Lecture Note - Day 3

Logistics Cost

Warehousing costs
- are created by warehousing and storage activities, and by the plant and warehouse site selection process.

Order Processing/Information Cost
- Includes costs related to activities such as order processing, distribution communications, and forecasting demand.
- Order processing is important to support good customer service levels and control costs.
- E.g. Order transmittal, order entry, processing order, related internal and external costs such as notifying carriers and customers of shipping information and product availability.
- Information system and technology such as Electronic Data Interchange (EDI), satellite data transmission, and bar coding and scanning shipments and sales. Others are artificial intelligence (AI) and expert systems.

Lot Quantity Cost
- Purchasing or production related costs that vary with changes in order size or frequency and include:
- Setup costs
- Time required to set up a line or locate a supplier and place an order
- Scrap due to setting up the production line
- Operating inefficiency as the line begins to run, or as a new supplier is brought on board
- Capacity lost due to downtime during changeover of line or changeover to a new supplier
- Material handling, scheduling and expediting
- Price differentials due to buying in different quantities
- Order costs associated with order placement and handling

Inventory Carrying Cost
- Includes inventory control, packaging, and salvage and scrap disposal.
- Major categories of inventory cost are:
- Capital cost, or opportunity cost - the return that the company could make on the money that has tied up in inventory
- Inventory service cost – insurance and taxes on inventory
- Storage space cost – warehousing space-related costs which change with the level of inventory
- Inventory risk cost – obsolescence, pilferage, relocation within the inventory system, and damage.


Scope of Material Management
- Material management is typically comprised of four basic activities:
¨Anticipating material requirements
¨Sourcing and obtaining materials
¨Introducing materials into the organization
¨Monitoring the status of materials as a current asset

Why forecast
- Increasing customer satisfaction
- Reducing stock-outs
- Scheduling production more efficiently
- Lowering safety stock requirements
- Reducing product obsolescence costs
- Managing shipping better
- Improving pricing and promotion management
- Negotiating superior terms with suppliers

Type of forecast
- Demand forecast – Investigation of the firm’s demand for the item, to include current and projected demand, inventory status and lead times.
- Supply forecast – Collection of data about current producers and suppliers, the aggregate projected supply situation, technological and political trends that might affect supply
- Price forecast – Based on information gathered and analyzed about demand and supply. Provides a prediction of short and long-term prices and the underlying reasons for those trends.

Material Management Philosophies
- TQM
- Kanban (cards) – Toyota Production System 1950s.
¨Material should be supplied at the very moment they are needed in the factory production process.
- JIT – Kanban linked with purchasing, manufacturing and logistics.
¨Reduce manufacturing costs, eliminate waste, resource utilization
¨Right materials to the right place at the right time
¨High quality products (zero defects), high productivity, lower inventory, long-term relationships with channel members
- MRP System
¨Material Requirement Planning (MRP I)
-computer system
-inventory
-production scheduling
¨Material Resource Planning (MRP II) - upgraded
-financial
-marketing
-purchasing
- DRP System
¨Distribution Requirement Planning (DRP I)
¨Distribution Resource Planning (DRP II) – upgraded
- The application of MRP principles to the distribution environment



Warehouse
- That part of the firm’s logistics system that stores products (raw materials, parts, goods-in-process, finished goods) at and between point of origin and point of consumption, and provides information to management on the status, condition, and disposition of items being stored.

Importance of warehouse
-Achieve transportation economies
-Achieve production economies
-Take advantage of quantity purchase discounts and forwards buys
-Maintain a source of supply
-Support the firm’s customer service policies
-Meet changing market conditions (e.g. seasonality, demand fluctuations, competition)
-Overcome the time and space differentials that exist between producers and consumers
-Accomplish least total cost logistics commensurate with a desired level of customer service
-Support the just-in-time programs of suppliers and customers
-Provide customers with a mix of products instead of a single product on each order
-Provide temporary storage of materials to be disposed of or recycled

Improving Warehouse Productivity
- Methods related – cube utilization, layout and design, procedures, batch picking of small orders, standardized packaging, warehouse consolidation
- Equipment related – optical scanners, automatic labeling, automated material handling equipment, communication devices, computers, automated storage/retrieval system (AS/RSs), conveyors.
- System related – router/location systems, geographical or zone picking
- Training/motivation related – training, management development, incentive systems, awards, etc.

Factors Affecting Warehouse Size
- Customer service levels
- Size of market or market served
- Number of products marketed
- Size of the product or products
- Material handling system used
- Throughput rate
- Production lead time
- Economies of scale
- Stock layout
- Aisle (gap) requirements
- Office area in warehouse
- Types of racks and shelves used
- Level and pattern of demand

MORE........ IN THE CLASS SESSION

Lecture note - Day 2

Where should Customer Service be located?

Case Study 1
In an organization, where do you think Customer Service should function?

Plot/draft an organization structure in a manufacturing environment and highlight the position of logistics & distribution and customer service.





















Customer service represents the output of the logistics systems as well as a place component of the organization’s marketing mix. Customer service performance is the measure of how well the logistics systems function in creating time and place utility with a focus on external customers.

