Class 2

1
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!

2
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

• Shipping consolidation
• better workforce planning
• less travel time
• less injuries
• increased production from measuring workers
• name the aisle
• returnable, reusable totes
• CPFR

3
CHAPTER 3 Customer Service
4
Waldens 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

5
Cost trade-offs in Marketing and Logistics
6
Elements of Customer Service
7
Logistics/Supply Chain Customer Service
Logistics is no longer the last frontier of
cost reduction, its the new frontier of demand
generation.
8
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
-
Customer service here

Product
-

Promotion
-
-

Physical Distribution


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
9
Customer Service

• Customer service is a collection of activities
  performed in a way that keeps customers happy and
  creates in the customers 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.

10
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
11
Importance of Logistics Customer Service
12
Common Customer Service Complaints
13
Penalties for Customer Service Failures
CR (2004) Prentice Hall, Inc.
14
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

15
Order Cycle Time
CR (2004) Prentice Hall, Inc.
16
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

17
Order Management

• Order cycle defined by the seller time from
  when an order is received to when the goods
  arrive at the customers 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

18
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

19
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

20
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

21
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

22
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

23
Order Management

• Order delivery is the time from when a carrier
  picks up the shipment until it is delivered to
  the customers 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.

24
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

25
Customer Service

• Establishing Objectives
• Specific
• Measurable
• Achievable
• Consistent with broader firm goals
• Must consider competitors objectives
• Provide guidance to operating personnel

26
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?

27
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

28
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

29
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

30
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

31
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

32
Model of Consumer Reaction to a Repeated Stockout
Source Clyde K. Walter, An Empirical Analysis
of Two Stockout Models, unpublished Ph. D.
Dissertation, Ohio State University, 1971.
33
Relationship Between Customer Service and
Inventory Investment
34
Stages of the Customer Service Audit
35
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?

36
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?

37
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.

38
Customer Service Standards

• Reflect the customers point of view.
• Provide an operational and objective measure of
  service performance.
• Provide management with cues for corrective
  action.

39
Select performance measures carefully people
perform to look good on them
40
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?

41
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 -

42
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

43
CHAPTER 4 Order Processing and Information Systems
44
Order Processing and Information Systems
The difference between mediocre and excellent
logistics is often the firms information
technology capabilities. Dale S. Rogers Richard
L. Dawe Patrick Guerra
45
Typical Elements of Order Processing
46
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

47
Factors Affecting Order Processing Time

• Processing priorities
• Parallel versus sequential processing
• Order-filling accuracy
• Order batching
• Lot sizing
• Shipment consolidation

48
The Logistics Information System
49
Order Management System Module

• Elements
• Stock availability
• Credit checking
• Invoicing
• Product allocation to customers
• Fulfillment location

50
Warehouse Management System Module

• Elements
• Receiving
• Putaway
• Inventory management
• Order processing and retrieving
• Shipment preparation

51
Transportation Management System Module

• Elements
• Mode selection
• Freight consolidation
• Routing and scheduling shipments
• Claims processing
• Shipment tracking
• Bill payment and auditing

52
Total Order Cycle A Customer's Perspective
53
Traditional Supply Chain Flows

• Demand flow
• Product flow

54
Information-based Supply Chain Flows
55
Definition of EDI
56
EDI Versus Traditional Methods
Source Margaret A. Emmelhainz, Electronic Data
Interchange A Total Management Guide (New York
Van Nostrand Reinhold, 1990), p. 5.
57
Typical EDI Configurations

SOURCE GE Information Service, as reported in
Lisa H. Harrington, "The ABC's of EDI," Traffic
Management 29, no. 8 (August 1990), p. 51.
58
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

59
Figure 3-1 General Types of Information
Management Systems
60
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

61
Electronic Commerce and Logistics

• Internet impacts include
• Logistics functions
• Transportation
• Order management
• Channel design

62
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.

63
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.

