Unlocking Customer Service Excellence

The assignment discusses the relationship between order management, demand forecasting, and customer service. It highlights how customer service can be a competitive weapon, as it is difficult for competitors to imitate. The macroenvironmental factors such as globalization and technology advancements drive customers' expectations for higher levels of customer service. The dependability dimension of customer service consists of consistent, safe, and complete delivery. Technological advances in communication facilitate buyer-seller interactions but also depersonalize the process. Benchmarking is a process that identifies and adapts outstanding processes to improve performance. The assignment also discusses how product life cycle stage and substitutability influence customer service goals and objectives. Additionally, it touches on service recovery, which is crucial for logistics and customer satisfaction.

Week 5 - Lesson- Demand Mgt, Order Mgt, Cust
Demand Management, Order Management, and Customer
Service
What’s Included:
Review: This module
Learning Objectives:
 To understand the linkages between demand management, order
management, and customer service
 To learn about demand forecasting models
 To examine the order cycle and its four components
 To understand the four dimensions of customer service as they pertain to
logistics
 To familiarize you with select managerial issues associated with customer
service
Presentations: Power Point Presentation or video provides overview of this
week's material and helps you understand the terms and theories in graphic
representations.
Read:
 Lecture Notes and eReadings
What is demand management?
Demand management can be defined as “the creation across the supply chain
and its markets of a coordinated flow of demand.”

Demand forecasting is helpful for:

o Make-to-stock situations – when finished goods are produced prior to receiving a
customer order
o Make-to-order situations- when finished goods are produced after receiving a
customer order
Demand (sales) forecasting
1.
1. Refers to an effort to project future demand
2. Is a key component in demand management
3. Is helpful in make-to-stock situations
4. Is helpful in make-to-order situations
The three basic types of forecasting models are:
2. Judgmental
3. Time series
4. Cause and effect
Judgmental forecasting –
 involves using judgment or intuition and is preferred in situations where there are limited
or no historical data, such as with a new product introduction
 Judgmental forecasting techniques include surveys and the analog technique.
Time series forecasting –
 An underlying assumption of time-series forecasting is that future demand is solely
dependent on past demand.

 Time-series forecasting techniques include simple moving averages and weighted
moving averages.
Cause-and-effect (also referred to as associative) forecasting-
 Assumes that one or more factors are related to demand and that the relationship
between cause and effect can be used to estimate future demand.
 Simple regression and multiple regression are examples of cause and effect forecasting.
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Demand forecasting issues:
Demand forecasting issues include the situation at hand, forecasting costs in
terms of time and money, and the accuracy of various forecasting techniques.
With respect to the situation at hand, judgmental forecasting is appropriate when
there is little or no historical data. As for time and money, survey research, for
example, can cost a great deal of money and/or also take a great deal of time
depending on the media. Forecasting accuracy refers to the relationship
between actual and forecasted demand, and accurate forecasts have allowed
some companies to reduce transportation costs because fewer shipments need
to be expedited.
1. Selection of forecasting technique(s) depends on many
factors
2. Selecting an inappropriate technique will reduce forecast
accuracy
3. Forecast accuracy can have important logistical implications
4. Computer forecasting software unable to completely eliminate
forecast errors
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 management refers to management of the various
activities associated with the order cycle

Order Cycle –
The order cycle is the elapsed time from when a customer places an order
until the customer receives the order. It is an important aspect of customer
service in part because the order cycle is frequently used to determine the
parameters of customer service goals and objectives. The order cycle is also
being used by some firms as a competitive weapon (generally the shorter the
better), and technological advances now make it extremely easy (and fast) for
customers to determine the exact status of their order(s).
 Order cycle (replenishment cycle or lead time) refers to the
time from when a customer places an order to when goods
are received
 Some organizations include order to cash cycle in their order
management model
 Four stages of the order cycle include:
1. Order transmittal
2. Order processing
3. Order picking and assembly
4. Order delivery
Order delivery stage of the order cycle:
 Order delivery refers to the time from when a transportation
carrier picks up a shipment until it is received by the carrier.
Customers now have increasing power in terms of delivery
options and companies such as UPS and FedEx offer
prospective shippers a diverse menu of transit time options.
In addition, shippers are emphasizing both elapsed transit
time as well as transit time variability and some companies
are utilizing delivery windows, or the time span within which
an order must arrive. Another key delivery change is that the

overnight range for truck service has been pushed from 500
miles to between 600 and 700 miles.
Causes and consequences of order cycle variability:
Order cycle variability can occur in each stage of the order cycle. For example,
order transmittal by mail sometimes results in the mailed item never reaching its
intended destination; variability, in the form of unreliable transit times, can occur
during order delivery. One consequence of order cycle variability might be an
increase in inventory levels to guard against stockouts. If inventory levels are not
increased, then stockouts could occur because of order cycle variability, or a
company might be forced to use expedited transportation to make sure orders
arrive on time.
Various methods of order transmittal and relevant characteristics of each one:
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
1. Methods of order transmittal
 In person
o
 Mail
 Telephone
 FAX
 Electronically
In person => greatly reduces the potential for order errors, but it is not always
convenient or practical in situations where the supplier is geographically distant.
Mail => more convenient than ordering in person, but mail is relatively slow and
there are occasions when the order never reaches the intended destination.
.