The level of customer service provided to customers determines whether the organization will retain its existing customers and how many new customers it will attract. The customer service level that an organization provides has a direct impact on its market share, its logistics cost and its overall profitability.

Customer service is a measure of how well the logistics systems is performing in providing time and place utility for a product or service. Customer satisfaction represents the customer’s overall assessment of all elements of the marketing mix.

Customer service is defined as a process which takes place between the buyer, seller and third party. The process results in a value added to the product or service exchanged. This value added in the exchange process might be short term as in a single transaction or longer term as in a contractual relationship. Thus in a process view: customer service is a process for providing significant value-added benefits of the supply chain in a cost effective way.



Element of Customer Service

Pre-transaction

Relates to the organization’s policies regarding customer service and the perceptions of customers regarding the organization.
For examples:
-Written customer service
-Accessibility
-Organization structure
-System flexibility


Transaction

Elements normally considered with logistics
For examples:
-Order cycle time
-Inventory availability
-Order status information
-Handling of shipments
-Product substitution
-System accuracy


Post-transaction

Supports the product or service after the customer has received it.
For examples:
-Installation, warranty, repairs and service parts
-Product tracking
-Customer complains, claims, returns
-Product replacement
-Call out time
-Availability of spares




Case Study 2

You are the Logistics Manager for a manufacturing product. You were tasked to establish a customer service department in the organization
The tasks:
-Select an appropriate product
-Identify the roles and objectives of the customer service
-How do you identify your customers’ needs?
-How could the customer service helps you in the production of your products?



Customer Service - Background


Operating a successful business doesn't rest solely on the products you sell. Just as important is the relationship you build with your customers to ensure their return.

Many of your customers may utilize your services only once or twice a year. That's why building customer loyalty is important to ensure repeat visits. Every interaction, whether it's by telephone or in person, is an opportunity for you to showcase superior service and differentiate yourself from the competition.

In today's competitive marketplace, customer loyalty is difficult to build. Products and services are becoming similar. To build customer loyalty, your company must remain in the forefront of your customers' minds and provide outstanding customer service to gain market share.


So, what can you do to make them want to return and/or recommend your company? What steps should be taken to ensure they have a memorable experience that will motivate them to increase their number of rentals? The answer is simple: Provide them with "legendary" customer service by building strong relationships.

Just like you, customers want to go to a place where they feel comfortable, where "everybody knows your name." It just won't be enough to take an order and politely say, "thank you." Doing the bare minimum by responding politely will result in the bare minimum - and it certainly won't help you increase your sales or build loyalty.

Customers expect to be treated politely. That's why you have to do more than that. It takes work to build solid relationships with customers. This can be accomplished with a few simple preparations.


Learn the customer's name and company name

Proper body language is key

Utilize your database

All customers are important

Focus only on the customer

Be sincere

Be proactive to determine your customer's needs

Remain engaged in the interaction

Determine if the inside sales opportunity can be turned into something more

The phone is an important sales tool

Consider a strong marketing campaign

Deliver what you say you will deliver

Follow up

Invest in training



Conclusion

Following these comprehensive steps will allow your company to remain top-of-mind with the customer. Customer loyalty does not happen by accident - it is something you always have to work on. Remember that the effort put forth in building legendary customer service will build unwavering customer loyalty, referrals and the potential for increased sales.

Lecture note - Day 1

When we finish this lecture you should:

Understand the relevance of physical distribution with customer demand.
Understand why the physical distribution customer service level is a key marketing strategy variable.
Understand the physical distribution concept and why it requires coordination of storing, transporting, and related activities.
See how firms can cooperate and share logistics activities to improve value to the customer at the end of the channel.
Know about the advantages and disadvantages of the various transporting methods.
Know how inventory decisions and storing affect marketing strategy.
Understand the distribution center concept.
Pass your exam!



Key Logistics Activities

Customer service
Demand forecasting/ planning
Inventory management
Logistics communications
Material handling
Order processing
PackagingParts & service support
Plant & warehouse site selection
Purchasing
Return goods handling
Reverse logistics
Traffic & transportation
Warehousing & storage



The Definition of Logistics

Logistics management is that part of the Supply Chain Management process that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers' requirements.

These are the boundaries and relationships of Logistics Management adopted by the Council of Logistics Management: "Logistics Management activities typically include inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, logistics network design, inventory management of third party logistics services providers.

To varying degrees, the logistics function also includes sourcing and procurement, production planning and scheduling, packaging and assembly, and customer service. It is involved in all levels of planning and execution -- strategic, operational and tactical.

Logistics Management is an integrating function, which coordinates and optimizes all logistics activities, as well as integrates logistics activities with other functions including marketing, sales manufacturing, finance and information technology."



Case Study 1

Plan your logistics requirements if you are the:
Logistics Manager in Samseng Handphone Manufacturing Sdn. Bhd.
Supplier of raw materials to Protone.
Logistics Manager in Nestlay Food Industry.

Define your point A and B accordingly.
You must include key logistics activities between A and B.
You have agents, wholesalers and retailers. Where will you position them and what will be their role in your logistics chain?