
Product strategy. Is the product unique or is it interchangeable? Is the supply chain offering standard or customized products or a combination of both?
Services strategy. What services are to accompany the product in the presales and post-sales cycles? What are the response and mean time to resolution performance targets? What are the return, warranty, and field service policies?
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Service Strategy Questions (cont.)
Merchandising strategy. How are products to be marketed to the customer? Is the focus to be on a direct sales force, catalogs, and so on. How are marketing tools such as promotions, deals, and special pricing to be communicated to the customer?
Delivery and order requirements. What are the standards for order response times (hours, days, weeks)?
Stocking requirements. What should be the scope and structure of the distribution channel? Are products and services to be delivered from a central facility, clustered in specific geographical areas, or scattered to leverage logistics economies?
Material handling. What are the handling and storage requirements of the product?
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CSM Performance MeasurementsMeasurement Description
Order fill rate (by item) Rate at which order lines are filled at point of sale
Order accuracy (by order)Rate at which order items are accurately filled and delivered to the customer
On-time deliveryRate at which orders are delivered to the customer at the committed time based on customer’s expectations
Total order cycle timeElapsed time from order receipt to product delivery based on customer’s expectations
Response to emergency requirements
Time required to respond to and satisfy unplanned and unforeseen customer needs
Damaged goodsLevel of damaged to delivered products during transit or installation
Inventory distance to customer
Geographical proximity of the supplier to the customer in time and distance driving speed of response and on-time delivery
Inventory availability On-demand availability of inventory for immediate orders
Order completeness (line items and quantities)
Degree to which delivery to the customer satisfies order requirements of time and item quantity.
Customer access to inventory/order status
Ability of the customer to view supplier’s inventory and/or order status
Response to customer complaints/issues
Quality and time response required to recover adequately from complaint to satisfaction
Packaging convenienceFunction, features, information, and quantities of packaging needed for ease of shipment, receipt, storage, and use
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Chapter 10
End of Session
“Education in Pursuit of Supply Chain Leadership”
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