CHAPTER 5: DEMAND MANAGEMENT AND CUSTOMER SERVICE

LEARNING OBJECTIVES

After studying this chapter, you will be able to

• Explain the outbound logistics
• Discuss the facility location
• Understand the demand management
• Define the role of transportation in a supply chain - direct shipment
• Understand the channels of distribution

INTRODUCTION

The demand management process concerned with balancing the customers’ requirements with the capabilities of the supply chain. This
includes forecasting demand and synchronizing it with production, procurement, and distribution capabilities. A good demand management
process can enable a company to be more proactive to anticipated demand, and more reactive to unanticipated demand. An important
component of demand management is finding ways to reduce demand variability and improve operational flexibility. Reducing demand
variability aids in consistent planning and reduces costs. Increasing flexibility helps the firm respond quickly to internal and external events. Most
customer-driven variability unavoidable, but one of the goals of demand management is to eliminate management practices that increase
variability, and to introduce policies that foster smooth demand patterns. Another key part of demand management is developing and executing
contingency plans when there are interruptions to the operational plans.

Demand management may be thought of as focused efforts to estimate and manage customer's demand with the intention of using this
information to shape operating decisions. The essence of demand management is to further improve the ability of firms throughout the supply
chain-particularly manufacturing through the customer to collaborate on activities related to the flow of product, services, information and
capital. The desired end result should be to create greater value for the end user or consumer, for whom all supply chain activities.

Customer Service Defined As:

1. Customer Service as an Activity: This level treats customer service as a particular task that a firm must accomplish to satisfy the customer's
needs. Order processing, billing and invoicing product returns, and claims handling are all typical examples of this level of customer service.
Customer service department, which basically handle customer problems and complains, also represent this level of customer service,
2 Customer Service as Performance Measures: This level emphasizes customer service in terms of specific performance measures, such as the
percentage of orders in terms of specific performance measures, such as the percentage of orders delivered on time and complete and the
number of orders processed within acceptable time limits.

3. Customer Service as a Philosophy: This level elevates customer service to a firm-wide commitment to providing customer satisfaction through
superior customer service. This view of customer service is entirely consistent with many firms' contemporary emphasis on quality and quality
management.

OUTBOUND LOGISTICS

Outbound logistics are the distribution of those products manufactured by our company, to the retailer or our respective outlets.

When we enter a store, we see different products. What we may not think about is how these items reach consumers where outbound logistics
come into play.

Behind each product lies a complex network that controls how, when and where thousands of items are sent each day. If we plan to start a
business, or are simply curious understanding outbound logistics provides insight into the processes that drive the economy.

Outbound Logistics division offers comprehensive services to buyers sourcing their products from multiple suppliers in multiple countries. It is
designed to facilitate a seamless flow of goods with complete transparency of information from point to point, to ensure that the products arrive
in the marketplace on-time and in perfect condition

Freight Systems uses premium airfreight carriers with established routing for outbound logistic. Many different options are available for the
most competitive and reliable airfreight forwarding service. This activity has been fine tuned to offer the customer expediting, quality checking,
invoicing planning, storage and selection of the best Air Sea mode to keep up seamless flow of goods and information to meet with the
demanding and time bound schedules of international houses.

Although companies cannot afford to neglect their inbound logistics systems many companies focus more on outbound systems because of the
costs involved and because managing the outbound system well make it easier to achieve and sustain market share.
The current emphasis on reducing cycle times and developing pull inventory systems and flexible manufacturing makes it even critical that the
inbound and outbound systems be coordinated. It is almost impossible in today's environment to manage inbound and outbound systems in the
same company as separate processes.
Inbound and outbound systems share some common activities, such as transportation, inventory, warehousing, and materials handling.
However, like inbound systems, outbound systems have some activities that are unique or deserve special emphasis, such as customer service
and channels of distribution Outbound-to-customer Logistics systems, also referred to as physical distribution, refers to the set of processes,
systems and capabilities that enhance a firm's ability to serve its customers. In an effort to serve their customers, many firms have placed
significant emphasis on outbound-to-customer logistics systems. Inbound-to operations Logistics systems refer to the activities and process that
precede and facilitate value-adding activities such as manufacturing, assembly and so on. It is also referred to as materials management

