Professional Documents
Culture Documents
Financial Perspective
Financial Perspective
78-633 Lecture 05
Agenda
Order Cycle Time The impact of customer service Customer service level determination
Price Quality Service, or customer service Each customer weighs these when making a purchasing decision.
Broad definitions:
Anything that impacts customer loyalty and retention. Begins with order entry and continues through product support. The speed and dependability with which items can be made available The entire process of filling the customers order
Pre-transaction elements: providing a written statement of customer service policy, e.g., when goods will be delivered, return policy and procedure, methods of shipment, let customers know what to expect Transaction elements: directly related to delivery of the product (order convenience, delivery time, shipping accuracy, backorder system, etc.) Post-transaction: keeping the customer happy (warranty, support, recall, handling claims, complaints and returns, etc.)
7
10
11
12
13
Variation in performance is worse than slow performance (why?) A simple view of the job of logistician: to reduce system variance (e.g. cycle time variance). Leads to improved performance, efficiency, customer service, etc.
14
If the product is not on the shelf and has to be backordered, order cycle time increases dramatically (and variance increases too): Typical Order Cycle Time
16
A Small Example
Order Prep and Transmittal Order Received and Entered
Order Processed Order Picked and Packed Transit Time Customer Receives and Stores Total
2 days 1
1 5 3 1 13 days
17
2 days 1 1 5 3
1 13 days
18
19
To improve customer service, which are the top two components that should be examined?
Order Prep and Transmittal Order Received and Entered Order Processed Order Picked and Packed Transit Time Customer Receives and Stores Total 2 days 1 1 5 3 1 13 days +/- 1 days +/- .5 +/- .5 +/- 4 +/- 2 +/- .5 +/- 8.5 days
20
21
High levels of customer service promote customer retention One study suggests that 65% of revenues come from repeat customers This means that 35% of revenues come from new customers It costs 6 times more to attract a new customer than it does to keep an existing one. Losing a customer represents a multi year revenue loss Further it takes a long time for a new customer ordering volume to reach that of an established customer.
22
One would prefer to increase investment in efforts aimed at increasing the percentage of repeat business (to avoid customer loss) instead of investing in new sales. Customer service increases improve customer retention Logistics is a big part of customer service Therefore it is more cost effective to invest in improved logistics systems
23
Sales-Service Relationship
Or this?
Sales
Sales
Sales-Service Relationship
Are we in the transition zone where it makes sense to increase customer service? Are we here? Sales
Revenue
Sales or Costs Profit Cost of Logistics
27
We have decided to increase warehouse inventory to improve customer service. What is the optimal level for this increase? By detailed estimates and / or past trends, we find the following relationships:
SL 50 55 60 65 70 75 80 85 90 Inventory $ 500 600 725 850 990 1180 1500 1800 2300
SL 50 55 60 65 70 75 80 85 90
Revenue $ 600 745 900 1200 1350 1600 1750 1850 1925
28
Excel enables you to plot the data as a scatter plot and perform basic regression analyses
Chart Title
Revenue $ and SL
2500
Revenue ($000)
y = 0.0234x 2 R = 0.981
2.5278
70
80
90
100
40
50
60
70
80
90
100
Service Level
Service Level
30
Analytic Models
Profit = Revenue - Cost Revenue = 2449.2Ln(SL) - 9038.2 Cost = 0.0234SL2.5278