Académique Documents
Professionnel Documents
Culture Documents
Chain Customer
Service
Logistics is no longer the last frontier of cost
reduction, its the new frontier of demand
generation.
4-1
Customer Service
in Planning Triangle
Inventory Strategy
Forecasting Transport Strategy
Inventory decisions Transport fundamentals
CONTROLLING
ORGANIZING
scheduling decisions
Storage fundamentals service goals
Storage decisions The product
Logistics
Logisticsservice
service
Ord. proc. & info. sys.
Location Strategy
Location decisions
The network planning process
4-2
1
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.
4-4
2
Common Customer Service
Complaints
31%
Product or quality
mistakes
12% Damaged
goods
7%
Other
6%
Frequently cut
items
44%
Late delivery
4-5
16%
Discontinued
items
18%
Stopped all
purchases
with supplier
9% 26%
Refused to Called in
purchase new salesman or
items manager
CR (2004) Prentice Hall, Inc.
4-6
3
Most Important Customer
Service Elements
On-time delivery
Order fill rate
Product condition
Accurate documentation
4-7
Parker-Hannifin Corp.
4-8
4
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.
WAREHOUSE
Order processing
Customer and assembly
order
transmittal Transmittal of
backorder
CUSTOMER items
Retail outlet Order
delivery
FACTORY
Express Order processing,
order assembly from stock,
delivery or production if no
stock
4-10
5
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.
4-11
Service Observations
4-12
6
Modeling a Sales-Service
Relationship
A mathematical expression of the level of service
provided and the revenue generated
4-13
Sales-Service Relationship by
the Two-Points Method
Approximation by
two-points method
Sales
0
0 Logistics customer service level
4-14
7
Sales-Service Relationship
Range of Range of
transition transition
Sales
0
0 Increasing logistics customer service level
of a supplier to the best of its competition 4-15
8
Generalized Cost-Revenue Tradeoffs
Revenue
Profit
Costs or sales
maximization
Logistics
costs
0
0 Improved logistics customer service 4-17
4-18
9
Determining Optimum Service Levels
(Contd)
Find P
P = 0.75 0.0015 80,000
= $90.00 per year
Find C
C = 0.25 10.00 500 z
= 1250 z
10
Graphically Setting the Service Level
350
300 Change in
safety
250 stock cost, C
$/year
200
150
Change in gross profit, P
100
50
0
87-86 88-87 89-88 90-89 91-90 92-91 93-92 94-93 95-94 96-95 97-96 98-97 99-98
Optimizing on Service
Performance Variability
Setting service variability according to Taguchi
this rangeTraditional
11
Optimizing on Service
Performance Variability (Contd)
Setting the allowable deviation from the target service level m is
to optimize the sum of penalty cost for not meeting the service
target and the cost of producing the service.
TC = service penalty cost + service delivery cost
If the service delivery cost is of the general form DC = A B(y-m),
then find the optimum allowed deviation from the service target.
2
TC = k ( y m ) + A B( y m )
dTC
= 2k ( y m ) + 0 B = 0
d ( y m)
B Marginal delivery cost =
y m = marginal penalty cost
2k
If m is set to 0, y is the optimal deviation allowed from target
4-23
Find k
L = k ( y m) 2
3
3 = k( 10 0 ) 2
3
k = 2 = 0.03
10 40
30
and y if m is taken as 0 Delivery service, min
0.15
y 0 = = 2.5 minutes
2(0.03)
No more than 2.5 minutes should be allowed from the 30-
minute delivery target to minimize cost. 4-24
12
Setting Service Levels
Service treated as a constraint on design
Planning for service contingencies
Measuring Service Performance
Percent of sales on backorder
No. of stockouts
Percent of on-time deliveries
No. of inaccurate orders
Order cycle time Most comprehensive
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
4-26
13