-
Common curtesy of stores
Have items in stock. You can't advertise and promote and not have it in stock
-
How often are retail stores out of stock?
- 7-10%
- Negative effect of stock out -> lose trust of customers, lost potential sales, free advertising to the competitors
- Negative word of mouth (NWOM)
-
What Four Main Categories Does Customer Order Fulfillment Involve?
- Availability
- Delivery
- Transparency
- Recovery
-
Deliverables of Order Fulfillment: Availability
- Product availability is the most basic output of an order fulfillment system
- Availability costs money so you have to analyze tradeoffs; i.e., between inventory and stockout costs.
- As inventory on hand increases, the cost of lost sales decreases but inventory costs (holding costs) go up
- People aren't keeping things in the back room anymore because it's a lot of cost to just hold inventory in the back room sitting
-
Percentage of items in stock (PIIS)
- A basic measure and a way to assess overall inventory availability
- Generally used at the aggregate level
- 80% of PIIS means that of all of the inventory 80% of our items are in stock
-
Esper Manufacturing is re-evaluating its inventory strategy. Currently, the company maintains an inventory of 12,340 different SKUs. A recent inventory count suggests that 10,003 of those units are currently in stock. What is the PIIS?
- 10,003 / 12,340 = 0.81
- This means that 81% of inventory is in stock
- The higher the number the higher the position of inventory
-
SKU
- Stock Keeping Unit
- Not only associated with a product, but all variations of it too (each size of a shirt has a different SKU)
-
Percentage of time an item is in stock (PTIS)
- Generally a SKU level of availability
- More of a time measurement
- The amount of time (in days) a particular SKU is in stock
- It assess how well a product stays in stock
- "Fast mover" items have a higher likelihood of being out of stock
-
Esper Manufacturing has a SKU that it is doing an analysis of. Based on the latest inventory reports, it's determined that, on average, the SKU is out-of-stock 2 days a week. Esper operates on a 6-day work week.
- PTIS= 2/6= 0.33.. 33% out of stock
- =4/6=0.66.. 67% of the time on average the SKU is in stock
-
Item Fill Rate
- The most utilized measure of availability
- Definition: percentage of orders you receive that you are able to fill with inventory that's on hand. Uses actual demand meaning you have better availability.
- Most companies use consumer panels so you are able to track what they wanted vs. what they actually purchased .
-
On-Shelf Availability
- This is the items that are on display vs. what is on record.
- The problem with this is people will place items they don't want in random places which messes with OSA
-
In Stock/Out of Stock
What is in the stores records
-
Vendor Managed Inventory (VMI)
- When the vendor for the product manages the inventory for the customers, the vendors make sure that the product makes it to the shelf.
- Relying on the retailer might not get the product on the shelves and the numbers might get messed up.
- Vendors typically don't charge more for this service, the customers are happy to let the vendors to do this and the vendors do this to ensure they have good OSA
-
Consumer Response to OOS (out of stock)
- SDL
- Substitute: go to a different product (of the same company)
- Delay: insist on the product (backordering); pay for it now and then you receive the product later
- Leave: you lose them as a customer
-
Important Info. Pertaining to Stock Outs
- You need to know what customers will do. A lot of times, customers are willing to delay.
- It is important to know which products people are more willing to leave.
- If the product is on sale, then the customer is less willing to leave the product on sale. Therefore, if there is a stock out then we are less likely to have a negative opinion about it because we kinda expected it.
- Competitive people will take personal responsibility because they didn't move quick enough to buy the sale items
-
Different Responses for Stock Outs
- Buy in-store and have product shipped to my home
- Visit and buy from another retailer
- The worst: is a double stockout-- when there is a stock out in brick and ortar and then they also don't have it on the website
-
The Cost of Stockouts
- Backorders
- Lost Sales
- Lost Customers
-
Backorder
- Occurs when a seller has only a portion of the products ordered by the buyer
- When you already pay for it but they promise to send it to you when they get it in stock
- This incurs shipping costs and they also have to have several interactions rather than just one and done.
-
Issues with backorder
- Transportation: costs to send things separately
- Inventory: now part of the next shipment is already sold, so you need to work with the supplier to get the inventory back on track
-
Three Steps to Calculating Stockout Costs
- Evaluate Customer Response
- -- You need to know what percentage of customers will do S, D, or L
- Estimate Consequence Costs
- -- What will it cost you if you go into backorder state?
- Calculate the Expected Stockout Costs
-
Deliverables of Order Fulfillment: Delivery
- Customers expect timely delivery
- Delivery capability is cross functional. If anyone who touches an order drops the ball, delivery is negatively affected.
