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12Jun

Unit Fill Rate (UFR)

The unit fill rate (UFR) for an item is the portion of the total number of units...

27Jun

Warehouse Occupancy Percentage

Optimal storage utilization helps enforce healthy inventory management. In our early work with Honda their...

02Jun

Efficient Procurement Inventory

Efficient procurement inventory (EPI) is often required to realize steep discounts when a special opportunity...

26Jun

Inventory Activity Profiling & Data Mining

Suppose you were sick and went to the doctor for a diagnosis and prescription.  When...

27Jun

Inventory Performance Measures

Inventory performance measures include financial, productivity , quality, and response time indicators for evaluating the efficiency and...

Customer Service Motivations

Customer Service Motivations

I recently overheard a logistics manager in a large consumer products company say, “If it weren’t for the customers, logistics would be easy.”  He was right; it would be easy, but making payroll and feeding the family would be a little tough.

 

Most organizations underestimate the value of good customer response and harm done by poor customer response.  Consider the following aspects of customer behavior [Fortune, One World Distribution]:

 

  • 75% of the reasons customers leave a company has nothing to do with the product.
  • Of dissatisfied customers, 98% will never complain-they will just leave.
  • 85% of dissatisfied customers tell 9 people; 13% tell 20 people.  A satisfied customer tells 5 people.
  • In the next six years, 80% of your customers will leave, 65% due to something you did.
  • A 5% retention rate will increase profits from 25%-55%.

 

Customer demand is the fountainhead for all supply chain logistics activities.  Fulfilling customer orders creates the need for all supply chain logistics resources and activities.  Customer response, including customer service and order processing, is the first of the five supply chain logistics processes:

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Supply Chain Star Model

 

  • ahead of inventory planning and management because the objective of inventory management is to minimize the amount of inventory needed to satisfy the customer service policy,
  • ahead of supply because the supply quality must meet customer expectations,
  • ahead of transportation because the transportation system must deliver product within the customer specified time windows, and
  • ahead of warehousing because the warehouse must respond within the customer service policy response time constraints, must support the fill rate objectives, and must offer the value added services specified by the customer.

 

The objective of each of the other four logistics processes is to satisfy the customer response requirements at the lowest possible cost.  Hence, the customer response requirements must be developed before the other logistics processes can be planned and executed.

Customer response is first because without a profitable customer response strategy, the other logistics processes are worthless.  Customer response is first because the customer response plan is the agreement between the logistics organization and its external and internal customers.  It is first because it defines the constraints in the logistics optimization problem to:

 

Minimize:         Total Supply Chain Cost

Subject to:       Customer Service Policy

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