FACILITY LOCATION

Facility location, also known as location analysis, is a branch of operations research and computational geometry concerning itself with
mathematical modeling and solution of problems concerning optimal placement of facilities in order to minimize transportation costs, avoid
placing hazardous materials near housing, outperform competitors' facilities Facility location is actually a term used in operation management,
facility location or location analysis is done so that the better uses of the location can be understood The company by understanding the
materials and production process done nearby the location can save ample time in production process and also save a lot in terms of
transportation cost. And also the company can find out optimum position for the location of the company so that all the factors that are needed
will be not a long distance from the company.

Some of the benefits in location analysis include:

• We get a thorough knowledge of all the factors involved in the production, and ways through which the materials that are needed in the
production can easily be accessed.

• When we do a proper location analysis for our facility we will also come across alternate substitute materials that are readily available and will
cost less.

• We can save a lot on transportation cost for materials, labor, import and export

• The materials will be available at a comparatively low cost.

• The best way to get a task done is by finding out ways through which the task can be done. Location analysis helps us in those aspects.
• Allows differentiating between practical positions to place our facility. Like for example, we cannot build a hazardous facility in a residential
area. Gives we access to cheap labor, and needed raw materials like water electricity and many more.

• Helps in a smooth running of an organization by seeing to that all that is possibly needed is readily and easily available

• Also has very easy access to production, distribution

• Allows us to outperform our competitor’s facilities and sale of the products

Once we have found the optimal location then we will very easily overcome all the issues that we are likely to face and have a smooth running of
an organization. When we plan accordingly, we will also be prepared to face some minor hindrances.

DEMAND MANAGEMENT
Demand management is the function of recognizing all demands for goods and services to support the market place. It involves prioritizing
demand when supply is lacking. Proper demand management facilitates the planning and use of resources for profitable business results. The
last few decades have seen an increasing demand for enterprise software applications that can streamline supply chain processes and provide
lean manufacturing capabilities. At the other end of the supply chain, companies have been moving towards outsourcing their product
distribution in order to keep sales overhead in check without sacrificing revenue.

These recent trends have resulted in a unique dilemma. While companies can produce products more efficiently, they have little knowledge
regarding what to produce, for whom and when they now have better visibility into their supply chains but they lack the same kind of visibility
into their often-fragmented demand chain.

The current economic slowdown and huge inventory write-offs resulting from this lack of visibility have highlighted the need for a systematic
way to predict and manage demand. New technologies provide the capability to extend supply chain visibility that car support a truly dynamic
collaborative internal environment, but companies are looking beyond sources within the enterprise, such as sales and promotions groups, to
include customers in the demand Accurate management cycle forecasting remains central to the success of a demand management initiative,
but demand management is much more than just forecasting Traditionally, forecasting involves looking at past demand data to predict future
demand. Demand management goes beyond the static forecasting of yesterday, replacing it with a more fluid, ongoing view of determining
demand that involves all demand-chain constituents. Currently there is a thrust towards real-time synchronization of the supply chain to the
demand signals. This collaborative method enhances the accuracy of forecasting since all factors affecting that forecast can be viewed by all
stakeholders, including customers. Companies can begin to bridge the gap between their supply and demand chains by doing the following
Reshaping relationships with channel partners to ensure accurate demand forecasts. Manufacturers should implement a closed-loop process for
gathering analyzing and filtering demand forecasts from channel partners. The demand management system should be tightly integrated with
management systems for entitlement and other benefit programs for channel partners. This would help to ensure that just-in-time
manufacturing performed for the right products, in the right quantity, at the right time.

ROLE OF TRANSPORTATION IN A SUPPLY CHAIN - DIRECT SHIPMENT

Transportation refers to the movement of product from one location to another as it makes its way from the beginning of a supply chain to the
customer's handle. In this exciting new broad look at the business of transportation, including Supply Chain Management, Logistics, and
procurement. Freight transportation costs in the United States amount to about 6% of the GDP.

