31224944 Logistics Integration for Customer Satisfaction Distribution Cost Control and Customer Service

7/28/2019 31224944 Logistics Integration for Customer Satisfaction Distribution Cost Control and Customer Service

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Logistics Integration for Customer

Satisfaction, Distribution Cost, Control andCustomer Service


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Customer Satisfaction


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Logistics Integration for

Customer Satisfaction Leads to customer satisfaction through superior

customer service.

Organizational objectives of P [Productivity],Q[Quality],C [Cost],D [Delivery],E [Employee Morale],F[Flexibility],S [Safety],H [Health],E [Environment] areset to meet customer expectations of Q,C,D.

Q, C, S, H, E are parts of must be quality that acustomer expects. Logistics addresses D, F objectiveswhich lead to customer satisfaction through superiorcustomer service


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How loogistics lead to customer

satisfaction?1. Rapid response

Logistics should ensure that the supplier is able torespond to the change in the demand very fast. Entireproduction should change from traditional push systemto pull system to facilitate rapid response.

IT helps management in producing and delivering goodswhen the consumer needs them. This results into

reduction of inventory and exposes all operationaldeficiencies.


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2. Minimum variance

Logistics is expected to minimize events like delays dueto obstacles in information flow, traffic snarls, acts ofgod, wrong dispatches, damage in transit, therebyminimize and improve on OTD or On Time Delivery

3. Quality

If the quality of product fails logistics will have to shipthe product out of customers premises and repeat thelogistics operation again. This adds to costs andcustomer dissatisfaction. Hence logistics shouldcontribute to TQM initiative of management.


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4. Life cycle support- Logistics function is expected toprovide life cycle support to the product after sale.This includes

a) After sales service

b) Reverse logistics or Product recall


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a) After sales service: the service support needed bythe product once it is sold during its life cycle

b) Reverse logistics or Product recall as a result of Rigid quality standards [critical in case of contaminated

products which can cause environmental hazard]

Transit damage [leaking containers containinghazardous material]

Product expiration dating

Rigid laws prohibiting unscientific disposal of items

associated with product [packaging] Rigid laws making recycling mandatory

Erroneous order processing by supplier

Reverse logistics is an important component of logistics

planning


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Distribution costs

Analysis of distribution cost may be made on thefollowing lines:

Product or Product lines Individual customers or Group of customers

Channels of distribution

Salesmen

Geographical area or territories Terms of sales

Order sizes


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Elements of Total cost in Physical

Distribution Systems

Total Distribution Cost

TDC = TC + FC + CC + IC + HC + PC

+ MC


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TC - Transport Cost (SubstantialFixed Cost element) Capacity to match volumes

Centralised Distribution

Route Planning Optimal Schedules

Use of software

Railways, Airways ,Seaway cost


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FC Facility Cost

Warehousing, capital cost and running costrelated to infrastructure and internal systems tostore and pick up stocks

Use of Information Systems, Electronic DataInterchange

Warehouse Management System like radio links.Reduction in wage bill Refer to HR


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CC Communication Cost

Cost associated with EDI and othercommunication through the chain. These areadministrative costs

IC Inventory Cost Direct capital cost for goods purchased and

Opportunity cost for carrying inventory. Theseare cost associated with maintenance andreplenishment of inventory


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HC Handling Cost

Cost associated with Damage, Pilferage,Deterioration of stocks

PC Packaging Cost

Repacking, shrink wrapping, pallets, boxes,containers, tapes, labels etc


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MC Management Cost

Cost associated Management of the chain.Ranging from security system to storageconditions to HR, Finance and almost

everything where managerial input is needed


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Control and Customer Service


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Definition of Customer Service

Customer service is the fulfillment process, theprocess to meet consumer demand as a whole.

The process includes records requests manually orelectronically, payment, selection of goods,delivery and provision of goods, as well asproviding service to users of goods, also regulatesthe handling of goods returned to the consumer at

the time of complaint. Customer service is a process for providing

significant value added benefit to the supply chainin a cost-effective way.


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Logistics planning in customer service


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THE IMPORTANCE OF CUSTOMER

SERVICE


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THE IMPORTANCE OF CUSTOMER SERVICE

Effect on Service Sales

Effect on Customer Service

- Increasing customer loyalty

- Maintain good relations with customers by creatingcustomer satisfaction.

