Transcript No Slide Title

Class 2
Logistics Done Well is all but Invisible!
In other words, no one really gets concerned
about logistics and supply chain issues until
something goes wrong!
Walden - PROC 5850
Ways to Get Cost Savings in Supply Chains
• Reduced inventory levels
• reduced stockouts - less
expediting
• cross docking • reduced links in chain
• reduced number of
inventories
• reduction in order
processing
Walden - PROC 5850
•
•
•
•
•
Shipping consolidation
better workforce planning
less travel time
less injuries
increased production from
measuring workers
• name the aisle
• returnable, reusable totes
• CPFR
CHAPTER 3
Customer Service
Walden’s Definition of Customer Service
Give the customer what they want in such a manner
that they want to come back - what ever it takes
• Dell – were getting better but have moved
backwards in last couple of years – way back in
over the past year
• Amazon - recommendations
• Starbucks – remember name and favorite drink
Walden - PROC 5850
Cost trade-offs in
Marketing and Logistics
Price
Order processing
and information
costs
Place/customer
service levels
Inventory
carrying costs
Transportation
costs
Lot quantity costs
Warehousing costs
Order processing
and information
costs
Walden - PROC 5850
MARKETING
Product
Elements of Customer Service
Pretransaction
elements
• Written statement of
policy
• Customer receipt of
policy statement
• Organization
structure
Transaction
elements
• Stockout levels
• Order information
• Elements of order
cycle
• Expedited shipments
• System flexibility
• Transshipment
• Management
services
• System accuracy
• Order convenience
• Product substitution
Walden - PROC 5850
Posttransaction
elements
• Installation, warranty,
alterations, repairs,
parts
• Product tracing
• Customer claims,
complaints, returns
• Temporary
replacement of
products
Logistics/Supply
Chain Customer
Service
“Logistics is no longer the ‘last frontier of
cost reduction,’ it’s the new frontier of
demand generation.”
Walden - PROC 5850
Customer Service Defined
 Customer service is generally presumed to be a means by which
companies attempt to differentiate their product, keep customers
loyal, increase sales, and improve profits.
 Its elements are:
- Price
- Product quality
- Service
 It is an integral part of the marketing mix of:
-
Price
Product
Promotion
Physical Distribution
Customer service
here
 Relative importance of service elements
- Physical distribution variables dominate price, product, and
promotional considerations as customer service considerations
- Product availability and order cycle time are dominant physical
distribution variables
Walden - PROC 5850
Customer Service
• Customer service is a collection of activities
performed in a way that keeps customers happy
and creates in the customer’s mind the
perception of an organization that is easy to do
business with.
• Customer service is much more difficult for
competitors to imitate than price cuts or other
competitive strategies.
Walden - PROC 5850
Customer Service
• Value-added activities provided by customer service
– Placing bar code labels on cartons
– Arranging a carton, pallet, or truck in the sequence the
customer would like to unload it
– Shrink-wrapping
– Inserting documents into cartons
– Blending products
– Adding price tags
– Adding graphics for export goods
– Assembling kits
Also known as postponement when done at the distribution center
Walden - PROC 5850
Importance of Logistics Customer Service
 Service affects sales
- From a GTE/Sylvania study:
...distribution, when it provides the proper
levels of service to meet customer needs, can
lead directly to increased sales, increased
market share, and ultimately to increased profit
contribution and growth.
- Service differences have been shown to
account for 5 to 6% variation in supplier sales
 Service affects customer patronage
- Service plays a critical role in maintaining the
customer base:
On the average it is approximately 6 times
more expensive to develop a new customer
than it is to keep a current one.
Common Customer Service
Complaints
31%
Product or quality
mistakes
12% Damaged
goods
7%
Other
6%
Frequently cut
items
44%
Late delivery
Walden - PROC 5850
Penalties for Customer Service
Failures
29%
Reduced the
volume of
business
2%
Refused to
support
promotion
16%
Discontinued
items
18%
Stopped all
purchases
with supplier
9%
Refused to
purchase new
items
CR (2004) Prentice Hall, Inc.