Telephone => fast and convenient, but order errors may not be detected until the
order is delivered.
Fax => fast, convenient and provides hard copy documentation of an order, but
there is the potential for junk (unwanted) faxes and the quality of transmission
may be problematic.
Electronic => fast, convenient, and potentially very accurate; major concern is
the security of the data being transmitted.
Advantages and disadvantages to checking all orders for
completeness and accuracy:
It can be argued that all orders, regardless of transmission method,
should be checked for completeness and accuracy; incomplete or
inaccurate orders can negatively affect customer satisfaction and
increase costs in the sense of addressing order irregularities.
However, checking all orders for completeness and accuracy adds
costs and time to the order cycle.
Order triage impacts order processing:
Order triage refers to classifying orders according to pre-established guidelines
so that a company can prioritize how orders should be filled. Companies that
choose to do order triage must decide the attribute(s) used to prioritize (e.g., first
in, first served; customer longevity). Although there is no one right attribute to
use for order prioritization, the chosen attributes are likely to delight one set of
customers and disappoint other customers.

Effectiveness and efficiency of order processing can be improved without large
expenditures:
One suggestion involves “shadowing” existing order pickers to learn about their
routines and the challenges they face, such as items that aren’t where they
should be, aisle congestion, or talkative coworkers. Another suggestion is to
analyze order pickers’ travel time, in part because travel time accounts for
between 60 and 80 percent of total pick time. Moreover, travel time can be
reduced through better slotting (placement) of products in the relevant facility.
What is pick-to-light technology and how can it improve order picking?
In pick-to-light technology, orders to be picked are identified by lights placed on
shelves or racks. An advantage to pick-to-light is that the worker simply follows
the light from pick to pick, as opposed to the worker having to figure out an
optimal picking path. Pick-to-light often results in higher pick rates and fewer
picking errors, along with reduced training time and reduced levels of employee
turnover.
Order processing refers to the time from when the seller receives an order until
an appropriate location (i.e. warehouse) is authorized to fill the order
 Order processing includes:
1. Checking for completeness and accuracy
2. A customer credit check
3. Order entry into the computer system
4. Marketing department credits salesperson
5. Accounting department records transaction
6. Inventory department locates nearest warehouse to customer
and advises them to pick the order
7. Transportation department arranges for shipment
Order picking and assembly includes all activities from when an appropriate
location is authorized to fill the order until goods are loaded aboard an outbound
carrier
 Order picking and assembly

1. Often represents the best opportunity to improve the
effectiveness and efficiency of an order cycle
2. Can account for up to 2/3 of a facility’s operating cost and
time
Source: Susan Lacefield, “Ten Tips for Faster Picking”, Logistics
Management, July 2005, 71-76.
Examples of Order Picking and Assembly technology:
1. Handheld scanners
2. Radio-frequency identification (RFID)
3. Voice-based order picking
4. Pick-to-light
Order delivery is the time from when a carrier picks up the shipment until it is
received by the customer.
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Customer service is “the ability of logistics management to satisfy users in
terms of time, dependability, communication , and convenience.”
Source: Roger A. Kerwin, Steve W. Hartley, and William
Rudelius, Marketing, 9th ed. (Boston, MA: McGraw-Hill/Irwin, 2009),
Chapter 16.
Customer service is much more difficult for competitors to imitate than price cuts
or other competitive strategies
 Four dimensions of customer service include:
1. Time

2. Dependability
3. Communication
4. Convenience
 Four specific customer service considerations include:
1. Customer profitability analysis (CPA)
2. Establishing customer service objectives
3. Measuring customer service
4. Service failure and recovery
There are key issues associated with measuring customer service:
 Ideally, an organization might want to collect measurement
data from internal (e.g., credit memos) and external sources
(e.g., actual customers). A second key issue associated with
customer service measurement is determining what factors to
measure. In addition, the metrics that are chosen to measure
customer service should be relevant and important from the
customer’s—and not the service provider’s—perspective.
Customer Profitability Analysis (CPA) is the allocation of revenues and costs
to customer segments or individual customers to calculate the profitability of the
segments or customers
What is customer profitability analysis, and how might it be used in logistics?
 Customer profitability analysis (CPA) refers to the allocation of
revenues and costs to customer segments or individual
customers to calculate the profitability of the segments or
customers. From a resource allocation perspective, an
organization should pursue different logistical approaches for

