Prestige Institute of Management &

Research

Logistics & Supply Chain Management

Assignment No. 02

Submitted By:-

Hemant Raghuvanshi
MBA (PT)-IV
 Questions & Answers
Q1

Briefly explain the following. Quote suitable examples wherever necessary.

- Dimensions of customer service

- Demand forecasting principles & methods

- Order processing & management system

Answer No 1

Dimensions of customer service

The ultimate or primary objective of any business in to provide excellent service. It

follows then that the main purpose of any logistics system also is to satisfy
customers. It is an activity that might not be well understood if you are a manager
responsible for production scheduling or inventory control which are activities that
seem to be some distance from the marketplace.

The objective of supply chain should be to establish a chain of customers that links
people at all levels in the organization directly or indirectly to the marketplace.

From the point of view of logistics function, customer service can be viewed as
having four dimensions:-

(1) Time,

(2) Dependability,

(3) Communication,

(4) Convenience.

The marketing and logistics interface

The right product at the right place at the right time has rarely been considered in
mainstream marketing to be very important. However, there are sign to show that
this is quickly changing.

The power of the brand has steadily declined and customers are willing to
experiment with substitutes even technology differences between products has
been removed so that it is harder to maintain competitive edge through the product
itself.

The source of competitive advantage is found firstly in the ability of the organization

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to differentiate in the eyes of the customer, from its competition and secondly from
operating at lower cost and hence at lower cost and greater profit. In these
situations it is customer service that can provide the distinctive difference between
the company's offer and that of its competitors.

In the now famous management book 'In search of excellence' it was identified that
excellent companies are those that can attract customers and maintain long term
relationships with them.

Secondly, it is also recognized that there is a slow but indubitable movement to

commodity type markets. By this it is meant that increasingly the power of the brand
is diminished as technologies of competing products converge, thus making product
differences difficult to perceive at least to the average buyer.

What is customer service?

In practice many companies have varying views of customer service. A major study
conducted recently has suggested that customer service could be examined under
the following 3 headings:

• Pre-transaction elements
• Transaction elements
• Post-transaction elements

Pre-transaction elements of customer service relate to corporate policies or

programs i.e. written statements of service policy, adequacy of organizational
structure and system flexibility.

The transaction elements are those customer service variables directly involved in
performing the physical distribution function e.g. product and delivery reliability.

The post transaction elements of customer service are generally supporting of the
product while in use e.g. product warranty, parts and repair service, procedures for
customer complaints and product replacement.

In any particular product market situation, some of these elements may be more
important than others and there may be factors other than those listed above which
have significance in a specific market.

Customer service and customer retention

It is apparent from issues discussed that organizations that compete only on the
products features will find themselves at a severe disadvantage to those companies
that augment the basic product with value-added services.

The concept that should be recognized here is that the product in the warehouse is
very different from the product in the customer’s hands since the customer looks at
the benefit from the product rather than the product itself.

For example the core product can be said to be quality, product features,
technology, durability and augmented product can be delivery and lead time

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flexibility, delivery reliability and consistency, single point of contact, ease of doing
business and after sales support.

Another important concept that should be clearly recognized is the lifetime value of
a customer is much greater than the profit generated from just a single deal with
that customer. A simple formula follows:

Lifetime value = Average transaction value * Yearly frequency of purchase*

customer life expectancy

More on customer service and customer lifetime value can be found here.

Service driven logistics systems

The role of logistics can be seen as the development of systems and the supporting
co-ordination processes to ensure that customer service goals are met. The main
idea of service driven logistics systems is to meet predefined service goals.

Ideally all logistics service systems are defined along the following lines:

1. Identify customers' service needs

2. Define customer service objectives
3. Design the logistics system

Identify customers service needs

The approach to service segmentation suggested here follows a three stage

process:

1. Identify the key components of customer service as seen by customers

themselves.
2. Establish the relative importance of those service components to customers.
3. Identify 'clusters' of customers according to similarity of service preferences.

 Identifying key components of customer service.

 Establishing relative importance of customer service components
 Identify customer service segments
 Defining customer service objectives
Setting customer service priorities

As the new competitive context of business continues to change, bringing with it

new complexities and concerns for management generally, it also has to be
recognized that the impact of these changes on logistics can be considerable. Of
the many issues facing organizations today perhaps the most challenging are in the
area if logistics.

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Setting service standards
We are entering the era of supply chain competition - the fundamental difference
here is that the company cannot act individually but must act as a supply
chain entity to ensure competitiveness in the marketplace.'
Demand forecasting principles & methods

Forecasting is the process of making statements about events whose actual

outcomes (typically) have not yet been observed. A commonplace example might
be estimation for some variable of interest at some specified future date. Prediction
is a similar, but more general term. Both might refer to formal statistical methods
employing time series, cross-sectional or longitudinal data, or alternatively to less
formal judgemental methods. Usage can differ between areas of application: for
example in hydrology, the terms "forecast" and "forecasting" are sometimes
reserved for estimates of values at certain specific future times, while the term
"prediction" is used for more general estimates, such as the number of times floods
will occur over a long period. Risk and uncertainty are central to forecasting and
prediction; it is generally considered good practice to indicate the degree of
uncertainty attaching to forecasts. The process of climate change and increasing
energy prices has led to the usage of Egain Forecasting of buildings. The method
uses Forecasting to reduce the energy needed to heat the building, thus reducing
the emission of greenhouse gases. Forecasting is used in the practice of Customer
Demand Planning in everyday business forecasting for manufacturing companies.
The discipline of demand planning, also sometimes referred to as supply chain
forecasting, embraces both statistical forecasting and a consensus process. An
important, albeit often ignored aspect of forecasting, is the relationship it holds with
planning. Forecasting can be described as predicting what the future will look like,
whereas planning predicts what the future should look like.

