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Unit 3: Customer

By: Akash Jain
Logistics Interface with marketing
Increasingly, organizations are recognizing the
importance of integrating their marketing and logistics

Warehousing and distribution are critical to the

successful marketing of products

If the product is not where customers want it, when they

want it, it is unlikely to sell
At a practical level integration is often quite difficult to

Firms that are integrated can expect to provide higher

levels of customer service, at lower costs, as well as
create more satisfied customers

and increase profits over the long term.

Logistics in the Firm:
Logistics Interfaces with Marketing: The
Marketing Mix Four Ps

Chapter 2 Management of Business Logistics, 7th Ed. 4

Logistics in the Firm:
Carrier pricing
Generally, since the larger the shipment, the cheaper the
transportation rate, shipment sizes should be tailored to the
carriers vehicle capacity where possible.
Matching schedules
Quantity discounts should be tied to carrier quantity
Volume relationships
Volumes sold will affect inventory requirements.

Chapter 2 Management of Business Logistics, 7th Ed. 5

Logistics in the Firm:
Consumer packaging
Generally, since the size, shape, weight and other
physical characteristics of the product impact on its
storage, transportation and handling, the logistics
managers should be included in any decisions regarding
these product traits.
A minor correction in any of the above could conceivably
cost (or save) millions of dollars in logistical costs.
Logistics costs are not necessarily paramount, but they
need to be considered in the decision making process.

Chapter 2 Management of Business Logistics, 7th Ed. 6

Logistics in the Firm:
Push versus pull
The most important factor is that the logistics division is aware
of any changes in demand patterns so that it can plan for any
Pull strategies tend to be more erratic.
Push strategies tend to more predictable.
Channel competition
The more popular a product, the easier it is to persuade
channel members to promote your product.

Chapter 2 Management of Business Logistics, 7th Ed. 7

Logistics in the Firm:
Generally, since wholesalers are combining purchases for
multiple retailers, the shipment sizes tend to be larger and the
number of transactions that have to be processed are fewer,
with the result that logistics costs are smaller.
With the exception of very large retailers who act more like
wholesalers, smaller sales are the norm. These generally cost
more for transportation and order processing.

Chapter 2 Management of Business Logistics, 7th Ed. 8

Logistics Interfaces with
Other Areas
Manufacturing and marketing are probably the two most
important internal, functional interfaces with logistics.

Other important interfaces now include finance and accounting.

Logistics can have a major impact on return on assets and
return on investment.
Logistics costs reported by cost systems measure supply chain
trade-offs and performance.

Chapter 2 Management of Business Logistics, 7th Ed. 9

The logistics process has many components, from the shipper
to the transportation company, the receiver and the
Customer service is an essential aspect of this process
Poor customer service can lead to higher costs for the shipper.
If the transportation company does not communicate with the
shipper and the receiver, the cost for the transportation of the
load will increase.
For example, if the transportation company does not advise
the receiver when the truck will arrive, the truck company may
incur overtime costs, which will cut into the profit on the load
Strategic process for providing value-added
services to the customers .

Ensures trade-offs between cost and service .

Brings harmonious relationship between supply

chain members .

Keeps customer happy and loyal.

Brings about competitive advantage to the

market place, increases sales, and improves
The ability to recognize
and respond to a
customer changing

Guaranteed fixed Easy of order taking,
delivery times of and requeries
accurate, undamaged response.

Usually order fulfilment
cycle time.

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 logistics.

Post-transaction elements: these involve those

elements that occur after the delivery has taken place.
Pre-transaction elements

written customer service policy;

organizational structure;
method of ordering;
single order contact point;
accessibility of order personnel;
order size constraints;
system flexibility
Transaction elements
condition of goods;
inventory availability;
order preparation;
service/order cycle time;
delivery alternatives;
delivery time;
delivery reliability;
delivery of complete order;
order status information.
Post-transaction elements
invoicing procedures;
invoicing accuracy;
product tracing/warranty;
returns policy;
availability of spares;
call-out time;
customer complaints and procedures.
Why GSCM????
Foreign competition in local markets
Growth in foreign demand
Global presence as a defensive tool
Companies forced to develop and enhance leading-edge
technologies and products.

Knowledge diffusion across national boundaries, hence
need for technology sharing to be competitive
Global location of R&D facilities
Close to production (as product cycles get shorter)
Close to expertise (Indian programmers?)
Why GSCM????
Availability of skilled/unskilled labor at lower cost
Integrated supplier infrastructure (as suppliers become
more involved in design)
Capital intensive facilities like tax breaks, price breaks


Trade protection mechanisms:
Tariffs, Quotas, Voluntary export restrictions, Local content
requirements, Environmental regulations, Government
procurement policies (discount for local)
Exchange rate fluctuations and operating flexibility
Elements of a Global SCM
Goals Outsourcing
and Third-Party
Customer Logistics
Service Relationships

Performance Management
Global Supply
Chain Management

Design and Key Customer
Training and Supplier
Requirements Relationships

Business Plant and Systems
Processes Distribution
Center Network
Global SCM Factors
- Local labor rates / International freight tariffs
- Currency exchange rates
Customs Duty
- Duty rates differ by commodity and level of assembly
- Impact of GATT/WTO: Changes over time
Export Regulations & Local Content
- Denied parties list / Export licenses
- Local content requirement for government purchases
Lead time /Cycle time /Transit time /Customs clearance
Taxes on Corporate Income
- Tax havens and not havens
- Make vs. buy effect
Designing Supply Chain Network involves
determining and defining following Elements:

Market Structure
Demand Plotting or Estimation
Market Segment
Procurement Cost
Product /Conversion Costs
Logistics Costs including Inventory holding costs
Over heads
Cost of Sales
Network Design aims to define:
Best fit Procurement model - Buying decision and processes- JIT, Kanban,
procurement cost models etc.