- The cost of maintaining existing customers is

cheaper than getting new customers (6X fold cost)

ServiceImprovement

Improvement:Volume Price

Reputation

IncreasedMarket Share

IncreasedProfit


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THE COMPONENTS OF CUSTOMER SERVICE

Pre-transaction elements: customer service factors thatarise prior to the actual transaction taking place

Transaction elements: the elements directly related to the

physical transaction and are those that are most commonlyconcerned with distribution and logistics.

Post-transaction elements: these involve those elementsthat occur after the delivery has taken place


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Pre-transaction elements

Is the determination of customer service strategies to be

implemented, provide a written record of customer servicepolicies. For example, specify how the item is sent after the orderis received, set the procedure returns (back order), and methodof delivery so customers know what services will be obtained.

written customer service policy; accessibility of order personnel;

single order contact point;

organizational structure;

method of ordering;

order size constraints;

system flexibility;

transaction elements.


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Transaction elements

Is a determination concerning the implementation of the strategydelivery of goods / products to the consumer. This element is a directresult of the delivery of goods to customers, manage inventory levels,and selecting means of transport.

order cycle time (cycle time from order s / d order received) order preparation;

inventory availability;

delivery alternatives;

delivery time;

delivery reliability; delivery of complete order;

condition of goods;

order status information.


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Post-transaction elements

Determination procedure is performed services to supportproducts manufactured on the market. For example, to protectconsumers from defective products, providing returns,guarantees reinstatement, warrants, and listening to consumercomplaints.

availability of spares;

call-out time;

invoicing procedures;

invoicing accuracy;

product tracing/warranty; returns policy;

customer complaints and procedures;

claims procedures.


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MULTIFUNCTIONAL DIMENSIONS

of Customer service

1. Time usually order fulfilment cycle time;

2. Dependability guaranteed fixed delivery times ofaccurate, undamaged orders;

3. Communications ease of order taking, and queriesresponse;

4. Flexibility the ability to recognize and respond to acustomer's changing needs.


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CONCEPTUAL MODELS OF SERVICE QUALITY

Service quality is a measure of the extent to whichthe customer is experiencing the level of service thathe or she is expecting.

Service quality is that it is the match between whatthe customer expects and what the customerexperiences.

Service quality =

nsExpectatioDesired

100xePerformancPerceived


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LOGISTICS


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The Increased Importance of Logistics

A Reduction in Economic Regulation

Recognition by Prominent Non-Logisticians

Technological Advances

The Growing Power of Retailers

Globalization of Trade

Three objectives of logistics strategy:

Cost reduction (variable costs)

Capital reduction (investment, fixed costs) Service Improvement (may be at odds with

the above two objectives).

Components of


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Marketing

orientation(competitive

advantage)

Time and

place utility

Efficientmovement to

customer

Proprietary

asset

Natural resources

(land, facilities,and equipments)

Human resources

Financial resources

Information

resources

Management actions

Planning Implementation Control

Logistics Activities

Customer Service

Demand forecasting

Distribution

communications

Inventory control

Material handling

Order Processing

Parts and service

support

Plant andwarehouse site

selection

Procurement

Packaging

Return goodshandling

Salvage and scrap

disposal

Traffic and

transportation

Warehousing and

Raw

materials

In-process

inventory

Finished

goods

Inputs into logistics

SuppliersLogistics management

Customers

Outputs of

logistics

Components of

logistics management :


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Logistics activities can be divided into three

categories:

ProductionStorage

Transportation

The term Resource applies to all of the

factors of production, including materials

(e.g., Iron, fabric, parts), equipment (e.g.,

machines or vehicles), energy (e.g., oil,coal, electricity) and labor.


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PRODUCTION: Fundamental logistics questions are: (1) when should a

resource be produced; and (2) where should a resource be

produced.

The when question includes the topics ofaggregate resource

planning, and production scheduling.

The where question includes the topics offacility location and

production allocation.

Some of the important production questions are:

(a) What outside source should be used to supply a part?

(b) Where should a new facility be built?

(c) When should a facility produce different items, taking into account:

Seasonal demand patterns? Demand uncertainty?

Cost of operating single, double, triple shifts?

Labor costs?

(d) When should a firm use two or more sources for a part?


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INVENTORY: Fundamental logistics questions are (1) when should a

resource (material, machine or labor) be put in inventory and taken

out of inventory; and (2) where should a resource be stored.

The when question includes the general topics ofeconomic-order-quantity models, safety stock models and seasonal models, and

specialized topics of fleet management, and personnel planning.

The where questions includes the topic ofinventory echelons.

Some of the important inventory questions are:

(a) How much does it cost to store resources in inventory?

