Class 2 Logistics Done Well is all but

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 LOGISTICS Place/customer service levels Inventory carrying costs Transportation costs Lot quantity costs Warehousing costs Walden - PROC 5850 Order processing and information costs 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

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 CR (2004) Prentice Hall, Inc. Walden - PROC 5850

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 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 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 Walden - PROC 5850

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 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 days 3 days 1 day 8 days

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 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 Value-added network (VAN) Manufacturer Walden - PROC 5850 Supplier Thirdparty vendor 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 leadtimes 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 functions and activities occur – More, smaller orders – Fewer, larger orders – Order management and – Order management information management system is set up to systems must 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 1960 s until the mid 1980 s 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 Ø Ø Ø 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

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