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

Customer Satisfaction

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] are set to meet customer expectations of Q,C,D. Q, C, S, H, E are parts of must be quality that a customer expects. Logistics addresses D, F objectives which lead to customer satisfaction through superior customer service

How loogistics lead to customer satisfaction?

1. Rapid response Logistics should ensure that the supplier is able to respond to the change in the demand very fast. Entire production should change from traditional push system to pull system to facilitate rapid response. IT helps management in producing and delivering goods when the consumer needs them. This results into reduction of inventory and exposes all operational deficiencies.

2. Minimum variance Logistics is expected to minimize events like delays due to obstacles in information flow, traffic snarls, acts of god, wrong dispatches, damage in transit, thereby minimize and improve on OTD or On Time Delivery 3. Quality If the quality of product fails logistics will have to ship the product out of customers premises and repeat the logistics operation again. This adds to costs and customer dissatisfaction. Hence logistics should contribute to TQM initiative of management.

4. Life cycle support- Logistics function is expected to

provide life cycle support to the product after sale. This includes a) After sales service b) Reverse logistics or Product recall

a) After sales service: the service support needed by

the 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 containing hazardous 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

Distribution costs
Analysis of distribution cost may be made on the

following lines:

Product or Product lines Individual customers or Group of customers Channels of distribution Salesmen Geographical area or territories Terms of sales Order sizes

Elements of Total cost in Physical Distribution Systems

Total Distribution Cost TDC = TC + FC + CC + IC + HC + PC + MC

 TC - Transport Cost (Substantial

Fixed Cost element)

Centralised Distribution Route Planning Optimal Schedules Use of software

Capacity to match volumes

Railways, Airways ,Seaway cost

 FC Facility Cost
Warehousing,

capital cost and running cost related to infrastructure and internal systems to store and pick up stocks Use of Information Systems, Electronic Data Interchange Warehouse Management System like radio links. Reduction in wage bill Refer to HR

 CC Communication Cost Cost associated with EDI and other communication through the chain. These are administrative costs IC Inventory Cost Direct capital cost for goods purchased and Opportunity cost for carrying inventory. These are cost associated with maintenance and replenishment of inventory

 HC Handling Cost Cost associated with Deterioration of stocks

Damage,

Pilferage,

PC Packaging Cost Repacking, shrink wrapping, pallets, boxes, containers, tapes, labels etc

MC Management Cost

Cost associated Management of the chain. Ranging from security system to storage conditions to HR, Finance and almost everything where managerial input is needed

Control and Customer Service

Definition of Customer Service

Customer service is the fulfillment process, the process to meet consumer demand as a whole. The process includes records requests manually or electronically, payment, selection of goods, delivery and provision of goods, as well as providing service to users of goods, also regulates the 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 chain in a cost-effective way.

Logistics planning in customer service

THE IMPORTANCE OF CUSTOMER SERVICE

THE IMPORTANCE OF CUSTOMER SERVICE

Effect on Service Sales
Service Improvement
Improvement: Volume Price Reputation

Increased Market Share

Increased Profit

Effect on Customer Service

- Increasing customer loyalty - Maintain good relations with customers by creating customer satisfaction. - The cost of maintaining existing customers is cheaper than getting new customers (6X fold cost)

THE COMPONENTS OF CUSTOMER SERVICE

Pre-transaction elements: customer service factors that

arise prior to the actual transaction taking place Transaction elements: the elements directly related to the physical transaction and are those that are most commonly concerned with distribution and logistics. Post-transaction elements: these involve those elements that occur after the delivery has taken place

Pre-transaction elements
Is the determination of customer service strategies to be implemented, provide a written record of customer service policies. For example, specify how the item is sent after the order is received, set the procedure returns (back order), and method of 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.

Transaction elements
Is a determination concerning the implementation of the strategy delivery of goods / products to the consumer. This element is a direct result 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.

Post-transaction elements
Determination procedure is performed services to support products manufactured on the market. For example, to protect consumers from defective products, providing returns, guarantees reinstatement, warrants, and listening to consumer complaints.

availability of spares; call-out time; invoicing procedures; invoicing accuracy; product tracing/warranty; returns policy; customer complaints and procedures; claims procedures.

MULTIFUNCTIONAL DIMENSIONS
of Customer service
1. 2. 3. 4.

Time usually order fulfilment cycle time; Dependability guaranteed fixed delivery times of accurate, undamaged orders; Communications ease of order taking, and queries response; Flexibility the ability to recognize and respond to a customer's changing needs.

CONCEPTUAL MODELS OF SERVICE QUALITY

Service quality is a measure of the extent to which

the customer is experiencing the level of service that he or she is expecting. Service quality is that it is the match between what the customer expects and what the customer experiences. Service quality = Perceived Performanc e x 100

Desired Expectatio ns

LOGISTICS

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 logistics management :

Planning
Inputs into logistics

Management actions Implementation Control

Outputs of logistics

Natural resources (land, facilities, and equipments)

Logistics management Suppliers Raw In-process materials inventory Finished goods

Customers

Marketing orientation (competitive advantage) Time and place utility Efficient movement to customer

Human resources

Logistics Activities Customer Service Demand forecasting Distribution communications Inventory control Material handling Order Processing Parts and service support Plant and warehouse site selection Procurement Packaging Return goods handling Salvage and scrap disposal Traffic and transportation Warehousing and

Financial resources

Information resources

Proprietary asset

Logistics activities can be divided into three categories: Production Storage 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.