Walden - PROC 5850
26%
Called in
salesman or
manager
Most Important Customer
Service Elements
•On-time delivery
•Order fill rate
•Product condition
•Accurate documentation
•Out of stock rates
- # of items
- which items
- how long
Walden - PROC 5850
Order Cycle Time
 Order cycle time contains the basic elements of customer service
where logistics customer service is defined as:
the time elapsed between when a customer order, purchase order, or
service request is placed by a customer and when it is received by that
customer.
 Order cycle elements
- Transport time
- Order transmittal time
- Order processing and assembly time
- Production time
- Stock availability
 Constraints on order cycle time
- Order processing priorities
- Order condition standards (e.g., damage and filling accuracy)
- Order constraints (e.g., size minimum and placement schedule)
CR (2004) Prentice Hall, Inc.
Walden - PROC 5850
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 is notified to ship
the goods to fill that order.
–
–
–
–
–
Order planning-connected to sales forecasting
Order transmittal
Order processing
Order picking and assembly
Order delivery
Walden - PROC 5850
Order Management
• Order cycle defined by the seller: time from
when an order is received to when the goods
arrive at the customer’s dock.
• Order cycle defined by the buyer: time from
when an order is placed to when the goods are
received. Also called replenishment cycle
–
–
–
–
Getting shorter
More precise delivery times
Customer can track orders
Quality is important and is benchmarked
Walden - PROC 5850
Order Management
• Order planning
– Needs an efficient order handling system to prevent
bunching
• Methods to reduce bunching
– Use of field salespeople
– Use of phone salespeople
– Price discounts to customers placing regular orders
Walden - PROC 5850
Order Management
• Order transmittal is the series of events that
occur between the time a customer places or
sends an order and the time the seller receives
the order.
– Methods of order transmittal
•
•
•
•
•
•
Phone
FAX
Mail
Scanning bar codes-electronic submission
POS registers
Internet
Walden - PROC 5850
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 to
customer and advises them to pick the order
– Transportation department arranges for shipment
Walden - PROC 5850
Order Management
• Order processing
– If there is a stockout
• Notify the customer as soon as possible of stockout
• Notify when shipment will occur
• Give the customer the option of accepting in stock similar
products
– Export orders
• Need a letter of credit
• international freight forwarders prepare documents and
arrange shipment
Walden - PROC 5850
Order Management
• Order picking and assembly includes
– Notifying the warehouse to assemble a given order
– Providing an order picking list, indicating items and
order of pick to a warehouse employee
– Checking picked orders for accuracy
– Stockout information sent to order handling
department so that documents can be adjusted
– Packing list enclosed with order including employee
initials of person who packed order
Walden - PROC 5850
Order Management
• Order delivery is the time from when a carrier
picks up the shipment until it is delivered to the
customer’s receiving dock.
– Load planning is the arrangement of goods within
the trailer or container.
– Carriers establish their own service standards.
– Some customers pick up their orders.
Walden - PROC 5850
Order Management
• Importance of the order cycle
– Short cycle time used as a marketing and sales tool
– Monitoring the order cycle can increase firm
efficiency
– Efficient Consumer Response (ECR)/Quick
Response (QR)
• Used in grocery industry and by mass merchandisers
• POS data used to trigger order
• Keyed to more orderly, regular flow of product, smaller
inventory
Walden - PROC 5850
Customer Service
• Establishing Objectives
–
–
–
–
–
–
Specific
Measurable
Achievable
Consistent with broader firm goals
Must consider competitor’s objectives
Provide guidance to operating personnel
Walden - PROC 5850
Customer Service
• Returned Products
–
–
–
–
–
–
–
New flow of products are set up
New infrastructure is required
Goods and materials are returned for various reasons
Grocery industry uses reclamation centers for returns
Home Depot now reserves right to limit returns
How returns are handled part of customer service
Thoughts?
