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SCM METRICS-Presentation 3
BY
K.SASHI RAO
MANAGEMENT CONSULTANT
Presentation-3 Coverage
Customer Service Value Analysis Alignment of Metrics with Business
Strategy IT and Business Process Management
K.Sashi Rao/2011
Customer Service Value Analysis
Customer Value Analysis
Involves basic recognition of customers in any business activity
Serving the customer is fundamental Customer service should add value over lifetime
ownership and use of a product/service Happy customers don’t happen by chance, but by
deliberate design and effort !! Customer satisfaction is largely built around product
quality, usage experience and total customer service
K.Sashi Rao/2011
Customer Service
Why “customer service” ? Distance between seller and buyer Distance between customer and supplier Organization purpose lies outside the
business Customer service differences- goods and
services
K.Sashi Rao/2011
.
Product Gap ModelConsumer
Word of mouthcommunication Product Needs
Past ProductExperience
Received Product
Delivered Product
Product Delivery(including pre-and post-contacts)
Translation of perceptionInto product quality specifications
Management perception ofConsumer product expectations
ExternalCommunicationTo consumers
……………………………………………………………………………………………………………………………………Marketer
Gap 1
Gap 2
Gap 3
Gap 4
Gap 5
K.Sashi Rao/2011
Customer Service
A set of activities to make buying experience rewarding
Very important dimension of offered products/services
Value added services to gain competitive advantage
Building customer loyalty and attracting new customers
Base for all customer relationship programs
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Defining ‘Customer Service’
‘As a set of activities and programs designed and implemented to make the ‘buying’ and ‘owning’ experience memorable
‘As a complex set of activities involving all areas of the business which combine to deliver and invoice the product in a fashion that is perceived to be satisfactory by the customer, and which advances the company’s objectives’( La londe Bernard. J)
Customer service is not just a function or an activity. It is a philosophy and an attitude
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Customer Service- Link to Business Strategy
Provides time utility to supplied product/service
Provides place utility to delivered
product/service
Provides product utility thro the delivered
physical package of ordered product/service
Overall transactional experience
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Customer (Dis-Service)
Customer dissatisfaction Non- conformance to agreed deal Gap between product promise and performance Variable service/delivery standards Customer expectations unmet Steady deterioration/ increasing complaints Lack of/Inadequate level of responsiveness
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Customer Service Phases
Pre-transaction Phase
Transaction Phase
Post- transaction Phase
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Customer Service- Pre-transaction Phase(1)
Creating service organization
Setting service standards
Structuring service components
Building customer knowledge
Evolving systems design
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Customer Service- Pre-transaction Phase(2)
Awareness creation
Accessibility
Customer- interfacing systems and processes
Inducements/incentives to bring potential buyer
closer to actual buying
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Customer Service Phases-Transaction Phase(1)
Order fulfillment reliability Delivery consistency Order convenience Order postponement Product substitutes
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Customer Service Phases-Transaction Phase(2) User-friendly ordering process Order acceptance with firm supply commitment Ongoing information on order execution/delivery
status Proper dispatch/invoice/quality documentation
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Customer Service- Post-transaction Phase
Order Status Information
Product Receiving and Documentation
Installation, Commissioning Trials , Performance
Guarantees
Customer Complaints/Claims/Returns
Customer/User Education & Training
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Customer Service-Measurement All such phases involve many processes These need to be measured for performance
using suitable metrics/criteria These would cover: Product Performance Aspects Distribution Aspects Commercial/Trading Aspects
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Customer Service- Product Aspects
Conformance to agreed specifications/placed orders
Product Performance in use
Warranty Clauses/conditions
Guarantee Clauses/conditions
Repair/Replacement Provisions
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Customer Service Attributes- Distribution Aspects
Delivery commitment and consistency Delivery frequency Order process time Stock availability to supply at all times Flexibility to meet any changed requirements
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Customer Service Attributes- Commercial/Trading Aspects
Credit facility vs. advances/ Credit period/terms and conditions Stock financing- supplier managed inventory Service support- scope and period Handling convenience Offering more competitive terms
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Customer Service- Service Quality
Competence- customer information Reliability-promised delivery in place, time and quality Responsiveness- customer communications, complaint handling Transaction security- confidentiality of customer info and
transactions Trustworthiness- policies on returns, warranty, keeping
commitments Information update -on order/complaint processing status Also refer to Service Quality Measurement in Presentation 2 of this
course
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Typical Customer Service Metrics
% compliance to quality/delivery/responsiveness criteria Meeting customer inventory needs by measuring (a) stock-out
frequency/probability (b) fill rate to measure impact of stock-outs over time ( c) % full order deliveries
Time taken to meet 20% extra order quantities Operational metrics like (a) % on-time full delivery (b) delivery
consistency over time Overall key is to make all performance criteria measurable and
capable of monitoring, preferably on on-line, real-time basis Other service quality dimensions/metrics covered in Presentation 2
of this course
K.Sashi Rao/2011
Customer Retention/Loyalty Satisfied customers will be repeat customers, while unhappy ones
are lost to competition Bad customer experiences travel faster than good ones Retaining customers more important than winning new customers Value –added services are key to building customer loyalty e.g.