(b) How much safety stock should be carried in inventory to prevent

against running out of a resource?(c) How much inventory should be carried in order to smooth out

seasonal variations in demand?

(d) Where should replacement parts be stored in multi-echelon

inventory system?


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TRANSPORTATION: Fundamental logistics are: (1) where should

resources be moved to, and by what mode and route; (2) when

should resources be moved.

The where question includes the topics ofterminal location,vehicle routing, and shortest path methods and network flow

allocation.

The when question includes the topic ofdistribution rules.

Some of the important questions are:

(a) When should shipment be sent through terminals, and when

should shipment be sent direct?

(b) Which, and how many, terminals should shipments be sentthrough?

(c) What are the best vehicle routes?

(d) When should a vehicle be dispatched over a route?


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Logistics - Science of managing (controlling) the movement and

storage ofgoods (or people) from acquisition to consumption.

Goods: Raw Materials Final products, and everything in between.Logistics for services & people similar to goods logistics.

Ex. Police, fire, ambulance, passenger airlines, taxi cabs, etc.

Movement = Transportation (between locations).

Storage = Inventory, Warehousing (at locations).

Difference between acquisition and consumption is a matter of space

and time.

NOTE: Logistics does not dealwith Technology of Production, such

as the design of machines and vehicles and the design of finished

products.

Focus: Best way to overcome space and time that separates acquisitionand consumption.

Fi B i S t Ti htl I t t d Withi Th


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Five Business Systems - Tightly Interconnected Within The

Organization

Measurement

Decisions

Management

Systems

Reward

Decisions

Strategic

Decisions

TransportationDecisions

Sourcing

Decisions

Inventory

Decisions

LogisticsSystems{Price

DecisionsPromotion

DecisionsMarketing

Systems

Product

Decisions

Place (How,

where, how

much) }ProductionScheduling

Decisions

Production

Capacity

Decisions

Shop Floor

Decisions

ManufacturingSystems}

Product

Design

Decisions

Process

Design

Decisions Engineering

Systems}

Copyright 2000 - All Right s Reserved


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Activities and Logistics Decisions

Transportation

rate and contract negotiationmode and service selectionrouting and scheduling

Inventoriesfinished goods policiessupply scheduling

short term forecastingWarehousingprivate vs. publicspace determinationwarehouse configurationStock layout and dock designstock placement

Cross-dockingFacility Location

determining location, numberand size of facilities

allocating demand to facilities

Custom er Serv icedetermining customer wantsdetermining customerresponse to service changes

Materials Handlingequipment selectionequipment replacement

order picking proceduresPackaging designOrder Processing

order procedure determination

Production Schedulingaggregate production

quantitiessequencing and timing ofproduction runs

L i ti Pl i


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Logistics Planning

Decide what, when, how in three levels:

Strategic long range > 1 year

Tactical - < 1 year horizon

Operational frequently on hourly or daily basis

Examples of Decisions

Type Strategic Tactical Operational

Location

Transportation

Order Processing

(CS)

#Facilities, size,

location

Mode

Selecting order

entry system

Inventory

positioning

Seasonal Service

Mix

Priority rules for

customers

Routing

Replenishment

Qty and timing

Expediting orders


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The Logistics (Strategic) Planning Triangle

Which mode?

Which carrier?

Which route?

Shipment size andfrequency?

Where?, Howmany? What size?

Allocation?

Strategy/Controlsystem?

How much?

Where?

T t F d t l


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Transport Fundamentals

Transport involves equipment (trucks, planes, trains, boats, pipeline), people (drivers, loaders & un-loaders), and decisions (routing, timing, quantities, equipment size,

transport mode).When deciding the transport mode for a given productthere are several things to consider:

Mode price Transit time and variability (reliability)

Potential for loss or damage.

NOTE: In developing countries we often find it necessary tolocate production close to both markets and resources, whilein countries with developed distribution systems people can livein places far from production and resources.

Most important component of logistics cost.

Usually 1/3 - 2/3 of total cost.


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Routes of GoodsGoods atshippers

Freightforwarderwarehouse

Airterminal

planeair

Freight

forwarderwarehouse

Goods at

consignees

Containerterminal

vessel

sea Maychange

transpor-tationmodes

truck

landrailway

land barge

mid-streampier

bulk goodssea

Single mode Service Choices and Issues


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Air

Rapidly growing segment of transportation industry

Lightweight, small items [Products: Perishable and time sensitivegoods: Flowers, produce, electronics, mail, emergency shipments,

documents, etc.]

