This document discusses supply chain management topics including demand management, customer service, forecasting, and order fulfillment. It covers traditional forecasting methods, collaborative planning forecasting and replenishment (CPFR), order cycles, elements of good customer service like timeliness and flexibility, and performance measures for customer service like product availability and order cycle time. It also discusses the expected costs of stockouts, including costs of backorders, lost sales, and lost customers. The document is intended to provide an overview of key demand management and customer service concepts in supply chain management.

1. SUPPLY CHAIN MANAGEMENT
Demand Management and Customer Service
Muhammad Nasir Khawaja - Lahore. Pakistan.
Whats app or Call +92 309 4878467
Email: ahmadkhayam@gmail.com

2. TOPICS TO BE COVERED
 Demand management and Customer Service
 Outbound to customer logistics system
 Demand management
Traditional forecasting
 CPFRP Customer Service
 Expected Cost of stock outs
Channels of Distribution

3. OUTBOUND-TO-CUSTOMER LOGISTICS SYSTEMS
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
system.
Inbound-to-operations Logistics Systems refers to the activities and
processes that precede and facilitate vale-adding activities such as
manufacturing, assembly and so on. It as also referred to as
materials management and physical supply.

4. DEMAND MANAGEMENT
 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 should be
undertaken.

5. The following list suggests a number of ways in which effective demand
management will help to unify channel members with the common goal
of satisfying customers and solving customers problems:
 Gathering and analyzing knowledge about customers, their problems and
their unmet needs.
 Identifying partners to perform the functions needed in the demand chain.
 Moving the functions that need to be done to the channel member that can
perform them most effectively efficiently.
 Sharing with other supply chain members knowledge about consumers and
customers, available technology and logistics challenges and opportunities.
 Developing products and services that solve customer’s problems.
 Developing and executing the best logistics, transportation and distribution
methods to deliver products and services to consumers in the desired format.

6. SUPPLY DEMAND MISALIGNMENT
1. True end-customer demand
2. Production cannot meet
initial projected demand,
resulting in real shortages.
3. Channel partners over-
order in an attempt to meet
demand and stock their
shelves.
4. As supply catches up with
demand, orders are
cancelled or returned.
5. Financial and production
planning are not aligned
with real demand,
therefore, production
continues.
6. As demand declines, all
parties attempt to drain
inventory to prevent write-
down.

7. SUPPLY-DEMAND MISALIGNMENT
In the first phase of a new product launch, when end-user demand is at its peak
and opportunities for profit margins are greatest, PC assemblers are not able to
supply product in quantities sufficient to meet demand-thus creating true product
shortages.
Also during this time-frame, distributors and resellers tend to over-order, often
creating substantial phantom demand.
In the next phase, as production begins to ramp up, assemblers ship product
against this inflated order situation and book sales at the premium high-level
launch price. As channel inventories begin to fill, price, competition begins to set
in, and order are cancelled .
In the final phase, as enduser demand begins to decline, the situation clearly
has shifted to one of over supply. This is largely due to the industry's planning
processes and systems, which are primarily designed to use previous period
demand as a gauge. The net result of these behaviors in aligning supply and
demand is that a large majority of product is sold during the declining period of
profit opportunity, thereby diminishing substantial value creation opportunities
for industry participants.

8. TRADITIONAL FORECASTING
• A major component of demand management is forecasting
the amount of product that will be purchased by consumers
or end users.
•Although forecasts are made throughout the supply chain,
the single most important forecast is that of primary
demand. In a truly integrated supply chain scenario, all
other demand will estimate directly from-or at least be
influenced by – primary demand.

9. INTEGRATING FORECASTING & PRODUCTION
1) Develop a twelve-month forecast of demand by month
by applying traditional demand forecasting approaches
(e.g. moving average, exponential smoothing,
Regression analysis etc.) to a three year history file of
data on factors such as demand, price, seasonality,
availability, deals and promotions.
I. Step – Brand and product managers review this
forecast and recommend relevant changes.
II. Step – Developing aggregate production schedules for
the next twelve-month period and allocating specific
production requirements to various manufacturing
facilities.