- Customers care about three dimensions: Speed (length of order lead time), Consistently (variability of order lead time), and Flexibility (responsiveness of order lead time)
-
Difference between lead time and transit time
Lead time is broader than transportation.
-
Lead Time
- Time between when order is placed and when order is received and available for use or sale
- It is the amount of time between the order is placed to when the order is received and ready to use (not when it is dropped off at your door or on the dock)
-
Components of lead time
- Order creation
- Transmittal
- Receipt
- Picking
- Staging
- Loading
- Transit
- Receiving
- Put Away
- Most companies are trying to reduce the process (reduce the time it takes to get through all of the steps)
-
Transmittal
- Accounts receivable, financing, transportation
- The different parts about the order
-
Receipt
Receiving the order and planning for it
-
Picking
- Physically getting the different components for the order
- Companies use google glasses to help or computers
-
Staging
- Compiling all of the orders that are going to the same area
- "all items going to Ohio"
- "all the west coast products"
-
Loading
Loading products into trailers
-
Receiving
The customer getting the product
-
Put Away
When the retailer putting items where it needs to be (OSA is important)
-
What is the key to reduce lead time?
Automation
-
The Perfect Order
- # of orders perfect on all element / total orders
- This means that its not good enough to just be fast, and getting picked correctly in delivery
- It needs to be perfect in every step i.e. correct order entry, order picked correctly, timely arrival
-
Perfect Order Index (POI)
- On time * complete * damage free * accurate invoice = POI
-
Deliverables of Order Fulfillment: Transparency
- Customers expect transparency
- Transparent service can help customers compensate when the unexpected happens
- Modern technology enables you to track shipments in real-time
- Order transparency improves planning, execution, and evaluation
-
Deliverables of Order Fulfillment: Service Recovery
- Nobody is perfect. Service failure is inevitable!
- Service recovery is therefore vital
- Contingency planning helps recovery
- Recovery is important because people run the service and nobody is perfect
-
Contingency Planning Lifecycle
- Planning for services that may occur so when something fails, they are ready and have a plan for it
- Cycle of: disruption scanning, risk assessment, recovery plan, enact/execute, evaluate, improve
-
Why is reverse logistics referred to as the "dark side of the supply chain"?
- Companies have a hard time admitting that they messed up
- They need to accept that failure is inevitable
-
Forward logistics
Getting items out to the market place
-
Reverse Logistics
- Getting items back from the customers
- Remanufacturing, returns, recycling
-
Customer Order Fulfillment Involves Four Main Categories
- Availability
- Delivery
- Transparency
- Recovery
-
When designing an order fulfillment system, two points apply
- Not all customers are created equal
- Not every fulfillment experience is equally critical (the item you're selling is very critical for some companies but not others)
- Some customers are more costly
- Match service offering to real service requirements
-
What happens when you treat all customers the same?
- You might be over servicing some companies and under servicing others if you treat them the same
- It is very expensive to provide all customers with 98% perfect order
- You need to compare the cost to the revenue
-
Order receipt for Low-Cost vs. High-Cost Customer
- Low-cost: volume, blanket contract
- --orders placed via web portal
- High-Cost Customer: Small orders placed one at a time
- --orders placed by phone or fax
-
Order Processing for Low-Cost vs. High-Cost Customer
- Low-Cost: Steady ordering pattern
- --Flexible delivery time windows
- High-Cost: Sporadic ordering pattern
- --Tight time windows with late fees
-
Order Picking and Preparation for Low-Cost vs. High-Cost Customer
- Low-Cost: Full pallet picking (easier to handle)
- --Pallet-stacked loads
- High-Cost: Case or each picking
- --Floor load
- --Much more expensive
- --Essentially placing products individually
-
Order Shipment for Low-Cost vs. High-Cost Customer
- Low-Cost: Full truckload order
- --Infrequent expediting
- High-Cost: Less than truckload orders
- --Frequent expediting
-
Transactional Relationship:
Customer Expectation
Your Service Offering
Expectation: low costs, adequate service
- Service Offering: efficient, hassle-free service
- Perform to promise
- Treat each customer fairly
-
Strategic Alliance
These customers are key and vital to you
Expectation: outstanding service at low costs
- Service offering: Near 100% availability
- Near 100% on-time delivery
- Real-time transparency
- Low risks, rapid recovery
- Best-cost Solutions
-
ABC Classification
- A customer: 80% of sales come from 20% of customers
- B customers: 15% of sales come from 30% of customers
- C customers: 5% of sales come from 50% of customers
-
Why would you blend ABC classifying?
- You might give B customer with A service because that customer is apart of a group of customer that provides you with access with more companies
- There also might be a C level company that used to be A level and you give them B level service bc of the timer and loyalty
|
|