Walden - PROC 5850
Role of Logistics in Establishing Customer
Service Levels
• Advisor to marketing
• Establishing a customer service program
– Ask the customer what is important to them.
– Investigate the service offered by
competitors.
– Consider the cost of alternative service
programs.
– Analyze the information and write the
objectives.
– Customer feedback
• Using the Internet to improve customer service
Walden - PROC 5850
Meeting Customer Demands
• Control the process
– Firms demanding higher levels of customer
service
• With reliable service, the firm can maintain lower
inventory levels
• Resellers monitor vendor quality looking for those
with unacceptable quality levels
• Process is often dehumanized; service can make it
more personal
Walden - PROC 5850
Service Observations
 The dominant customer service elements
are logistical in nature
 Late delivery is the most common service
complaint and speed of delivery is the most
important service element
 The penalty for service failure is primarily
reduced patronage, i.e., lost sales
 The logistics customer service effect on
sales is difficult to determine
Walden - PROC 5850
Service Contingencies
System Breakdown Actions
•Insure the risk
•Plan for alternate supply sources
•Arrange alternate transportation
•Shift demand
•Build quick response to demand shifts
•Set inventories for disruptions
Product Recall Actions
•Establish a task force committee
•Trace the product
•Design a reverse logistics channel
Walden - PROC 5850
Methods of Establishing a
Customer Service Strategy
• Determining channel service levels based
on knowledge of consumer reactions to
stockouts
• Analyzing cost/revenue trade-offs
• Using ABC analysis of customer service
• Conducting a customer service audit
Walden - PROC 5850
Model of Consumer Reaction
to a Repeated Stockout
1
Higher
Yes
Yes
No
Customer
Switch
stores
?
Substitute
?
No
Yes
Switch
brand
?
No
Switch
price
?
2
Same
3
Lower
4
Other
size
5
Special
order
6
Ask here
again
Substitute
?
Yes
No
Another
store
Walden - PROC 5850
Source: Clyde K. Walter, “An Empirical Analysis of Two Stockout Models,” unpublished Ph. D.
Dissertation, Ohio State University, 1971.
Stages of the
Customer Service Audit
Internal Audit
External Audit
Evaluate Customer Perceptions
Differentiate Channel Levels & Market Segments
Identify Opportunities
Determine Marketing Services Mix & Levels
Walden - PROC 5850
Internal Audit Questions
• How is customer service currently
measured?
• What are the units of measurement?
• What are the performance standards?
• What is the current level of attainment?
Walden - PROC 5850
Internal Audit Questions cont.
• How are these measures derived from
corporate information flows and the order
processing system?
• What is the internal customer service
reporting system?
• How do the functional areas of the business
perceive customer service?
• What is the relation between these
functional areas in terms of communication
and control?
Walden - PROC 5850
Measuring and Controlling Customer
Service Performance
• Establish quantitative standards of
performance for each service element.
• Measure actual performance for each
service element.
• Analyze variance between actual service
provided and standard.
• Take corrective action as needed to bring
actual performance into line.
Walden - PROC 5850
Customer Service Standards
• Reflect the customer’s point of view.
• Provide an operational and objective
measure of service performance.
• Provide management with cues for
corrective action.
Walden - PROC 5850
Select performance measures
carefully; people perform to
look good on them
Walden - PROC 5850
Thoughts on Chapter 3
• What sets your supply chain apart from
others? Who knows it?
• Sam Walton
• How many times will a customer tolerate a
stockout?
• What is the cost of a stockout vs. the cost of
customer service?
Walden - PROC 5850
More Thoughts
• How well do you take care of the customer
after the sale? Post transaction
• What are the impacts of safety/buffer stocks
on customer service?