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 of aggregate resource planning, and production scheduling. The where question includes the topics of facility 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?

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 of economic-orderquantity models, safety stock models and seasonal models, and specialized topics of fleet management, and personnel planning. The where questions includes the topic of inventory 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?

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 of terminal location, vehicle routing, and shortest path methods and network flow allocation.
The when question includes the topic of distribution 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 sent through? (c) What are the best vehicle routes? (d) When should a vehicle be dispatched over a route?

Logistics - Science of managing (controlling) the movement and storage of goods (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 Storage = Transportation (between locations). = Inventory, Warehousing (at locations).

Difference between acquisition and consumption is a matter of space and time. Focus: Best way to overcome space and time that separates acquisition and consumption. NOTE: Logistics does not deal with Technology of Production, such as the design of machines and vehicles and the design of finished products.

Five Business Systems - Tightly Interconnected Within The Organization

Management Systems Strategic
Decisions Product Design Decisions Process Design Decisions

Measurement Decisions

Product Decisions Price Decisions Place (How, where, how much)

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Promotion Decisions Production Capacity Decisions Production Scheduling Decisions

Engineering Systems

Reward Decisions

Logistics Systems

Marketing Systems

Inventory Decisions

Transportation Decisions

Sourcing Decisions

Shop Floor Decisions

Manufacturing Systems

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Activities and Logistics Decisions

Transportation
rate and contract negotiation mode and service selection routing and scheduling

Customer Service
determining customer wants determining customer response to service changes

Inventories
finished goods policies supply scheduling short term forecasting

Materials Handling
equipment selection equipment replacement order picking procedures

Warehousing
private vs. public space determination warehouse configuration Stock layout and dock design stock placement Cross-docking

Packaging design Order Processing

order procedure determination

Production Scheduling
aggregate production quantities sequencing and timing of production runs

Facility Location
determining location, number and size of facilities allocating demand to facilities

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 Location Strategic #Facilities, size, location Mode Tactical Inventory positioning Operational Routing

Transportation

Seasonal Service Replenishment Mix Qty and timing Priority rules for customers Expediting orders

Order Processing Selecting order entry system (CS)

The Logistics (Strategic) Planning Triangle

Strategy/Control system? How much? Where?

Which mode? Which carrier? Which route? Shipment size and frequency?

Where?, How many? What size? Allocation?

Transport Fundamentals
Most important component of logistics cost. Usually 1/3 - 2/3 of total cost.

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 product there 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 to locate production close to both markets and resources, while in countries with developed distribution systems people can live in places far from production and resources.

Routes of Goods
air

Air terminal Container terminal

bulk goods

plane

Goods at shippers
sea sea

vessel
mid-stream

Freight forwarder warehouse

pier
land land

barge
railway truck

May change transportation modes

Freight forwarder warehouse

Goods at consignees

Single-mode Service Choices and Issues

Air Rapidly growing segment of transportation industry Lightweight, small items [Products: Perishable and time sensitive goods: Flowers, produce, electronics, mail, emergency shipments, documents, etc.] Quick, reliable, expensive Often combined with trucking operations Rail Low 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

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 costs Can cross difficult terrain Highly reliable; Low product losses

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 and

maintenance and extremely low variable costs

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 (or vehicles) from point A to point B. Given a map of all of our route choices between A and B we can create a network representing these choices The problem then reduces to the problem of finding the shortest path in the network from point A to B. This is a well solved problem that can use Dijkstras Algorithm for quick solution of small to medium (several thousand nodes) sized problems.

Vehicle Routing:
- Multiple Origin and Destination Points
Suppose we have multiple sources and multiple destinations, that each 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 method of linear programming to determine the assignment of sources to destinations.
Sources Destinations

Vehicle Routing:
- Coincident Origin and Destination: The TSP If a vehicle must deliver to more than two customers, we must decide the order in which we will visit those customers so as to minimize the total cost of making the delivery. We first suppose that any time that we make a delivery to customers 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 our depot to n - 1 customers, with the vehicle returning to the depot following its final delivery. This is the well-known Traveling Salesman Problem (TSP). The TSP has been well studied and solved for problem instances involving thousands of nodes. We can formulate the TSP as follows:

Questions about the TSP

Given a problem with n nodes, how many distinct feasible tours

exist? How many arcs will the network have? How many xij 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. The simplest solution we might think of is that of the nearest neighbor.

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 to deliver to n customers who have volume requirement, time windows, etc. Inventory Routing: m vehicle to delivery to n customer with time windows, vehicle and storage capacity constraints, and unspecified 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 first 4. Routes should not cross 5. Form teardrop pattern routes. 6. Plan pickups during deliveries, not after all deliveries have been made.

Vehicle Routing
Find best vehicle route(s) to serve a set of orders from

customers.

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.