Many manufacturers and retailers have found that they can use state of the art supply chain management to reduce inventory and warehousing
costs while speeding up delivery to the end customer.
There are two keys players in any transportation that takes place within a supply chain. The shipper is that party that requires the movement of
the product between two points in the supply chain. The carrier is the party that moves or transports the product. For eg, when Dell uses UPS to
the ship its computers from the factory to the customer, Dell is the shipper and UPS is the carrier. There are numbers of factors affecting carrier
decisions.

The vehicle related is incurred whether the vehicle is operating or not and is considered fixed for short-term operational decisions by the carrier.

• Fixed, operating cost is generally proportional the size of to operating facilities.

This includes any cost associated with terminals, airport gates and labor that are incurred whether vehicles are operating or not

• Trip-related cost includes the price of labor and fuel incurred for each trip independent of the quantity transported.

• Quantity-related cost are loading / unloading costs and a portion of the fuel cost that varies with the quantity being transported.

• Overhead cost includes the cost of planning and scheduling a transportation network as well as any investment in information

Technology

A carrier's decisions are also affected by the responsiveness it seeks to provide its target segment and the prices that the market will bear. The
various modes of transportation include water, rail, intermodal, truck, air and pipeline and package carriers Water is typically the least expensive
mode but is also the slowest whereas air and package carriers the most expensive and the fastest. Rail and water are best suited for low-value.
Large shipments that do not need to be moved in a hurry. Air and package carriers are best suited for small high-value, emergency shipments
Intermodal TL carriers are faster than rail and water but somewhat a more expensive LTL carriers are best suited for small shipments that are too
large for package carriers but much less than a TL.

Making Transportation Decisions in Practice

Managers should ensure that a firm's transportation strategy supports its competitive strategy. Firms should evaluate the transportation
function based on a combination of transportation costs, other costs such as inventory affected by transportation decisions, and the level of
responsiveness achieved with customers.

Managers should consider an appropriate combination of company-owned and outsourced transportation to meet their needs.

The importance of transportation to the success of their strategy, they own their transportation Fleet and manage it themselves, Transportation
systems for the new economy need to be very responsive but most also be able to exploit every opportunity for aggregation some cases even
with competitors, to help decrease the transportation cost of small shipments. Managers must use the information technology available to help
decrease cost and improve responsiveness in their transportation networks Satellite based communication systems allow carriers to
communicate with each vehicle in their fleet.

CHANNELS OF DISTRIBUTION

A channel of distribution or trade channel is defined as the path or route along which goods move from producers or manufacturers to ultimate
consumers or industrial users. In other words, it is a distribution network through which producer puts his products in the market and passes it
to the actual users. This channel consists of: producers, consumers or users and the various middlemen like wholesaler, selling agents and
retailers (dealers) who intervene between the producers and consumers Therefore, the channel serves to bridge the gap between the point of
production and the point of consumption thereby creating time, place and possession utilities.

A channel of distribution consists of three types of flows:

• Downward flow of goods from producers to consumers

• Upward flow of cash payments for goods from consumers to producers

• Flow of marketing information in both downward and upward direction

Flow of information on new products, new uses of existing products, etc from producers to consumers. And flow of information in the form of
feedback on the wants, suggestions, complaints, etc from consumers/users to producers. An entrepreneur has a number of alternative channels
available to him for distributing his products. These channels vary in the number and types of middlemen involved. Some channels are short and
directly link producers with customers. Whereas other channels are long and indirectly link the two through one or more middlemen.

These channels of distribution are broadly divided into four types:

1. Producer-Customer: This is the simplest and shortest channel in which no middlemen is involved and producers directly sell their products to
the consumers. It is fast and economical channel of distribution. Under it, the producer or entrepreneur performs all the marketing activities
himself and has full control over distribution. A producer may sell directly to consumers through door-to-door salesmen, direct mail or through
his own retail stores. Big firms adopt this channel to cut distribution costs and to sell industrial products of high value Small producers and
producers of perishable commodities also sell directly to local consumers.