different customer groups. With respect to product
availability, organizations might attempt to minimize or avoid
stockout situations for their best customers, while limiting
product availability for less desirable customers.
 Customer Profitability Analysis (CPA)
1. Suggests that different customers consume differing amounts
and types of resources
2. Recognizes that all customers are not the same and some
customers are more valuable than others to an organization
3. Can help to identify when an organization should pursue
different logistical approaches for different customer groups
4. Has been facilitated by the acceptance of activity-based
costing
 Establishing Customer Service Objectives
1. Specific
2. Measurable
3. Achievable
4. Cost-effective
 Measuring Customer Service
1. “you can’t manage what you can’t measure”
2. Must determine data sources to be used
3. Must determine what factors to measure
4. Organizations must resist excessive measurement
 Service Failure and Recovery
1. Situations will occur where actual performance does not meet
the customer’s expected performance (i.e. service failure)
2. Examples of order-related service failures include:

 Lost delivery
o
 Late delivery
 Early delivery
 Damaged delivery
 Incorrect delivery quantity
 Service Failure and Recovery
1. Service recovery
o
 Process for returning a customer to a state of
satisfaction after a service or product has failed to
live up to expectations
 Is often costly
 May lead to increases customer loyalty
 Unsatisfactory service recovery magnifies the
initial failure
So what is the relationship between demand management, order management,
and customer service?
There is a key link between order management and demand forecasting, in that a
firm does not simply wait for orders to arrive in order to learn what is happening.
Forecasts are made of sales and of the inventories that must be stocked so that
the firm can fill orders in a satisfactory manner. There is also a key link between
order management and customer service because many organizations analyze
customer service standards in terms of the four stages of the order cycle.
How can customer service act as a competitive weapon?
Customer service is more difficult for competitors to imitate than other marketing
mix variables such as price and promotion. Nordstrom’s, is a high-end retailer
that has a long-standing reputation for excellent customer service. Their
devotion to excellent customer service leads Nordstrom’s to do things that
competitors cannot or will not match.

Macroenvironmental:
Macroenvironmental factors can cause organizations and individuals to demand
higher levels of customer service:
Macroenvironmental changes, such as globalization and advances in technology,
are causing organizations and individuals to demand higher levels of customer
service. Customer expectations continue to increase over time; if the associated
performance (service) levels fail to keep up, then customer dissatisfaction is a
likely outcome. In addition, reliable service enables a firm to maintain a lower
level of inventory, especially safety stocks, which provides lower inventory
holding costs. Third, the relationships between customers and vendors can
become dehumanized and the ability to offer a high level of service, especially on
a personal basis, could be quite valuable.
The three elements of the dependability dimension of customer service:
The three elements are consistent:
Order cycles,
Safe delivery,
Complete delivery.
As pointed out earlier, inconsistent order cycles necessitate higher
inventory requirements. Safe delivery brings loss and damage considerations
into play; lost or damaged product can cause a variety of negative ramifications
for a customer, such as an out of stock situation. One way of measuring the
completeness of delivery involves the order fill rate or the percentage of orders
that can be completely and immediately filled from existing stock; incomplete
deliveries generally translate into unhappy customers.
Advantages and disadvantages to technological advances designed to facilitate
buyer-seller communications:

Cell phones, personal digital assistants, and the Internet have certainly helped
buyer-seller communications. These technological advances allow for less costly
and more frequent contact between the two parties. Having said this, technology
such as text messaging and the Internet can depersonalize the communication
process, which is why periodic telephone interaction and even face-to-face
contact between seller and customer are recommended.
Benchmarking:
Benchmarking refers to a process that continuously identifies, understands, and
adapts outstanding processes found inside and outside an organization. Well-
run organizations benchmark not only against competitors (where possible) but
against best-in-class organizations as well. For maximum results, organizations
should engage in performance benchmarking, which compares quantitative
performance (such as fill rate performance), as well as process benchmarking
which is qualitative in nature and compares specific processes (such as how
organizations achieve their fill rates).
How do characteristics such as substitutability and product life cycle stage
influence the development of customer service goals and objectives:
If a firm has a near monopoly on an important product (i.e., few substitutes are
available), a high level of customer service is not required because a customer
that needs the product will buy it under any reasonable customer service
standard. As for stage in the PLC, a product just being introduced needs a
different kind of service support than one that is in a mature or declining market
stage. When introducing a new product, companies want to make sure that there
is sufficient supply of it to meet potential customer demand, and so companies
might use expedited transportation to protect against out of stock situations.
Service recovery and its relevance to logistics:
Service recovery refers to a process for returning a customer to a state of
satisfaction after a service or product has failed to live up to expectations.
Service recovery is particularly relevant to the order cycle; for example, late or

erratic deliveries can play havoc with customer supply chains. One service
recovery guideline, fair treatment for customers, is operationalized by some
transportation companies in the form of service guarantees. If a shipment
misses various delivery parameters (e.g., on time delivery), then customers can
receive a full refund (or are not billed for the transportation).
APPLICATION –
Test your knowledge completing the Assessment found in the course content
area.