• P 104 - Book says: in most stockouts
consumers will not switch stores - depends
on how bad you want the item and how
many times products are not available -
Walden - PROC 5850
Thoughts part 3
• Vendor Managed Inventory
• Metrics
• ABC Classifications: customers, products,
inventory - cost, velocity, volume
• Keys to success on page 125 - WIIFM?
• Perfect order fulfillment - on time, quantity,
condition, right item
• p 146 - JIT, ECR, QR not really systems
Walden - PROC 5850
CHAPTER 4
Order Processing and
Information Systems
Order Processing
and Information
Systems
The difference between mediocre and excellent
logistics is often the firm’s information technology
capabilities.
Dale S. Rogers
Richard L. Dawe
Patrick Guerra
Walden - PROC 5850
Typical Elements of Order Processing
Sales
order
Order Preparation
• Requesting
products or
services
Order Transmittal
• Transferring
order information
Order Status Reporting
• Tracing and tracking
• Communicating with
customer on order
status
Walden - PROC 5850
Order Entry
• Stock checking
• Accuracy checking
• Credit checking
• Back ordering/
order canceling
• Transcription
• Billing
Order Filling
• Product retrieval, production, or purchase
• Packing for shipment
• Scheduling for delivery
• Shipping document preparation
Order Filling
Processing rules affect order filling
speed
•First-received, first-processed
•Shortest processing time first
•Specified priority number
•Smaller, less complicated orders
first
•Earliest promised delivery date
•Orders having the least time before
promised delivery date
Walden - PROC 5850
Factors Affecting
Order Processing Time
•Processing priorities
•Parallel versus sequential
processing
•Order-filling accuracy
•Order batching
•Lot sizing
•Shipment consolidation
Walden - PROC 5850
The Logistics Information System
LOGISTICS
INFORMATION
SYSTEM
INTERNAL
EXTERNAL
Finance/Accounting
Customers
Marketing
Vendors
Logistics
Carriers
Manufacturing
Supply chain partners
Purchasing
OMS
WMS
TMS
•Stock availability
•Stock level
management
•Shipment
consolidation
•Order picking
•Vehicle routing
•Picker routing
•Mode selection
•Picker assignments
and work loading
•Claims
•Credit checking
•Invoicing
•Product allocation to
customers
•Fulfillment location
•Product availability
estimating
•Tracking
•Bill payment
•Freight bill auditing
Walden - PROC 5850
Order Management System Module
Elements
•Stock availability
•Credit checking
•Invoicing
•Product allocation to customers
•Fulfillment location
Walden - PROC 5850
Warehouse Management System
Module
Elements
•Receiving
•Putaway
•Inventory management
•Order processing and retrieving
•Shipment preparation
Walden - PROC 5850
Transportation Management
System Module
Elements
•Mode selection
•Freight consolidation
•Routing and scheduling shipments
•Claims processing
•Shipment tracking
•Bill payment and auditing
Walden - PROC 5850
Total Order Cycle:
A Customer's Perspective
1. Customer
places order
2. Order
received
6. Order
delivered to
customer
5. Order
shipped to
customer
3. Order
processed
4. Order
picked
and packed
Key:
1. Order preparation and transmittal
2. Order received and entered into system
3. Order processed
4. Order picking/production and packing
5. Transit time
6. Warehouse receiving and placing into storage
Total order cycle time
Walden - PROC 5850
1 days
1 day
1 day
1 days
3 days
1 day
8 days
Traditional
Supply Chain Flows
Demand flow
Supplier
Manufacturer
Product flow
Walden - PROC 5850
Distributor
Retailer
Information-based
Supply Chain Flows
Timely, accurate information flow
Supplier
Manufacturer
Distributor
Smooth, continual product flow
matched to demand
Walden - PROC 5850
Retailer
Definition of EDI
Interorganizational exchange of business
documentation in structured, machineprocessable form.