10. INTEGRATION OF SALES FORECASTING & PRODUCTION
History file (3
Years – demand,
price, seasonality,
deals, promotions
etc.
12-month
forecast (by
Month)
Revised Forecast
Gross market
requirement (1 to 3
year periods)
Aggregate
production schedules
(12 months)
Allocation of
aggregate
requirements to
plan
Short term
production
scheduling
Forecasting model
moving averages,
regression analysis
etc.
Brand & Product
managers review and
recommended
changes

11. PURPOSE OF FORECASTING
• Long-term forecasts usually cover more than
three years and are used for long-range planning and
strategic issues.
• Midrange forecasts in the one-to three year
range-address budgeting issues and sales plans.
• Short-term forecasts are most important for the
operational logistics planning process. They project
demand into the several months ahead and are
focusing increasingly on shorter time intervals.

12. COLLABORATIVE PLANNING, FORECASTING & REPLENISHMENT
• Initiatives that have attempted to create efficiency and
effectiveness through integration of supply chain activities and
processes have been identified as quick response , electronic
data interchange (EDI), short cycle manufacturing, vendor
managed inventory (VMI), continuous replenishment planning
(CRP), and efficient consumer response (ECR).
• CPFR has become recognized as a breakthrough business
model for planning, forecasting and replenishment. Using this
approach, retailers, transport providers, distributors and
manufacturers can utilize available internet-based
technologies to collaborate from operational planning through
execution, CPFR simplifies and streamlines.

13. CPFR BUSINESSMODEL

14. • Development of CPFR came from an effort by Wal-Mart and one of its
suppliers Warner Lambert Company, particularly with regards to its
Listerine brand product. In addition to rationalizing inventories of specific
line items and addressing out-of-stock occurrences. These two
companies collaborated to increase their forecasting accuracy, so as to
have just the right amount of inventory where it was needed, when it was
needed.
• CPFR emphasizes a sharing of consumer purchasing data among and
between trading partners for the purpose of helping to govern supply
chain activities. In this manner, CPFR creates a significant, direct link
between the consumer and supply chain.
• The CPFR initiative begins with the sharing of marketing plans between
trading partners. Once an agreement is reached on the timing and
planned sales of specific products, and a commitment is made to follow
that plan closely, the plan is then used to create a forecast, by stock
keeping unit, by week, and by quantity. The planning can be for thirteen,
twenty-six, or fifty two weeks.
CPFR

15. ORDER FULFILLMENT & ORDER MANAGEMENT
• Three critical elements of collaborative planning are
collaborative demand planning, joint capacity planning, and
synchronized order fulfillment. This type of planning
improves quality of the demand signal for the entire supply
chain through a consistent exchange of information from one
end to the other that goes well beyond traditional practices.
• The Order-Management System represents the principal
means by which buyers and sellers communicate information
relating to individual orders of product. Effective order
management is a key to operational efficiency and customer
satisfaction.

16. COLLABORATIVE PLANNING
Collaborative demand
planning
Synchronized
Order fulfillment
Joint Capacity
Planning

17. ORDER MANAGEMENT FUNCTIONS
• Receive Order
• Enter order – manual /electronic
• Verify & check order foraccuracy
• Check Credit
• Check inventory availibility
• Process back order
• Acknowledge order
• Modify order
• Suspend order
• Check pricing and promotion
• Identify shipping point
• Generate picking documents
• Originate shipment
• Inquire order status
• Deliver Order
• Measure service level
• Measure quality of service

18. ORDER & REPLENISHMENT CYCLES
• When referring to outbound-to-customer shipments, we
typically use the term order cycle. The term replenishment
cycle is used more frequently when referring to the
acquisition of additional inventory, as in materials
management. Basically one firm’s order cycle is another’s
replenishment cycle.
Major Components of Order Cycle
Order
Placement
Order
Processing
Order
Preparation
Order
Shipment

19. ORDER & REPLENISHMENT CYCLES
• Order Placement : order placement time can vary significantly from
taking days or weeks to being instantaneous company experiences
indicate that improvements in order placement systems and processes
after some of the greatest opportunities for significantly reducing the
length and variability of the overall order. Significant increases were
projected for internal facilitated resources such as E-marketplace ,
Extranets and E-mail.
• Order Processing : The order processing function usually involves
checking customer credit, transferring , information to sales records,
sending the order to the inventory and shipping areas, and preparing
shipping documents.
• Order Preparation : Depending on the commodity being handled and
other factors, the order-preparation process sometimes may be very
simple and performed manually or, perhaps, may be relatively complex
and highly automated.
• Order Shipment : Shipment time extends from the moment an order is

20. CUSTOMER SERVICE
• Having the right product, at the right time, in the
right quantity, without damage or loss, to the right
customer is an underlying principal of logistics
systems that recognizes the importance of
customer service.
• Another aspect of customer service that deserves
mention is the growing consumer awareness of the
price / quality ratio and the special needs of
today’s consumers, who are time conscious and
who demand flexibility.

