SCM METRICS -Presentation 3

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SCM METRICS-Presentation 3

• BY
• K.SASHI RAO
• MANAGEMENT CONSULTANT

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Presentation-3 Coverage

• Customer Service Value Analysis
• Alignment of Metrics with Business Strategy
• IT and Business Process Management

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Customer Service Value Analysis
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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 dont happen by chance, but by
  deliberate design and effort !!
• Customer satisfaction is largely built around
  product quality, usage experience and total
  customer service

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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

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Product Gap Model
Consumer
Past Product Experience
Word of mouth communication
Product Needs
Received Product
Gap 5
Delivered Product

Marketer
External Communication To consumers
Gap 4
Product Delivery (including pre-and
post-contacts)
Gap 3
Translation of perception Into product quality
specifications
Gap 1
Gap 2
.
Management perception of Consumer product
expectations
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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 companys 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

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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 customers supply
  chain e.g. multilevel supply chains
• Making logistics the key business process to win
  and retain customers

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Metrics Alignment with Business Strategy
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Supply Chain Strategy and Business Strategy

• Any organizations 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-poin
  ts 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

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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
High
Cost
Revenue
Maximum Profit
Cost/ Revenue
Profit Contribution
Low
High
Low
Service Level
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IT and Business Process Management
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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

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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
• ITs 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

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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

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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