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IBS3002 Logistics & International Trade
Chapter 3
Demand management, order management &
customer service

1
Contemporary logistics, Murphy (2015)

Topic areas
 Linkages between demand management, order management, and customer
service
 Models of demand forecasting
 The order cycle and its components
 Customer service and its dimensions
 Managerial issues related to customer service

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Introduction

1. How an organization determines what the customer wants?
2. How an organization facilitates the customer getting what is wanted?

Demand
management

Order
management

Customer service

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Demand management

 Demand management: the creation across the supply chain and its markets of a
coordinated flow of demand
 Demand forecasting: an effort to project future demand & a key component in
demand management
 Demand forecasting is helpful in:
+ Make-to-stock situations: when finished goods are produced prior to
receiving a customer order
+ Make-to-order situations: when finished goods are produced after receiving
a customer order (Ex: Dell, BMW…)
 3 basis types of demand forecasting models: judgmental, time series, cause-effect
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Demand management
 Demand forecasting models:
 Judgmental forecasting model:
+ This model uses judgmental or intuition and is preferred in situations where
there is limited or no historical data (such as with a new product introduction)
+ Judgmental forecasting techniques: surveys and the analog technique…
+ Surveys: questionnaires are used to learn about customer preferences,

intentions
+ Analog forecasting: determining an analog (similar item) to the item being
forecast, then using the analog’s demand history as a basis for relevant forecast
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Demand management
 Demand forecasting models:
 Time series forecasting model:
+ Future demand is solely dependent on past demand
+ Time series forecasting techniques: simple moving average & weighted
moving average
+ Simple moving average: is calculated by summing the demand across
different time periods & then dividing by the number of time periods
+ Weighted moving average: assign greater importance (weight) to the more
recent data
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Demand management
 Demand forecasting models:
 Time series forecasting model:

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Demand management
 Demand forecasting models:

 Cause-and-effect forecasting model:
+ Assumes that one or more factors (independent variables) are related to
demand and that the relationship between cause and effect can be used to
estimate future demand
+ Example: in some western countries, there are an inverse relationship
between the level of interest rates & the consumers’ ability to buy a house ->
as interest rates increase, housing sales tend to decrease

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Demand management
 Demand forecasting issues:
 Selection of a forecasting technique depends on many factors
 An inappropriate selection will reduce forecast accuracy – linkage between actual &
forecasted demand & accuracy can be affected by various considerations
 Forecasting accuracy can have important logistical implications
 Computer forecasting software unable to completely eliminate forecast errors
 It is generally recommended to use a combination of techniques
 CPFR concept – where supply chain partners share planning and forecasting data
to better match up supply and demand
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Order management
 Order management:
 Order management refers to management of various activities associated with order

cycle
 A key to operational efficiency and customer satisfaction
 Order cycle (replenishment cycle or lead time)
 Order cycle refers to the time from when a customer places an order to when the
order is received
 Including 4 principle activities: order transmittal, order processing, order picking &
assembly, order delivery
 Some organizations include order to cash cycle in their order management model
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Order management
 Order cycle should be analyzed in terms of order cycle time and cycle time reliability
 Order management is affected by advances in information systems
Discussions:
 How is relationship between order management and demand management?
 How is relationship between order management and customer service?

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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:
- In person
- Mail
- Telephone
- Fax
- Electronically
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Order management
 Order processing:
 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
 Order processing include:
- Checking for completeness & accuracy, and customer credit
- 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

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Order management
 Order processing:
 Some activities must be performed sequentially, some might be performed
simultaneously
-> should identify activities that can be performed simultaneously to reduce
cycle time
 There are 3 managerial approaches of order processing activities: order receipt,
order triage, and the location(s) used to fill an order
-> play an important role in implications for order cycle effectiveness &

efficiency and for customer satisfaction

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Order management
 Order picking and assembly:
 Order picking & assembly includes all activities from when an appropriate location is
authorized to fill the order until goods are loaded aboard an outbound carrier
 Order picking & assembly represents the best opportunity to improve the
effectiveness and efficiency of an order cycle
 Can account for up to 2/3 of a facility’s operating cost and time
 Example of order picking and assembly:
- Handheld scanners
- Radio-frequency identification (RFID)
- Voice-based order picking
- Pick-to-light

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Order management
 Order picking and assembly:
 To improve effectiveness and efficiency of order picking & assembly:
- Analyze order pickers’ travel time
+ travel time accounts for 60%-80% of total pick time
+ travel time can be reduced through better slotting (placement) of products in the

relevant facility

- Match the picker to the order being picked
- Using advances in technology

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Order management
 Order delivery:
 Order delivery is the time from when a carrier picks up the shipment until it is
received by the customer.

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Customer service

 Why do you think customers are so important for organizations?

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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.”
 Customer service strives to keep customers happy and creates in the customer’s
mind the perception of an organization that is easy to do business with

 Customer service can be an excellent competitive weapon and is much more
difficult for competitors to imitate than price cuts or other competitive strategies
 Macroenvironmental changes -> higher level of customer service
 Customer service – customer satisfaction

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Customer service
 Customer service – customer satisfaction
 Customer satisfaction: compares a customer’s actual experience with the expected
experience, and if the actual experience equals or exceeds the expected experience
then the customer would be satisfied. In addition, it can influence both the expected
and actual experience and hence influence customer satisfaction.

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Customer service
 Four dimensions of customer service:

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Customer service
 Four dimensions of customer service:
 Time - the period between successive events, usually order fulfilment cycle time
+ order cycle time & lead time

+ high degree of control over the order cycle
-> reduce order cycle time
-> influence decisions on inventory
-> increase customer service level

 Dependability – the reliability of the service encounter, including 3 elements:
consistent order cycles, safe delivery, complete delivery
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Customer service
 Four dimensions of customer service:
 Communication – a two-way exchange between seller and customer, with the goal
of keeping both parties informed, technological advances should be used
+ error-free order information, updates, status
+ pre-transaction, transaction, post transaction
 Convenience – ease of doing business with a seller
+ service levels must be flexible
+ organizations should develop multichannel marketing systems because
convenience dimension plays a key role in a consumer’s purchasing decision

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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
 Establishing Customer Service Objectives:
• Goals - broad and generalized statements regarding the overall results that the firm
is attempting to achieve
• Objectives - the means by which goals are to be achieved, state certain minimum
requirements and are more specific than goals
• Objectives should be specific, measurable, achievable, cost-effective
• Determining customer’s viewpoint -> asking customers for their insights about
customer service

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Managing Customer service
 Establishing Customer Service Objectives:
• Tool for companies
benchmarking

to

evaluate

their

service


performance:

performance

• Benchmarking: a comparison of an organization’s performance to the performance
of other organizations
• Performance benchmarking: a process that continuously identifies, understands,
adapts outstanding processes found inside & outside an organization

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Managing Customer service
 Measuring Customer Service:
• “you can’t manage what you can’t measure” -> a systematic program of
measurement & control is required
• Must determine data sources to be used -> collect from both internal & external
source
• Must determine what factors to measure -> measures should be consistent with four
dimensions of customer service
• Organizations must resist excessive measurement – can strain an organization ->
analysis paralysis, waste of time…

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Managing Customer service
 Measuring Customer Service:

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Managing Customer service
 Customer Profitability Analysis (CPA):
• 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
• 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 activity-based costing
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Managing Customer service
 Service Failure and Recovery:
• Situations will occur where actual performance does not meet the customer’s
expected performance (i.e. service failure)
• 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
+ Unsatisfactory service recovery magnifies the initial failure

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