MW

Order Management and Customer Service Concepts

Two Phases of Order Management

1. Influencing the Order

  • Focus: Customer Relationship Management (CRM)

    • CRM aims to align company resources with customer needs to enhance satisfaction and profitability.

    • Four Steps in CRM:

    1. Segment Customers by Profitability:

      • Utilize tools like Activity-Based Costing (ABC) to categorize customers based on their profitability.

    2. Identify the Product/Service Package Valued by Each Segment:

      • Understand and determine what products or services meet the expectations of each customer segment.

    3. Develop and Execute Processes to Deliver Those Expectations:

      • Implement business processes that ensure customer needs are met effectively.

    4. Measure Performance and Continuously Improve:

      • Evaluate the effectiveness of CRM strategies and make necessary adjustments for improvement.

2. Order Execution

  • Focus: Processing and fulfilling orders following the Order-to-Cash (OTC) cycle.

    • OTC cycle involves activities from inquiry, order entry, shipping, to invoicing and receiving orders.

    • Measurement:

      • Order execution is gauged by payment success.

      • Essential factors include timeliness, accuracy, and reliability for ensuring efficiency and customer satisfaction.

Activity-Based Costing (ABC) and Customer Segmentation

  • Overview:

    • Traditional cost accounting often obscures the actual costs involved in serving customers.

    • ABC assigns costs based on activities and resources actually consumed rather than a blanket approach.

Customer Segmentation by Profitability:

  • Categories:

    1. Protect:

    • Description: Most profitable customers who exhibit high efficiency.

    1. Danger Zone:

    • Description: Least profitable customers, often resulting in a loss; may require adjustments in interaction strategies or distribution channels.

    1. Build:

    • Description: Customers with low sales and low costs to serve; potential to develop into “Protect.”

    1. Cost Engineer:

    • Description: Customers generating high sales yet incurring high service costs; the aim is to reduce serving costs for this group.

Customer Service

Defined in Three Ways:

  1. Philosophy:

    • Organization-wide commitment to prioritize customer satisfaction, creating a culture that values customer relationships.

  2. Performance Measures:

    • Key metrics include cycle time, fill rates (the percentage of orders filled completely and on time), and on-time delivery statistics.

  3. Activity:

    • Refers to any interaction that touches the customer, including information dissemination, product delivery, and cash flow interactions.

Four Key Elements of Customer Service:

  1. Time:

    • Focus on order-to-cash cycle time and the reliability of this timeline.

  2. Dependability:

    • Consistency in delivery times, safe delivery of products, and correctness of order fulfillment.

  3. Communication:

    • Required at three stages:

      • Pre-transaction: Provide availability information.

      • Transaction: Convey order details effectively.

      • Post-transaction: Manage returns and repairs clearly and efficiently.

  4. Convenience:

    • Logistics systems should be flexible to adapt to customer needs and preferences.

Stockouts and Their Costs

  • Outcomes of Stockouts:

    1. Buyer waits for product availability.

    2. Buyer places a backorder for future fulfillment.

    3. Seller experiences a loss in current sales opportunities.

    4. Seller risks losing future customers.

  • Cost Measurement:

    • The costs associated with stockouts are measured through backorder costs, lost sales, and potential loss of customer relationships. This analysis is crucial to balance inventory management with service level expectations.

Order Management Outputs that Influence Customer Service

  1. Product Availability:

    • Measured by fill rates and the “perfect order” rate, reflecting how often orders are fulfilled completely and correctly.

  2. Order Cycle Time:

    • Impacts both buyer and seller inventory costs as well as their overall satisfaction levels with the order process.

  3. Logistics Operations Responsiveness:

    • The capacity to customize services and swiftly adjust in response to demand fluctuations.

  4. Logistics System Information:

    • Emphasis on maintaining timely and accurate data essential for effective decision-making and coordination of logistics operations.

  5. Postsale Logistics Support:

    • Involves managing returns, providing spare parts, and after-sales services to ensure customer satisfaction post-purchase.