Production processes - number of plants, plant capacity design, Building

to order, build to stock etc, in-house manufacturing or outsource
manufacturing and related decisions including technology for production.

Manufacturing Facility design - Location, Number of factories, size of unit,

time frames for the plant setup project etc.

Finished Goods Supply Chain network - Number of warehouses, location &

size of warehouses, inventory flow and volume decisions, transportation.

Sales and Marketing Decisions - Sales Channel and network strategy,

Sales pricing and promotions, order management and fulfillment process,
service delivery process definitions.
Network Design also examines
Derives cost estimates for every network element
Examines ways to optimize costs and reduce costs
Extrapolates cost impact over various product lines and
all possible permutations and combinations to project
Key factors affecting
Government Policies of the Country where plants are to be located.
Political climate
Local culture, availability of skilled / unskilled human resources,
industrial relations environment, infrastructural support, energy
availability etc.
Taxation policies, Incentives, Subsidies etc across proposed plant
location as well as tax structures in different market locations.
Technology infrastructure status.
Foreign investment policy, Foreign Exchange and repatriation
Policy and regulations.
Risk Management in GSC
Outsourcing and offshoring expose the supply chain
to increased risks.

Trends toward cost reduction, lean manufacturing and

JIT imply low inventory levels in supply chain
In the event of an unforeseen disaster, adherence to this
type of strategy could result in a shutdown of production
lines because of lack of raw material or parts inventory.
Sources of Risks
Factors Impacting Exposure to
Customer reactions: reflected in elasticity of
demand for product

Competitor reactions :Competitor may strategically

move as per the scenario

Supplier reactions: Supplier can increase its costs

Government reactions : Govt may intervene in

capital markets to stabilize the currency
Managing exchange rates risk
Development of a global network of production facilities
with excess capacity
Development of a Portfolio of Global Suppliers
Design of Flexible, Creative and Fast product
development process that result in new and
substantially differentiated products
Ability to select and expand product line for various
Development of flexibly structured supplier and the
distribution channel selection for fast, efficient product
Other Issues in GSCM
Region-specific products Vs True global products

Local Autonomy vs Central Control

Exchange rate fluctuation

Local collaboration may become competitors

To access new market may require handing over critical

manufacturing and engineering expertise
At any time the threat of protectionism might appear.
What is benchmarking?

Ongoing process of measuring products, services,

practices & processes against the best that can be
identified in order to:
Learn about & improve best practice.
Achieve realistic targets.
Integrate improvements into your strategy.
Use best practice as inspiration for innovation.
Be externally focused.
Be purposeful about improvement.
Measure improvement.

A control process.
Involving employees in the process of evaluation and
Philosophy one of self control rather than imposed
control, where the person most closely associated
with the task is involved in the cross measurement
and assessment of practice.
Places personnel in a position where their
unquestioned beliefs (paradigm) may be challenged ,
creating opportunities for innovation and learning.

Benchmarking Logistics
One method to measure and compare the output. A
form of reactive control.
Alternative to concentrate on the processes which
requires a number of steps:
1 Understand the process. Use those most closely involved
and develop flowcharts
2 Identify critical points

Mapping Supply Chain Processes
Producing a flow chart the first step and highlighting
value adding time and non-value adding time.
Value Adding Time:
Time that results in increased value for the customer
Non Value Adding Time:
Elimination of this time or activity would not reduce the perceived
value of the ultimate consumer.

Cost and Value added:
Added Transport
Time place Regional order
& form Stock
perception Production



Cost Added
Production, Storage & transport costs & the time value of money
Adapted from Christopher, M., (1998), Logistics and Supply Chain Management. Strategies
for Reducing Cost and Improving Service, Financial Times Pitman Publishing, London. pp 111.
Suppliers and Distributors
Involve inbound and outbound elements of the
value system. Their cost will add to the
ultimate cost!
Establish and Encourage:
Commitment to continuous improvement.
Acceptance of innovation and change.
Use of regular and formal and benchmarking.
Employee concern for the ultimate consumer.
Leadership involvement

Setting Benchmarking Priorities
Strategic Importance
Processes that are
competitively critical

Relative impact on Organisational Readiness

Processes carried out
High total cost Benchmarking
by ready to improve
High revenue priorities
High human input

Adapted from Walleck et al, (1991)

Benchmarking World Class Performance,
The McKinsey Quarterly, Cited in
Make V Buy Economics Christopher, M., (1998),
Logistics and Supply Chain
Processes with high Management.
impact on value and Strategies for Reducing
Cost and Improving Service,
hard to outsource Financial Times Pitman
Publishing, London. Pp118. 37
Key Performance
Highlight issues regardless of measurability that
have high impact on the organisational success.
Articulate the strategic objectives to personnel.
Understand measurable outcomes of success.
Communicate importance of key processes.
Highlight and focus attention on key performance
Better faster Cheaper!