21. THE TRADITIONAL LOGISTICS / MARKETING INTERFACE
Product
Order Processing &
Information Cost
Price
Place / Customer Service
Levels
Promotion
Inventory Carrying
Costs
Transport & Cost
Low Quantity Costs
Warehousing
Cost

22. DEFINING CUSTOMER SERVICE
• Customer service is a process for providing competitive advantage and
adding benefits to the supply chain in order to maximize the total value to
the ultimate customer.
• According to marketers, there are three levels of product:
1) The core benefit or service, which constitutes what the buyer is really
buying.
2) The tangible product or the physical product or service itself.
3) The augmented product which includes benefits that are secondary to,
but an integral enhancement to, the tangible product the customer is
purchasing. Logistical customer service, installation warranties and after-
sale service are examples of augmented product features.

23. DEFINING CUSTOMER SERVICE
Examples of the various forms that customer service may take include the
following:
1. Revamping a billing, procedure to accommodate a customer’s request.
2. Providing financial & credit terms
3. Guaranteeing delivery within specified time periods,
4. Providing prompt and congenial sales representatives.
5. Extending the option to sell on consignment
6. Providing material to aid in a customer’s sales presentation.
7. Installing the product
8. Maintaining satisfactory repair parts inventories.

24. LEVEL OF CUSTOMER SERVICE
• 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 as a performance measures – This level
emphasizes customer service 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.
• Customer Service as a philosophy – This level elevates customer
service to a firm-wide commitment to providing customer satisfaction
through superior customer service by laying emphasis on quality and
time.

25. ELEMENTS OF CUSTOMER SERVICE
Customer service has a multifunctional interest for a
company, but, from the point of view of the logistics function,
we can view customer service as having four traditional
dimensions:
• Time - The time factor is usually order cycle time,
particularly from the perspective of the seller looking at
customer service. On the other hand, the buyer usually refers
to the time dimension as the lead time, or replenishment
time.
• Dependability -- Dependability can be more important
than lead time. The customer can minimize its inventory level
if lead time is fixed.

26. ELEMENTS OF CUSTOMER SERVICE
1. Cycle time A seller who can assure the customer of a given level of
lead time, plus some tolerance, distinctly differentiates its product
from that of its competitor. The seller that provides a dependable lead
time permits the buyer to minimize the total cost of inventory, stock
outs, order processing and production scheduling.
2. Safe delivery If goods arrive damaged or are lost, the customer
cannot use the goods as intended. A shipment containing damaged
goods aggravates several customer cost centers Inventory
production & marketing.
3. Correct orders An improperly filled order forces the customer to
reorder, if the customer is not angry enough to buy from another
supplier. If a customer who is an intermediary in the marketing
channel experience a stock out, the stock out cost directly affects the
seller.

27. ELEMENTS OF CUSTOMER SERVICE
• Communications - The two logistics activities vital to order-
filling are the communication of customer order information to
the order-filling area and the actual process of picking out of
inventory the items ordered. In the order information stage,
the use of EDI or internet-enabled communications can
reduce errors in transferring order information from the order
to the warehouse receipt.
• Convenience - Convenience is another way of saying that
the logistics service level must be flexible. Basically, logistics
requirements differ with regard to packaging, the mode and
carrier the customer requires routing.

28. PERFORMANCE MEASURES FOR CUSTOMER SERVICE
Element
Product
Availability
Brief Description
Usually defined as percent in
stock (target performance level)
in some base unit (i.e. order,
product, dollars)
Elapsed time from order
placement to order receipt,
Usually measured in time units
and variation from standard or
target order cycle.
Ability of system to respond to
special and l or unexpected
needs of customer.
Order
Cycle Time
Distribution
System
Flexibility
Typical
Measurement
Unit.
% availability in
base unit
Speed &
Consistency
Response time
to special
request.

