Contemporary logistics 12th edition murphy solutions manual

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PART II ANSWERS TO END-OF-CHAPTER QUESTIONS CHAPTER 7: DEMAND MANAGEMENT, ORDER MANAGEMENT, AND CUSTOMER SERVICE 7-1. What is the relationship between demand management, order management, and customer service?

There is a key link between order management and demand forecasting in that a firm does not simply wait for orders to arrive in order to learn what is happening. Forecasts are made of sales and of the inventories that must be stocked so that the firm can fill orders in a satisfactory manner. There is also a key link between order management and customer service because many organizations analyze customer service standards in terms of the four stages of the order cycle.

7-2. Discuss the three basic demand forecasting models.

Judgmental forecasting involves using judgment or intuition and is preferred in situations where there is limited or no historical data, such as with a new product introduction.

Judgmental forecasting techniques include surveys and the analog technique. An underlying assumption of time-series forecasting is that future demand is solely dependent on past demand. Time-series forecasting techniques include simple moving averages and weighted moving averages. Cause and effect forecasting assumes that one or more factors are related to demand and that the relationship between cause and effect can be used to estimate future demand. Simple regression and multiple regression are examples of cause and effect forecasting.

7-3. Discuss several demand forecasting issues.

Demand forecasting issues include the situation at hand, forecasting costs in terms of time and money, and the accuracy of various forecasting techniques. With respect to the situation at hand, judgmental forecasting is appropriate when there is little or no historical data. As for time and money, survey research, for example, can cost a great deal of money and/or take a great deal of time depending on the media. Forecasting accuracy refers to the relationship between actual and forecasted demand. Accurate forecasts have allowed some companies to reduce finished goods inventory; one company, for example, had to carry nearly twice as much inventory as actually needed because of inaccurate demand forecasts.

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7-4. Define and describe the order cycle. Why is it considered an important aspect of customer service?

The order cycle is the elapsed time from when a customer places an order until the customer receives the order. It is an important aspect of customer service in part because the order cycle is frequently used to determine the parameters of customer service goals and objectives. The order cycle is also being used by some firms as a competitive weapon (generally, the shorter the better), and technological advances now make it extremely easy (and fast) for customers to determine the exact status of their order(s).

7-5. What are some causes of order cycle variability? What are the consequences of order cycle variability?

Order cycle variability can occur in each stage of the order cycle. For example, order transmittal by mail sometimes results in the mailed item never reaching its intended destination; variability, in the form of unreliable transit times, can occur during order delivery. One consequence of order cycle variability might be an increase in inventory levels to guard against stockouts. If inventory levels are not increased, then stockouts could occur because of order cycle variability, or a company might be forced to use expedited transportation to make sure orders arrive on time.

7-6. List the various methods of order transmittal and discuss relevant characteristics of each.

• • • • •

In person greatly reduces the potential for order errors, but it is not always convenient or practical in situations where the supplier is geographically distant.

Mail is more convenient than ordering in person, but mail is relatively slow and there are occasions when the order never reaches the intended destination.

Telephone is fast and convenient, but order errors may not be detected until the order is delivered.

Fax is fast, convenient, and provides hard copy documentation of an order.

However, there is the potential for junk (unwanted) faxes, and the quality of transmission may be problematic.

Electronic is fast, convenient, and potentially very accurate; the major concern is the security of the data being transmitted.

7-7. What are some advantages and disadvantages to checking all orders for completeness and accuracy?

It can be argued that all orders, regardless of transmission method, should be checked for completeness and accuracy. Incomplete or inaccurate orders can negatively affect customer satisfaction and increase costs in the sense of addressing order irregularities.

However, checking all orders for completeness and accuracy adds costs and time to the order cycle.

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7-8. Define order triage and explain how it can affect order processing.

Order triage refers to classifying orders according to pre-established guidelines so that a company can prioritize how orders should be filled. Companies that choose to do order triage must decide the attribute(s) used to prioritize (e.g., first in, first served; customer longevity). Although there is no one right attribute to use for order prioritization, the chosen attributes are likely to delight some customers and disappoint other customers.

7-9. Discuss how the effectiveness and efficiency of order processing can be improved without large expenditures.

One suggestion is to analyze order pickers’ travel time, in part because travel time accounts for between 60 and 80 percent of total pick time. One way to reduce travel time involves combining several orders into one larger order so that the order picker can make one pick trip rather than several pick trips. Another low-cost suggestion for improving the effectiveness and efficiency of the pick process is to match the picker to the order being picked. For example, an order consisting of fragile items might be assigned to a picker who exhibits a low percentage of damaged picks.

7-10. What is pick-to-light technology, and how can it improve order picking?