2. Producer-Retailer-Customer. This channel of distribution involves only one middleman called 'retailer. Under it, the producer sells his product
to big retailers (or retailers who buy goods in large quantities) who in turn sell to the ultimate consumers. This channel relieves the manufacturer
from burden of selling the goods himself and at the same time gives him control over the process of distribution. This is often suited for
distribution of consumer durables and s products of high value.

3. Producer-Wholesaler-Retailer-Customer. This is the most common and traditional channel of distribution. Under it two middlemen, ex.
wholesalers and retailers are involved. Here, the producer sells his product to wholesalers, who in turn sell it to retailers. And retailers finally sell
the product to the ultimate consumers. This channel is suitable for the producers having limited finance, narrow product line and who needed
expert services and promotional support of wholesalers. This is mostly used for the products with widely scattered market.

4. Producer-Agent-Wholesaler-Retailer-Customer: This is the longest channel of distribution in which three middlemen are involved. This is used
when the producer wants to be fully relieved of the problem of distribution and thus hands over his entire output to the selling agents. The
agents distribute the product among a few wholesalers. Each wholesaler distributes the product among a number of retailers who finally sell it
to the ultimate consumers. This channel is suitable for wider distribution of various industrial products. An entrepreneur has to choose a suitable
channel of distribution for his product such that the channel chosen is flexible, effective and consistent with the declared marketing policies and
programmes of the firm. While selecting a distribution channel, the entrepreneur should compare the costs, sales volume and profits expected
from alternative channels of distribution and take into account the following factors:

• Product Consideration: The type and the nature of products manufactured is one of the important elements in choosing the distribution
channel. The major product related factors are:

a. Products of low unit value and of common use are generally sold through middlemen. Whereas, expensive consumer goods and industrial
products are sold directly by the producer himself.
b. Perishable products; products subjected to frequent changes in fashion or style as well as heavy and bulky products follow relatively shorter
routes and are generally distributed directly to minimize costs.

c. Industrial products requiring demonstration, installation and after sale services are often sold directly to the consumers. While the consumer
products of technical nature are generally sold through retailers.

d. An entrepreneur producing a wide range of products may find it economical to set up his own retail outlets and sell directly to the consumers.
On the other hand, firms producing a narrow range of products may their products distribute through wholesalers and retailers.

e. A new product needs greater promotional effort in the initial stages and hence few middlemen may be required.

• Market Consideration: Another important factor influencing the choice of distribution channel is the nature of the target market. Some of the
important features in this respect are:

a. If the market for the product is meant for industrial users, the channel of distribution will not need any middlemen because they buy the
product in large quantities Short one and may as they buy in a large quantity. While in the case of the goods meant for domestic consumers,
middlemen may have to be involved

b. If the number of prospective customers is small or the market for the product is geographically located in a limited area, direct selling is more
suitable. While in case of a large number of potential customers, use of middlemen becomes necessary

c. If the customers place orders for the product in big lots, direct selling is preferred. But if the product is sold in small quantities, middlemen are
used to distribute such products.

• Other Considerations: There are several other factors that an entrepreneur must take into account while choosing a distribution channel. Some
of these are as follows:

a. A new business firm may need to involve one or more middlemen in order to promote its product while a well established firm with a good
market standing may sell its product directly to the consumers. b. A small firm which cannot invest in setting up its own distribution network has
to depend on middlemen for selling its product. On the other hand, a large firm can establish its own retail outlets.

c. The distribution costs of each channel are also an important factor because it affects the price e of the final product. Generally, a less
expensive channel is preferred. But sometimes, a channel which is more convenient to the customers is preferred even if it is more expensive.
d. If the demand for the product is high, more number of channels may be used to profitably distribute the product to maximum number of
customers. But, if the demand is low only a few channels would be sufficient.

e. The nature and the type of the middlemen required by the firm and its availability also affect the choice of the distribution channel. A
company prefers the desired type of middlemen is not available the manufacturer will have to a middleman who can maximize the volume of
sales of their product and also offers other services like storage, promotion as well as after sale services.