Quick, reliable, expensive

Often combined with trucking operations

RailLow cost, high-volume [Products: Heavy industry, minerals,

chemicals, agricultural products, autos, etc.]

Improving flexibility

intermodal service

Truck

Most used mode

Flexible, small loads [Products: Medium and light manufacturing,

food, clothing, all retail goods]

Trucks can go door-to-door as opposed to planes and trains

Single-mode Service Choices and Issues


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Water

One of oldest means of transport

Low-cost, high-volume, slow

Bulky, heavy and/or large items (Products: Nonperishable bulk

cargo - Liquids, minerals, grain, petroleum, lumber, etc )]

Standardized shipping containers improve service

Combined with trucking & rail for complete systems

International trade

Pipeline

Primarily for oil & refined oil products

Slurry lines carry coal or kaolin

High capital investment

Low operating costsCan cross difficult terrain

Highly reliable; Low product losses

Transport Cost Characteristics


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Transport Cost Characteristics

Rail

High fixed costs, low variable costs

High volumes result in lower per unit (variable) costs Highway

Lower fixed costs (dont need to own or maintain roads)

Higher unit costs than rail due to lower capacity per truck

Terminal expenses and line-haul expenses

Water High terminal (port) costs and high equipment costs (both fixed)

Very low unit costs

Air

Substantial fixed costs

Variable costs depend highly on distance traveled

Pipeline

Highest proportion of fixed cost of any mode due to pipeline ownership andmaintenance and extremely low variable costs


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Vehicle Routing:

- Separate single origin and destination:Once we have selected a transport mode and have goods that need to go

from point A to point B, we must decide how to route a vehicle (orvehicles) from point A to point B.

Given a map of all of our route choices between A and B we can create anetwork representing these choices The problem then reduces to theproblem of finding the shortest path in the network from point Ato B.

This is a well solved problem that can use Dijkstras Algorithm for quicksolution of small to medium (several thousand nodes) sizedproblems.

Vehicle Routing:


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Suppose we have multiple sources and multiple destinations, thateach destination requires some integer number of truckloads, and

that none of the sources have capacity restrictions [No Capacity

Restriction].

In this case we can simply apply the transportation methodof

linear programming to determine the assignment of sources to

destinations.Sources Destinations

Vehicle Routing:

- Multiple Origin and Destination Points

Vehicle Routing:


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- Coincident Origin and Destination: The TSP

Ifa vehicle must deliver to more than two customers,we must decide the order in which we will visit thosecustomers so as to minimize the total cost of making thedelivery.

We first suppose that any time that we make a delivery tocustomers we are able to make use of only a single vehicle,i.e., that vehicle capacity of our only truck is never an issue.

In this case, we need to dispatch a single vehicle from ourdepot to n - 1 customers, with the vehicle returning to thedepot following its final delivery.

This is the well-known Traveling Salesman Problem(TSP). The TSP has been well studied and solved forproblem instances involving thousands of nodes. We canformulate the TSP as follows:

Vehicle Routing:

Q ti b t th TSP


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Questions about the TSP

Given a problem with n nodes, how many distinct feasible toursexist?

How many arcs will the network have?

How manyxij variables will we have?

How could we quantify the number of subtour elimination

constraints? The complexity of the TSP has led to several heuristic or

approximate methods for finding good feasible solutions. Thesimplest solution we might think of is that of the nearest

neighbor.

Vehicle Routing: TSP inventory routing and vehicle


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Vehicle Routing: TSP, inventory routing, and vehicle

routing Traveling Salesman Problem(TSP): salesman visits n cities at

minimum cost

vehicle routing problem (VRP): m vehicles with capacity todeliver to n customers who have volume requirement, timewindows, etc.

I nventory Routing: m vehicle to delivery to n customer withtime windows, vehicle and storage capacity constraints, and un-

specified amount to be delivered. Points to remember:

1. Load points closest together on the same truck

2. Build routes starting with points farther from depot first

3. Fill the largest vehicle to capacity first4. Routes should not cross

5. Form teardrop pattern routes.

6. Plan pickups during deliveries, not after all deliveries havebeen made.


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Vehicle Routing

Find best vehicle route(s) to serve a set of orders fromcustomers.

Best route may be minimum cost,

minimum distance, or minimum travel time.

Orders may be Delivery from depot to customer. Pickup at customer and return to depot. Pickup at one place and deliver to another place.


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Documents

31224944 Logistics Integration for Customer Satisfaction Distribution Cost Control and Customer Service