valet car parking, assistance with shopping bags Relationship marketing ‘new mantra’- sustained thro special
membership offers, discounts et al Superior SCM metrics leads to added customer value
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Customer Service- Value Added Logistical Services Basic purpose to add superior value to customers Move from customer satisfaction to customer delight( but
at what cost ?) Operate seamlessly as part of customer’s supply chain
e.g. multilevel supply chains Making logistics the key business process to win and
retain customers
K.Sashi Rao/2011
Metrics Alignment with Business Strategy
Supply Chain Strategy and Business Strategy
Any organization’s business strategy is driven by its growth objectives
Ultimately, this means to achieve a certain ROI and/or ROA Supply chain strategy should follow from business strategy For instance, market penetration objective could suggest lower
prices or more warehouses/stock-points; conversely, profitability focus could mean closing unprofitable warehouse locations or raising prices
Offering superior value to customers( eg, by bundling of goods/services) costs more money; so should we only “satisfy” customers or “delight” them ? ?
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Customer Service and Cost Trade-offs(1) Customers always want more for less Want more variety and quicker delivery but at lower
prices Trade-off between customer service level and
associated costs will need to be made All SC processes and decisions will lose their
competitiveness if not aligned with business strategy Challenge always is to see how to improve performance
on both cost and service fronts
K.Sashi Rao/2011
Customer Service and Cost Trade-offs(2) Increasing competition driven by demanding customers,
forces firms to make supply chain innovations and initiatives
Such chosen moves will need to improve one or both of cost and service elements
Well managed firms identify and develop external market opportunities and internal SC capabilities to be mutually consistent
Business strategies determine the level at which SC efficiency point( cost-benefit) to operate
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Supply Chain Trade- offs
Service LevelHighLow
Cost/Revenue
Low
High
CostRevenue
ProfitContribution
MaximumProfit
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IT and Business Process Management
IT Role in SCM Metrics(1)
Proper information flow is fundamental to all good SC IT plays a crucial role in first capturing all transactions
data across the SC SC data accuracy and transparency are the major pluses
that IT brings into it; and their absence its major flaw ! Major IT tools used in SCM are ERP, EDI, E-commerce,
CPFR amongst others
K.Sashi Rao/2011
IT Role in SCM Metrics(2)
Demand forecasting, demand-supply management, production planning and control and work flow management all make good use of IT
Physically-enabling technologies like GPS/WMS/RFID/Bar-coding used for in material tracing and tracking systems use IT
Macro-processes in SCM like (a) Supply Relationship Management (SRM) (b) Internal SCM and ( c) Customer Relationship Management( CRM) are now manageable thro IT integration software
IT’s information capabilities goes beyond SC transactions providing tracking and monitoring features; and also analytical functionalities of SCM metrics
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Business Process Management (BPM) BPM is a management approach focused on aligning all aspects of
an organization to its customer/client needs
It is ‘holistic’ as promotes overall effectiveness and efficiency of all
operations
It is meant to encourage innovation, creativity, flexibility and
integration to use modern evolving technologies
Focus on” process orientation and process optimization” rather than
having a traditional “ functional hierarchical’ approach
K.Sashi Rao/2011
Process Focus in BPM
“Processes” are the strategic assets of a firm, which need to be understood, mapped, managed and improved to deliver value-added products/services
The process approach enables it to be supported thro information and technology to ensure viability even in times of constant change
It makes possible the integration of a ‘change capability’ covering both technology and human process dimensions as found in SCM operations
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BPM Life-Cycle
Design- identification of ‘existing’ processes and designing ‘desirable’ processes
Modeling- theoretical design and modeling to consider all variables/their combinations; and doing ’sensitivity analysis/alternative scenario building’ to study their impact/consequences
Execution- translating the developed models thro systems/software to generate outputs/reports for action
Monitoring- tracking of performance measures/metrics to serve as ‘dashboards’
Optimization- retrieving and interpreting performance data to identify bottlenecks, problem areas and opportunities for cost savings and/or service improvements
‘Process improvements and optimization’ are all finally meant to add to overall business value
K.Sashi Rao/2011
BPM components
Process engine- robust platform for modeling and executing process-based applications including business rules/algorithms
Business analytics- to identify business issues and trends as ‘dashboards’ for needed actions
Content management- system for storing and securing electronic documents, files and images
Collaboration tools- remove communication barriers thro’ discussion forums, dynamic workspaces and message boards
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BPM and IT integration
Managing end-to-end customer-facing processes Consolidating data and increasing visibility and access to
associated data/information Increasing flexibility and functionality of current data and data
infrastructure Integrating with existing systems and leveraging their data service
capability Establishing a common language/platform for business- IT
alignment
K.Sashi Rao/2011