Chapter 8 Order Management and
Customer Service
Order Management executes the operating plan
based on demand forecast. It is the interface
between buyers and sellers and consists of:
Influencing the Order
This is the phase where an organization attempts
to change the manner by which its customers
place orders.
Order Execution
This is how the organization handles the order
received from the customer.
Order Management
Example of Order to Cash Cycle
1. Process inquiry & quote
2. Receive, enter & validate order
3. Reserve inventory & determine delivery date: Available-to-Deliver
(ATD), Available-to-Promise (ATP)
4. Consolidate orders
5. Plan & build loads
6. Route shipments
7. Select carrier & calculate transportation cost
8. Receive product at warehouses (important for ATP orders)
9. Pick product
10. Load vehicle, generate shipping document, verify credit and ship
11. Receive & verify order at customer site
12. Install product
13. Invoice
Order Management
Product availability from customer perspective:
Did I get what I wanted?
When I wanted it?
In the quantity I wanted?
Product availability is the ultimate measure of
logistics and supply chain performance.
Order Management
Expected Cost of Stockouts:
Stockout occurs when desired quantities are not available
Four possible events:
the buyer waits until the product is available
the buyer back-orders the product
the seller loses current revenue
the seller loses a buyer and its future revenue
Customer Service is the interface between logistics
and marketing. It includes all activities that impact
information flow, product flow, and cash flow
between the organization and its customers.
Philosophy - an organization-wide commitment to provide
customer satisfaction through superior customer service.
Performance - emphasizes customer service as specific
performance measures and address strategic, tactical,
and operational aspects of order management.
Activity - treats customer service as a particular task that
an organization must perform to satisfy a customer’s order
requirements.
Customer Relationship Management (CRM):
is the art and science of strategically positioning
customers to improve profitability and enhance
relationships
used by service industries (airline/hotel reward programs)
has not been widely used in B2B environment until the
last decade
customer action affects firm’s cost
how customers order
how much customers order
what customers order
when customers order
Four basic steps in the implementation of CRM
Step 1: Segment the Customer Base by Profitability
Step2: Identify Proper Product/Service Package for
Each Customer Segment
Step 3: Develop and Execute the Best Processes
Step 4: Measure Performance and Continuously
Improve
Profitability as a method to classify customers
Protect Zone
Customers in the “Protect Zone” are the most profitable.
Danger Zone
Customers in the “Danger Zone” are the least profitable and might
generate loss.
The firm’s options for “Danger Zone” customers:
change customer interaction with firm so they can move up to an
acceptable zone
charge the customer the actual cost of doing business
Build Zone
These customers have a low cost to serve and a low net sales value,
so the firm should maintain the cost to serve and build net sales value
to help drive the customer into the “Protect” segment.
Proper Product/Service Package for Each Customer Segment
E-Commerce Order Management Process
Traditional business model – “Buy, Make, Sell”
E-Commerce business model – “Sell, Make,
Buy” (Dell) can be compelling
Dell uses “price & lead time” to influence orders
Four distinct dimensions of customer service:
Time
Cycle time
Safe delivery
Correct orders
Dependability
More important than the absolute length of lead
time
Communications
Pre-transaction
Transaction
Post-transaction
Convenience
Service level must be flexible
Customer Service Performance Measures from
buyer’s view
Orders received on time
Orders received complete
Orders received damage free
Orders filled accurately
Orders billed accurately
Order Management Influence on
Customer Service
Product availability – order fill rate
Order cycle time – time between order &
shipment arrival
Logistics operations responsiveness – ability to
meet special request and sudden changes
Logistics systems information – ability to supply
timely and accurate information
Post-sale product support – ability to provide
tech info, parts support & handle product return
Importance of Service Recovery in
Customer Service
No matter how well an organization tries to
provide excellent service, mistakes will occur
Recovery requires a firm to realize that mistakes
will occur and have process in place to fix them
Superior service recovery builds customer
loyalty