64
Electronic Commerce and Logistics

• E-fulfillment
• Many logistical functions and activities occur
• More, smaller orders
• Order management and information management
  systems must handle large volumes of orders
• Smaller orders dictate open-case picking

• Traditional Fulfillment
• Many logistical functions and activities occur
• Fewer, larger orders
• Order management system is set up to handle
  orders from resellers, not consumers
• Full-case picking
• Warehouse set up to handle large volume orders

65
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

• Traditional Fulfillment
• Warehouse set up to handle large volume orders
• Variety of materials handling equipment used
• Packaging generally cartons that hold large
  volume orders

66
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

• 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

67
RFID
68
Example of 80 card column punch card These were
used in logistics operations from the 1960s until
the mid 1980s
69
(No Transcript)
70
RFID Quick Review

• Gillette Program for Mach 3 loss prevention - 2
  tests
• WalMart Directive
• October 2003 Department of Defense Directive
  for top Suppliers

71
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

72
Uses

• Asset Visibility
• Location of Critical assets in the yard
• Planning for workload and workforce

73
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

74
Active RFID Tag on pallet in Kuwait Theater
Distribution Center
75
(No Transcript)
76
Types of Standards

• ? Technology (Symbology, RFID, I.C. Card)
• ? Data Content (DIs, AIs, Syntax)
• ? Conformance (Print Quality, Test
  Specifications)
• ? Application Standards (Ship Label, Product
  Package)

77
The Layers of Logistic Units (Radio Frequency
Identification - RFID)
Movement Vehicle (truck, airplane, ship, train)
Container (e.g., 40 foot Sea Container)
78
RFID Standards

• ISO
• ISO 18000
• Part 2, 125-135 kHz
• Part 3, 13.56 MHz
• Part 4, 2.45 GHz
• Part 5, 5.8 GHz
• Part 6, UHF (860-930 MHz, 433 MHz)
• ISO 15418 (completed and published)
• MH10.8.2 Data Identifiers
• EAN.UCC Application Identifiers
• ISO 15434 - Syntax for High Capacity ADC Media
  (completed and published)
• ISO 18047 - RFID Device Conformance Test Methods
• ISO 18046 - RF Tag and Interrogator Performance
  Test Methods
• ISO 15962 - Transfer Syntax

79
ISO 18185 - Current ControversyMultiple
Applications - Single Standard

• Choke Point - The application having the lowest
  cost tag is a choke point, where passive tag able
  is read from 3 to 5 meters in distance moving
  slowly into, out of, or within a facility.
• Yard Management - The second application with a
  more costly tag is a yard management application,
  where an active tag is read from a distance of
  100 to 300 meters able to be read dynamically
  within the container yard.
• Geo-location - The third application with the
  most costly tag of the three applications is a
  geo-location application able to read any tag
  anywhere globally (assuming the transponder to
  satellite path is not obstructed).

80
ISO 18185 - Current ControversyMultiple
Applications - Single Standard

• The geo-location tag can meet most of the
  application requirements except where we need to
  isolate two or more tags that are closely
  co-located. The question becomes one of cost.
  How much are the conveyance, transporters, and
  logistic services willing to invest? When this
  question was asked prior to 9/11 the answer was
  very little. With the publicity that is being
  received saying that scarcely more than 2 percent
  of the containers received in port into the U.S.
  are being screened, that answer may have changed.

81
Issues on RFID

• EPCglobal or ISO
• Class 1 Class 0
• Intellectual Property
• WTO
• Frequencies
• Item identification v. anti-counterfeiting

82
Where did EPC come from?
83
EPC Tag Classification
TID Transponder Identification
84
Wal-Mart DoD
85
Wal-Mart Information Systems

• Wal-Marts information systems are largely
  integrated
• Wal-Marts 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-Marts 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

86
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

87
Which Technology

• How far?
• How fast?
• How many?
• How much?
• Geometry of tagging space
• Interferers (physical and radio)

88
How far, how fast, how much, how many, attached
to what?
89
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

90
Next Class

• Chapters 5-6