Unstructured
Fax
E-Mail
Person-to-person
Walden - PROC 5850
Structured
EDI
Order entry
Computer-to-computer
EDI Versus
Traditional Methods
BUYER'S
COMPUTER
PO
POST OFFICE
ORDER
ENTRY
PO
SELLER'S
COMPUTER
EDI FLOW
PURCHASING
PURCHASING
Walden - PROC 5850
BUYER'S PURCHASING
APPLICATION
SELLER'S ORDER
ENTRY APPLICATION
Source: Margaret A. Emmelhainz, Electronic Data Interchange: A Total Management Guide (New York: Van Nostrand
Reinhold, 1990), p. 5.
Typical EDI Configurations
Proprietary system
Supplier
Manufacturer
Supplier
Supplier
Value-added network (VAN)
Manufacturer
Manufacturer
Manufacturer
Walden - PROC 5850
Supplier
Thirdparty
vendor
Supplier
Supplier
SOURCE: GE Information Service, as reported in Lisa H. Harrington, "The ABC's of EDI,"
Traffic Management 29, no. 8 (August 1990), p. 51.
Benefits of Effective and Efficient Use of
Information
• Replacement of inventory with information
• Reduced variability in the supply chain
• Better coordination of manufacturing,
marketing, and distribution
• Streamlined order processing and reduced
lead-times
Walden - PROC 5850
Figure 3-1:
General Types
of Information
Management
Systems
Walden - PROC 5850
General Types of Information Management
Systems
• Enterprise resource planning (ERP)
– All company functional areas use a common
database to:
• Standardize manufacturing processes
• Integrate financial data
• Standardize human resource data
– Shortcomings
• Costs of installation – may be coming down
• Primarily designed for large companies – SAP now
with mid-sized package
• Time-consuming installation process
• Standardization
Walden - PROC 5850
Electronic Commerce and Logistics
• Internet impacts include:
– Logistics functions
• Transportation
• Order management
– Channel design
Walden - PROC 5850
Electronic Commerce and Logistics
• Internet impacts (continued)
– Intermediaries
• 4 categories of logistics exchanges
–
–
–
–
Enhancing procurement services
Matching shippers and carriers
Executing relevant transactions
Transacting with partners
• Application service providers provide access over the
Internet to applications and related services that would
otherwise have to be located in enterprise computers.
Walden - PROC 5850
Electronic Commerce and Logistics
• E-Fulfillment is the coordinated inbound and
outbound logistics functions that facilitate the
management and delivery of customer orders
placed online.
Walden - PROC 5850
Electronic Commerce and Logistics
• E-fulfillment
• Traditional Fulfillment
– Many logistical
– Many logistical functions
functions and activities
and activities occur
occur
– More, smaller orders
– Fewer, larger orders
– Order management and
– Order management
information management
system is set up to
systems must handle
handle orders from
large volumes of orders
resellers, not
consumers
– Smaller orders dictate
– Full-case picking
open-case picking
– Warehouse set up to
handle large volume
Walden - PROC 5850
orders
Electronic Commerce and Logistics
• E-fulfillment
– Products slotted to
facilitate picking smaller
orders
– Totes and push carts used
– Packaging is small
cartons, envelopes, bags
suited to holding small
quantities
Walden - PROC 5850
• Traditional Fulfillment
– Warehouse set up to
handle large volume
orders
– Variety of materials
handling equipment
used
– Packaging generally
cartons that hold large
volume orders
Electronic Commerce and Logistics
• E-fulfillment
– Transportation
companies used with
extensive delivery
networks; experience in
parcel shipments
– Outbound shipments
usually picked up by
vans
– Return rates much higher
and from ultimate
consumers
Walden - PROC 5850
• Traditional Fulfillment
– Transportation methods
and companies vary by
request of buyer
– Outbound shipments
may be picked up by
tractor trailers or railcars
– Return rates lower and