There is no single right forecasting method to use. Selection of a method should be

based on your objectives and your conditions. A good place to find a method, is by
visiting a selection tree.

Categories of forecasting methods

Time series methods

Time series methods use historical data as the basis of estimating future outcomes.

• Moving average
• weighted moving average
• Exponential smoothing
• Autoregressive moving average (ARMA)
• Autoregressive integrated moving average (ARIMA)

e.g. Box-Jenkins

• Extrapolation
• Linear prediction
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Q2

With the help of a diagram depict the various classifications / types of Supply Chain
strategies.

Types of Logistics Strategies

• Time Based
• Asset Productivity Based
• Technology Based
• Relationship Based

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Time-based strategies
Reductions in cycle time are based on three factors: processes, information, and decision-making.
If logistics is seen as a series of processes, performing those processes faster will reduce cycle time.
The utilization of faster, more efficient forms of order transmission-EDI or the Internet, for example-can
significantly reduce the time needed to complete the transaction. Finally, empowering individuals to
make decisions can be one of the most important ways to speed cycle time. The combination of
improved (faster) logistics processes; faster and more accurate flow of information; and quicker, more
responsive decision making can lead to dramatic reductions in lead time or cycle time. Overall, leading-
edge companies have used a number of initiatives to improve their competitive position by reducing
cycle time, producing significant benefits in terms of efficiency and effectiveness. Time-reduction
strategies, because of the potential to reduce costs, improve cash flow, and enhance customer service,
have been the focus of much attention and have enabled companies to gain a competitive advantage.

Asset productivity strategies

One of the first assets to receive attention has been inventory, and there is much evidence to
indicate that companies have been successful in reducing inventory levels or investment. Strategy to
keep the goods moving throughout the logistics system has contributed to effective use of logistics
facilities thus squeezing more productivity from these assets. Some reductions have occurred here as a
result of contraction of this equipment and smarter, more sophisticated equipment dispatching software.
Another key area that has had a dramatic impact on asset productivity is the use of third party
logistics (3PL) service. Many famous companies are users of 3PLs, focusing on managing logistics
services rather than on the assets themselves. The decision to utilize 3PL companies has been
fostered in part by the interest in reducing asset investment to improve asset productivity. It is true that
there must be some firms that actually provide the asset-based services, the response to this matter is
more of a strategic matter than one related to logistics operations. The move to utilize a 3PL is also the
trend of 5 focusing upon core competencies as a strategy to operate more efficiently and effectively.

Technology-based strategies
It has been evident for some time that the realization of future logistics goals will depend
significantly on the further development and utilization of information technologies. Whether it is in the

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form of hardware, software, or connectivity, these technologies will be the springboard for progress and
innovation.

It is clearly emerging that information, enterprises, and technologies are achieving higher levels of
Integration. The movement of materials and products is not governed by discrete functions, but,
increasingly, by a single integrated process, appearing in various guises, the goal of which is to provide
perfect information and to facilitate tight management of deliveries, inventories, and costs.

Relationship-based strategies
An area of significant strategic interest is that of relationships and relationship formation in the
logistics processes. Since it is difficult to imagine very many logistics or supply chain improvements
that involve only one firm, the need for effective relationships is obvious. Collaboration goes well
beyond vague expressions of partnership and aligned interests. It means that companies leverage each
other on an operational basis so that together they perform better than they did separately. It creates a
synergistic business environment in which the sum of the parts is greater than the whole. Collaborative
logistics is defined as mutually beneficial cooperative problem solving and opportunity exploitation –
beyond traditional, predefined trading partners, to foster new different and innovative ways to solve
business problems and capture new business. Properly executed, collaborative logistics can
significantly reduce costs, increase supply chain efficiency, and make trading partners more flexible in
addressing shifts in consumer demand.

Order processing & management system

Order processing Order processing is a key element of Order fulfillment. Order

processing operations or facilities are commonly called "distribution centers". "Order
processing" is the term generally used to describe the process or the work flow
associated with the picking, packing and delivery of the packed item(s) to a shipping
carrier. The specific "order fulfillment process" or the operational procedures of
distribution centers are determined by many factors. Each distribution center has its
own unique requirements or priorities. There is no "one size fits all" process that
universally provides the most efficient operation. Some of the factors that determine
the specific process flow of a distribution center are:

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 • The nature of the shipped product - shipping eggs and shipping shirts can
require differing fulfillment processes
• The nature of the orders - the number of differing items and quantities of each
item in orders
• The nature of the shipping packaging - cases, totes, envelopes, pallets can
create process variations
• Shipping costs - consolidation of orders, shipping pre-sort can change
processing operations
• Availability and cost and productivity of workforce - can create trade-off
decisions in automation and manual processing operations
• Timeliness of shipment windows - when shipments need to be completed
based on carriers can create processing variations
• Availability of capital expenditure dollars - influence on manual verses
automated process decisions and longer term benefits
• Value of product shipped - the ratio of the value of the shipped product and the
order fulfillment cost
• Seasonality variations in outbound volume - amount and duration of seasonal
peaks and valleys of outbound volume
• Predictability of future volume, product and order profiles -
• Predictability of distribution network - whether or not the network itself is going
to change

This list is only a small sample of factors that influence the choice of a distribution
centers operational procedures. Because each factor has varying importance in each
organization the net effect is that each organization has unique processing
requirements.

The effect of Globalization has immense impacts on much of the order fulfillment but
its impact is felt most in transportation and distribution.

Q3

Differentiate between the following:

i) Technology based strategies v/s relationship based strategies

ii) SCM planning v/s SCM implementation

iii) Order forecasting v/s order processing

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