Demand Management, Order

Management, and Customer Service

Learning Objectives
To explain the linkages between demand
management, order management, and
customer service
To examine the order cycle and its four
components
To elaborate the four dimensions of customer
service as they pertain to logistics

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Order Management and Customer Service

Key Terms
Activity-based costing
Benchmarking
Cause-and-effect
(associative)
forecasting
Collaborative planning,
forecasting, and
replenishment (CPFR)
Customer profitability
analysis (CPA)

Customer service
Demand
management
Judgmental
forecasting
Make-to-order
Make-to-stock
Multichannel
marketing systems
Order cycle

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Order Management and Customer Service

Key Terms

Order delivery
Order fill rate
Order management
Order picking and
assembly
Order processing
Order to cash cycle
Order transmittal

Order triage
Pick-to-light
technology
Service recovery
Time series
forecasting
Voice-based order
picking
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Demand Management
Demand management can be defined as the
creation across the supply chain and its markets
of a coordinated flow of demand.

Source: John T. Mentzer, A Telling Fortune, Industrial Engineer, April 2006, 42-47.

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Demand Management
Demand (sales) forecasting
Refers to an effort to project future demand
Is a key component in demand management
Is helpful in make-to-stock situations
Is helpful in make-to-order situations

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Demand Management
Three basic types of demand forecasting models:
Judgemental
Time series
Cause and effect (associative)

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Demand Management
Judgmental demand forecasting model:
Involves using judgment or intuition
Preferred in situations where there is limited or no
historical data
Techniques include surveys, the analog technique,
and others
Surveys used to learn about customer preferences and
intentions
An analog (similar item to that being forecasted) is used
as the basis for demand history
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Demand Management
Time series forecasting model:
Underlying assumption is that future demand is
solely dependent on past demand
Some techniques include:
Simple moving averages
Weighted moving averages

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Demand Management

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Demand Management
Cause-and-effect forecasting model:
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
Some techniques include:
Simple regression
Multiple regression

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Demand Management
Demand forecasting issues:
Selection of forecasting technique(s) depends on
many factors
Selecting an inappropriate technique will reduce
forecast accuracy
Forecast accuracy can have important logistical
implications
Computer forecasting software unable to
completely eliminate forecast errors
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Order Management
Order management refers to management of the
various activities associated with the order cycle
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
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Order Management
Four stages of the order cycle include:
Order transmittal
Order processing
Order picking and assembly
Order delivery

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Order Management
Order transmittal refers to the time from
when the customer places an order until the
seller receives the order
Methods of order transmittal
In person
Mail
Telephone
FAX
Electronically
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Order Management
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

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Order Management
Order processing includes:
Checking for completeness and accuracy
A customer credit check
Order entry into the computer system
Crediting salesperson with the sale
Recording the transaction
Determining inventory location
Arranging for outbound transportation

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Figure 7.1: Flowchart of Order Handling (Order

Processing) System

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Order Management
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

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Order Management
Order picking and assembly
Often represents the best opportunity to improve
the effectiveness and efficiency of an order cycle
Can account for up to 2/3 of a facilitys operating
cost and time

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Order Management
Examples of Order Picking and Assembly
technology:
Handheld scanners
Radio-frequency identification (RFID)
Voice-based order picking
Pick-to-light

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Order Management
Order delivery is the time from when a
transportation carrier picks up the shipment
until it is received by the customer.

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Order Management
Three key order delivery issues:
Variety of options in terms of transit time are now
available such as delivery by 12 noon and delivery by
4:30 P.M.
A number of shippers are emphasizing both elapsed
transit time as well as transit time reliability
Transportation carriers are revamping their
operations to provide faster transit times to
customers
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Customer Service
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 other marketing mix
variables such as price and promotion
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Customer Service
Four dimensions of customer service include:
Time
Refers to the period between successive events (example
- order cycle)

Dependability
refers to the reliability of the service encounter
consists of three elements: consistent order cycles, safe
delivery, and complete delivery

Communication
Convenience
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Customer Service
Four dimensions of customer service include:
Communication
If effective should be a two-way exchange between seller
and customer
Goal is to keep both parties informed
Requires correct parties to be involved in the process

Convenience
Focuses on the ease of doing business with a seller

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Managing Customer Service

Four specific customer service considerations
include:
Establishing customer service objectives
Measuring customer service
Customer profitability analysis (CPA)
Service failure and recovery

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Managing Customer Service

Objectives for establishing customer service
Specific
Measurable
Achievable
Cost-effective

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Managing Customer Service

Measuring Customer Service
you cant manage what you cant measure
Key issues include:
Determining data sources to be used
Determining what factors to measure
Organizations must resist excessive measurement

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Managing Customer Service

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Managing Customer Service

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Managing Customer Service

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Managing Customer Service

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

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Managing Customer Service

Customer Profitability Analysis (CPA)
Suggests that different customers consume differing
amounts and types of resources
Recognizes that all customers are not the same and
some customers are more valuable than others to an
organization
Can help to identify when an organization should
pursue different logistical approaches for different
customer groups
Has been facilitated by the acceptance of activitybased costing
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Managing Customer Service

Service Failure and Service Recovery
Situations will occur where actual performance does
not meet the customers expected performance (i.e.
service failure)
Service failure is relevant to the order cycle
Examples of order-related service failures include:

Lost delivery
Late delivery
Early delivery
Damaged delivery
Incorrect delivery quantity
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Managing Customer Service

Service Failure and Service Recovery
Examples of order-related service failures include:

Lost delivery
Late delivery
Early delivery
Damaged delivery
Incorrect delivery quantity

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Managing Customer Service

Service Failure and Recovery
Service recovery
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
Can result in better performing organization by learning
from failure and implementing processes and policies to
prevent reoccurrence
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