from resellers
RFID
Walden - PROC 5850
Example of 80 card column punch card
These were used in logistics operations from
the 1960s until the mid 1980s
Walden - PROC 5850
Walden - PROC 5850
RFID Quick Review
• Gillette Program for Mach 3 – loss
prevention - 2 tests
• Wal*Mart Directive
• October 2003 – Department of Defense
Directive for top Suppliers
Walden - PROC 5850
Historical Background of Army Use of
RFID
• 1994/95: started a proof of principle test in
Europe – every truck and shipment equipped
with an RFID tag
• 1997/98: all pallets coming out of the
Susquehanna, PA depot equipped with RFID
tag
• 1997: All vehicles coming to the National
Training Center at Fort Irwin, CA were
equipped with RF tags for the Advanced
Warfighter Experiment
Walden - PROC 5850
Uses
• Asset Visibility
• Location of Critical assets in the yard
• Planning for workload and workforce
Walden - PROC 5850
TAGS
• ACTIVE – always on and can be read from
any interrogator – very expensive
• PASSIVE – battery activated by the
interrogator and must be within close
proximity to the interrogator – relatively
inexpensive – goal is to get the price down
to $.05 per tag – real cost is in the
infrastructure to implement
Walden - PROC 5850
Active RFID Tag on pallet in Kuwait Theater Distribution Center
Walden - PROC 5850
Walden - PROC 5850
Issues on RFID






EPCglobal or ISO
Class 1 & Class 0
Intellectual Property
WTO
Frequencies
Item identification v. anti-counterfeiting
Walden - PROC 5850
Where did EPC
come from?
Walden - PROC 5850
EPC Tag Classification
EPC Tag Class
Tag Class Capabilities
Class 0
Read only, (i.e., the EPC number is encoded onto the tag during
manufacture and can be read by a reader, not written to)
Class 1
EPC, TID, “kill function”, optional password-protected access control, and
optional user memory
Class 2
Class 1 with extended TID, extended user memory, authenticated access
control, ++
Class 3
Class 2 capabilities plus a power source to provide increased range and/or
advanced functionality, e.g., sensors
Class 4
Class 3 capabilities plus active communication and the ability to
communicate with other tags
TID = Transponder Identification
Walden - PROC 5850
Wal-Mart & DoD
Walden - PROC 5850
Wal-Mart
Information Systems
 Wal-Mart’s information systems are largely integrated
 Wal-Mart’s legacy data structures are GTINs (U.P.C./EAN), GLNs
(Location Codes), GRAI/GIAIs (Asset IDs), and SSCCs (Transportation
Control Codes)
 Such legacy data structures serve as the “primary keys” to Wal-Mart’s
systems
 These are the data structures supported by EPCglobal (particularly,
Class 0 and Class I v1, and Class I G2)
 Wal-Mart will not require a major change to their information systems to
implement EPC
 The latest – Wal-Mart back peddling
Walden - PROC 5850
DOD Information Systems
 The Department of Defense has 1,500 logistics systems
 These systems are fed by legacy data structures, notably,
NATO/National Stock Numbers, CAGE/NCAGE codes,
DoDAACs, and TCNs
 Such legacy data structures serve as the “primary keys” to DOD
systems
Walden - PROC 5850
Which Technology






How far?
How fast?
How many?
How much?
Geometry of tagging space
Interferers (physical and radio)
Walden - PROC 5850
Summary for Chapters 3 and 4
• RFID – important but has issues
• Bar Codes still in use for a while
• What are the differences between e-fulfillment and
traditional fulfillment?
• Information systems – multiple systems – drive the need
for ERP
• Metrics for all logistics must be from the perspective of the
customer!
• Therefore, systems must have customer in mind
• Have to be able to define who the customer is and what the
customer wants – customer service is the differentiator
• Hard to emulate customer service
Walden - PROC 5850
Next Class
• Chapters 5-6
Walden - PROC 5850