In pick-to-light technology, orders to be picked are identified by lights placed on shelves or racks. Pick-to-light systems simplify the pick process because the worker simply follows the light from pick to pick, as opposed to the worker having to figure out an optimal picking path. Pick-to-light can yield impressive operational improvements with respect to faster picking of orders and improved order accuracy.

7-11. Discuss the order delivery stage of the order cycle.

Order delivery refers to the time from when a transportation carrier picks up a shipment until it is received by the carrier. Customers now have increasing power in terms of delivery options, and companies such as UPS and FedEx offer prospective shippers a diverse menu of transit time options. In addition, shippers are emphasizing both elapsed transit time and transit time variability, and some companies are utilizing delivery windows, or the time span within which an order must arrive. Another key delivery change is that the overnight range for truck service has been pushed from 500 miles to between 600 and 700 miles.

7-12. How can customer service act as a competitive weapon?

Customer service is more difficult for competitors to imitate than other marketing mix variables such as price and promotion. The text cites an example of Nordstrom’s, a highend retailer that has a long-standing reputation for excellent customer service. Their devotion to excellent customer service leads Nordstrom’s to do things that competitors cannot or will not match.

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7-13. How are macroenvironmental factors causing organizations and individuals to demand higher levels of customer service?

Macroenvironmental changes, such as globalization and advances in technology, are causing organizations and individuals to demand higher levels of customer service.

Customer expectations continue to increase over time; if the associated performance (service) levels fail to keep up, then customer dissatisfaction is a likely outcome. In addition, reliable service enables a firm to maintain a lower level of inventory, especially safety stocks, which provides lower inventory holding costs. Finally, the relationships between customers and vendors can become dehumanized and the ability to offer a high level of service, especially on a personal basis, could be quite valuable.

7-14. List and discuss the three elements of the dependability dimension of customer service.

The three elements are consistent order cycles, safe delivery, and complete delivery.

Quite simply, inconsistent order cycles necessitate higher inventory requirements. Safe delivery brings loss and damage considerations into play; a lost or damaged product can cause a variety of negative ramifications for a customer, such as an out-of-stock situation.

One way of measuring the completeness of delivery involves the order fill rate or the percentage of orders that can be completely and immediately filled from existing stock; incomplete deliveries generally translate into unhappy customers.

7-15. What are some advantages and disadvantages of technological advances designed to facilitate buyer–seller communications?

Cell phones, smart phones, and the Internet have certainly helped buyer–seller communications. These technological advances allow for less costly and more frequent contact between the two parties. Having said this, technology such as text messaging and the Internet can depersonalize the communication process, which is why periodic telephone interaction and even face-to-face contact between seller and customer are recommended.

7-16. What is customer profitability analysis and how might it be used in logistics?

Customer profitability analysis (CPA) refers to the allocation of revenues and costs to customer segments or individual customers to calculate the profitability of the segments or customers. From a resource allocation perspective, an organization should pursue different logistical approaches for different customer groups. With respect to product availability, organizations might provide a substantial volume of product offerings for their best customers, while limiting product selection among less desirable customers.

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7-17. Define and explain how organizations might engage in benchmarking.

Benchmarking refers to a process that continuously identifies, understands, and adapts outstanding processes found inside and outside an organization. Well-run organizations benchmark not only against competitors (where possible) but also against best-in-class organizations. For maximum results, organizations should engage in performance benchmarking, which compares quantitative performance (e.g., fill rate performance), as well as process benchmarking, which is qualitative in nature and compares specific processes (e.g., how organizations achieve their fill rates).

7-18. How do characteristics such as substitutability and product life cycle stage influence the development of customer service goals and objectives?

If a firm has a near monopoly on an important product (i.e., few substitutes are available), a high level of customer service is not required because a customer who needs the product will buy it under any reasonable customer service standard. As for stage in the PLC, a product just being introduced needs a different kind of service support than one that is in a mature or declining market stage. When introducing a new product, companies want to make sure that there is sufficient supply of it to meet potential customer demand, and so companies might use expedited transportation to protect against out-of-stock situations.

7-19. Describe some of the key issues associated with measuring customer service.

Ideally, an organization might want to collect measurement data from internal (e.g., credit memos) and external sources (e.g., actual customers). Another key issue associated with customer service measurement is determining what factors to measure. In addition, the metrics that are chosen to measure customer service should be relevant and important from the customer’s—and not the service provider’s—perspective.

7-20. What is meant by service recovery? How is it relevant to logistics?

Service recovery refers to a process for returning a customer to a state of satisfaction after a service or product has failed to live up to expectations. Service failure, the precursor to service recovery, is particularly relevant to the order cycle. Examples of order-related service failures include lost delivery, late delivery, early delivery, damage delivery, and incorrect delivery quantity.