29. PERFORMANCE MEASURES FOR CUSTOMER
SERVICE
Distribution
System
Information.
Distribution
System
Malfunction.
Post sale
product support.
Ability of firm’s information
system to respond in timely and
accurate manner to customer’s
request for information.
Efficiency of procedures and
time required to recover from
distribution system malfunction
(i.e. errors in billing, shipping,
damage, claims).
Efficiency in providing product
support after delivery, including
technical, information, spare
parts or equipment modification
as appropriate.
Speed, accuracy
and message
detail of
response.
Response and
recovery time
requirement.
Response time,
quality
ofresponse.

30. EXPECTED COST OF STOCK OUTS
A principal benefit of inventory availability and,
hence of customer service is to reduce the
incidence of stock outs. Once we develop a
convenient way to calculate the costs of a stock
out, we can use stock out probability information
to determine the expected stock out cost. Last,
we can analyze alternative customer service
levels directly by comparing the expected cost of
stock outs with the revenue enhancing benefits of
customer service.

31. EFFECTS OF STOCK OUTS
• A stock out occurs when desired quantities of finished
goods are not available when and where a customer
needs them. When a seller is unable to satisfy demand
with available inventory one of four possible events may
occur:
1. The customer waits until the product is available.
2. The customer back orders the product.
3. The seller loses a sale,
4. The loses a customer.

32. BACK ORDER
A company having to back order an item that is out of
stock will incur expenses for special order processing and
transportation.
The extra order processing traces the back order’s
movement, in addition to the normal processing for
regular replenishment.
The customer usually incurs extra transportation charges
because a back order is typically a smaller shipment and
often incurs high rates.

33. LOST SALES
Most firms find that although some customers may prefer a back order,
orders will turn to alternative supply sources.
Most companies have competitors who produce substitute products, and
when one source does not have an item available, the customer will
order that item from another source. In such cases, the stock out has
caused a lost sale.
The seller’s direct loss is the loss of profit on the item that was
unavailable when the customer wanted it.
Thus, a seller can determine direct loss by calculating profit on one item
and multiplying it by the number of the customer ordered. For e.g. If the
order was for 100 units and profit is Rs10 per unit, the loss is Rs 1000.

34. LOST CUSTOMER
• The customer permanently
switches to another supplier.
A supplier who loses a
customer loses a future
stream of income.

35. DETERMINING THE EXPECTED COST OFSTOCK OUTS
• The first step is to identify a stock out’s potential consequences. These include
a back order, a lost sale, and a lost customer. The second step is to calculate
each result’s expense or loss of profit and then to estimate the cost of a single
stock out.
• Assume 70 % of all stock outs result in a back order, and a back order requires
extra handling cost of Rs. 6.20% results in a lost sale for the item, and this loss
equals Rs. 20 in lost profit margin, and 10% result in a lost customer, or a loss
of Rs 20.
•Overall Impact:
70% of Rs 6 = Rs 4.20
20% of Rs 20 = Rs 4
10% of Rs 200 = Rs 20
Total estimated cost per stock out = Rs 28.20
A firm should carry additional inventory to protect against stock outs only as long
as carrying the additional inventory costs less than Rs. 28.20

36. CHANNELS OF DISTRIBUTION
• A channel of distribution consists of one or
more companies or individuals who
participate in the flow of goods, services,
information and finances from the producer
to the final user or consumer. This
encompasses a variety of intermediary
firms, including those that we classify as
wholesalers or retailers.

37. TYPES OFCHANNELS
•Managing distribution channels requires firms to co
ordinate and integrate logistics and marketing activities in
a manner consistent with overall corporate strategy.
• Logistical Channel refers to the means by which
products flow physically from where they are available to
where they are needed.
• Marketing Channels refers to the means by which
necessary transactional elements are managed. (e.g.
Customer orders, billing, accounts receivable etc. )

38. LOGISTICAL & MARKETING CHANNELS
Transportation
Transportation
Transportation
Supplier
Manufacturer
Distribution
Center
Retail Store
Consumer
E -
Procurement
National
Account Sales
Wholesaler /
Distributor
Retail Customer
MarketingLogistical Channel

39. EXAMPLE OF CHANNELS OF DISTRIBUTION FOR THE
FOOD PRODUCTS MANUFACTURING INDUSTRY
Food Manufacturing Firms
Foodservice
Distributors
Grocery
Wholesalers
Food Brokers
Internet
Direct
Restaurants
Specialty
(Airlines etc)
Consumers Of Manufactured Food Products
Internet
Retailer
Retail
Chains
Institution
al Buyers
Retail
Grocers
Retail
Chains