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PART III CASE SOLUTIONS CASE 7-1: HANDY ANDY, INC. Question 1: Is this a customer service problem? Why or why not?

The text defines customer service as the ability of logistics management to satisfy users in terms of time, dependability, communication, and convenience. While there doesn’t appear to be much of a customer service problem with the product itself (i.e., the compactors seem to perform well), there do seem to be some problems with respect to product-related attributes such as installation and post-sale support, particularly on the part of the licensed retailers. More specifically, the licensed retailers regularly missed delivery windows, which falls into the dependability area of customer service. In addition, some installation personnel didn’t do a very good job of communicating with certain customers.

Question 2: It appears that the factory distributors are exploiting the licensed retailers.

Yet from what we can tell, Handy Andy in St. Louis has heard no complaints from the licensed retailers. Why wouldn’t they complain?

The smaller dealers might not complain because they are so dependent on the factory distributors for product. Complaining about factory distributors might result in some distributors “punishing” the complaining dealers, perhaps by being slow to process orders, slow to pick and ship orders, and slow to deliver orders.

Question 3: What should Handy Andy’s marketing vice president do? Why? Bixby is faced with multiple issues, namely, distributors exploiting licensed retailers as well as inconsistent performance by the licensed retailers. Can both issues be addressed simultaneously? If not, then Bixby needs to decide which issue to address first. Because organizations can’t exist without customers, it can be argued that Bixby should first work on the inconsistent performance by the licensed retailers. The problem may be more complicated than the text indicates because the dealers and factory distributors likely market other lines of appliances produced by other manufacturers. So the focus may be on the marketing arrangements for all types of appliances, not just Handy Andy compactors.

Question 4: In the case is the statement, “The factory distributors in these few cities indicated that they, not Handy Andy, Inc., stood behind the one-year warranty.” Is this a problem for Handy Andy? Why or why not?

In today’s business environment, which emphasizes clear, consistent, and compelling messages from seller to buyer, this might be a problem for Handy Andy. For example, a buyer might be confused (i.e., lack clarity) about whether Handy Andy or the factory distributor is standing behind the product—or are both Handy Andy and the factory 6 Copyright © 2018 Pearson Education, Inc.

distributor standing behind the product? Alternatively, might a buyer perceive that the factory distributor is offering a service (one-year warranty) that Handy Andy is unwilling or unable to provide (i.e., not compelling)?

Question 5: Bixby, Booher, and Ortega recognize that Handy Andy needs a better way to learn about the buyer’s installation experience. One alternative is to add an open-ended question, dealing with the installation experience, to the warranty activation form.

Another alternative is to email a brief survey about the installation experience within three to five days of receiving a warranty activation form. Which of these alternatives should Handy Andy choose? Why? There are pros and cons to both alternatives. One advantage to adding an open-ended question to the warranty might be that the one question isn’t likely to keep people from returning the warranty form. One disadvantage is that open-ended questions can be difficult to analyze because someone is needed to classify the responses. One advantage to the brief survey is that Handy Andy might be able to collect more, as well as more uniform, data than with one open-ended question. Alternatively, the email survey isn’t likely to be completed and returned by all potential respondents.

Question 6: Discuss the pros and cons of allowing Handy Andy trash compactors to be sold only through licensed retailers (i.e., factory distributors would no longer be able to sell to consumers).

An initial issue that might be discussed involves determining the pros and cons from each party’s perspective. For example, the licensed retailers are likely to have a different set of pros and cons than the factory distributors. At minimum, allowing sales only through licensed retailers would likely reduce, if not eliminate, the factory distributors’ exploitation of the retailers—which the retailers should really like. However, allowing sales only through licensed retailers likely will reduce the sales potential of the factory distributors—and what might these distributors do to recover the lost sales? Would some distributors choose to altogether eliminate the Handy Andy brand? If so, how quickly—if at all—would Handy Andy be able to add new factory distributors?

Question 7: Is it too late for Handy Andy to attempt service recovery with customers who reported a less-than-satisfactory installation experience? Why or why not?

The text defines service recovery as a process for returning a customer to a state of satisfaction after a service or product has failed to live up to expectations, and also indicates that there is no set formula for service recovery. There is no right or wrong answer to Question 7, and answers are likely to reflect a student’s opinion on how far a company should go to satisfy customers who have experienced a service failure of some type. For example, one argument is that Handy Andy might be better off not attempting service recovery in the sense that the company’s efforts might rekindle unpleasant memories for some customers. An alternative argument is that it’s never too late to attempt service recovery—even if it rekindles unpleasant memories—because superior service recovery can result in increased customer loyalty.

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