Description

‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic
University
College of Administrative and Financial Sciences
Assignment 2
Deadline: 16/04/2022 @ 23:59
Course Name: Logistics Management
Student’s Name:
Course Code:MGT322
Student’s ID Number:
Semester: II
CRN:
Academic Year: 1443/1444 H
For Instructor’s Use only
Instructor’s Name:
Students’ Grade:
Level of Marks:
Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No exceptions.
• All answered must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism).
• Submissions without this cover page will NOT be accepted.
Assignment: 2
Submission Date by students: Before the end of Week- 11th
Place of Submission: Students Grade Centre
Weight:
10 Marks
Learning Outcome:
1. Demonstrate an understanding of how global competitive environments are changing supply chain
management and logistics practice.
2. Apply essential elements of core logistic and supply chain management principles.
3. Analyze and identify challenges and issues pertaining to logistical processes.
Assignment Workload:
This assignment is an individual assignment.
Critical Thinking
Outsourcing and offshoring initiatives can help an organization fine-tune its business model to
become more resilient and profitable. At the same time, these initiatives present challenges.
In today’s highly competitive, extremely variable, and dynamic environment, many firms are
seeking solutions. Supply chain management becomes more sophisticated and the difference
between what firms want to achieve and what they can do in-house continues to grow,
firms begin to realize that doing the right thing becomes more interesting than doing everything.
Accordingly, they are becoming better focused and more specialized by outsourcing and
offshoring activities that are far from their core businesses. In many cases firms decide to
outsource this function in whole or in part to agents or third-party logistics firms.
Using this concept of offshoring and outsourcing answer the following questions by taking any
Saudi Local company or any Multinational company.
Questions: Each Question Carrying 2 Marks.
1. Define Third party logistics firms? Discuss its working procedure? (400-500 Words)
2. Explain the motivational factors for going internationally? (400-500 Words)
3. On what ground companies choose developing country’s location for offshoring? Use
examples. (Mention the country and decisive factors). (400-500 Words)
4. Why do companies outsource? (Use example of any Saudi company along its objective and
scope for outsource). (400-500 Words)
5. Assess the reasons for using third party logistics service in Saudi Arabia? Using examples,
Explanation regarding their logistics performance and priorities. (400-500 Words)
The Answer must follow the Key word/ outline points below:
•
Outsourcing ,offshoring ,Third Party logistics
•
Their Main functions
•
Motivational Factors /Drivers
•
Any local example
•
Reasons with suitable Examples
•
Reference
Note: You can support your answer by reading chapter 4 of your book.
You can use secondary source available on internet. Please use APA-style referencing.
Answer 1.
Answer 2.
Answer 3.
Answer 4.
Answer 5.
Saudi Electronic University
Logistics
Management
Chapter 1
Chapter 1: Logistics and the Supply Chain
Chapter 1: Logistics and the Supply Chain
• What is the supply chain, and
how is it structured?
• What is the purpose of a
supply chain?
Chapter 1: Logistics and the Supply Chain
Competitiveness needs to be considered at
two levels:
• The level of the focal firm
• The level of the supply chain
We need to clarify the managerial and strategic
perspectives of the logistics challenge:
• Managerial: supervising day-to-day logistics
processes in terms of their time, cost and
quality objectives
• Strategic: formulating and implementing the
guiding principles, driving forces and
ingrained attitudes that are shared by
partners across a supply network
Chapter 1: Logistics and the Supply Chain
We need to create clarity in logistics terms.
• Supply chain
• SCM
• Logistics
• Material flow
• Supply networks
Note that we will use “chain” and “network”
interchangeably. Chain will generally be used
to describe simple links between organisations
and network for more complex linkages.
Chapter 1: Logistics and the Supply Chain
Tesco Case Study 1.1
• Illustrates aspects of the logistics challenge
facing a major retailer.
• 20,000 products planned and controlled
• 2.1 billion cases per year to be ordered,
shipped, sorted by store, and put on display
• 3 different temperature regimes
• 10 UK regional distribution centers
• Over 2,300 stores
• Rapid turnover of stocks for fast movers
• Methods include day 1 for day 2
• Pick to zero
• Store deliveries in four “waves” daily
Chapter 1: Logistics and the Supply Chain
The core purpose of Tesco is to “create
value or customers to earn their lifetime
loyalty.”
To achieve loyalty, they have to understand
customer needs and how they can be
served.
Products should be recognized by
customers as outstanding value for the
money.
Chapter 1: Logistics and the Supply Chain
Logistics is the task of planning and controlling the
purchase and distribution of the product range
from suppliers to stores.
It is concerned with managing two key flows:
•
•
material flow of the physical goods from
suppliers through the distribution centres to
stores;
information flow of demand data from the endcustomer back to purchasing and to suppliers,
and supply data from suppliers to the retailer,
so that material flow can be accurately planned
and controlled.
Chapter 1: Logistics and the Supply Chain
The logistics task of managing material flow
and information flow is a key part of the
overall task of supply chain management.
Supply chain management is concerned with
managing the entire chain of processes,
including raw material supply, manufacture,
packaging and distribution to the endcustomer.
Chapter 1: Logistics and the Supply Chain
The Tesco UK supply chain structure comprises three
main functions:
• distribution: the operations and support task of
managing Tesco’s distribution centres (DCs), and the
distribution of products from the DCs to the
associated stores;
• network and capacity planning: the task of planning
and implementing sufficient capacity in the supply
chain to ensure that the right products can be procured in the right quantities now and in the future;
• supply chain development: the task of improving
Tesco’s supply chain so that its processes are stable
and in control, that it is efficient, and that it is
correctly structured to meet the logistics needs of
material flow and information flow.
Chapter 1: Logistics and the Supply Chain
Definitions:
A supply chain is a network of partners who
collectively convert a basic commodity
(upstream) into a finished product
(downstream) that is valued by endcustomers, and who manage returns at each
stage.
Transforms inputs in the form of materials
and information into outputs in the form of
goods and services.
Chapter 1: Logistics and the Supply Chain
SCM encompasses the planning and controlling of all
processes involved in procurement, conversion,
transportation and distribution across a supply chain.
SCM includes coordination and collaboration
between partners, which can be suppliers,
intermediaries, third party service providers, and
customers.
SCM integrates supply and demand management
within and between companies in order to serve the
needs of the end-customer.
It is the buying behaviour of the
end-customer that causes
materials to flow through the
supply chain.
Chapter 1: Logistics and the Supply Chain
SCM encompasses the planning and controlling of all
processes involved in procurement, conversion,
transportation and distribution across a supply chain.
SCM includes coordination and collaboration
between partners, which can be suppliers,
intermediaries, third party service providers, and
customers.
SCM integrates supply and demand management
within and between companies in order to serve the
needs of the end-customer.
Logistics has both strategic (long-term planning) and
managerial (short- and medium-term planning and
control) aspects.
Chapter 1: Logistics and the Supply Chain
1.1.2 Supply chain: structure and tiering
The concept of a supply chain suggests a
series of processes linked together to form
a chain. A typical Tesco supply chain is
formed from five such links.
Figure 1.1
Chapter 1: Logistics and the Supply Chain
The additional complexity prompts many authors to
refer to supply networks rather than supply chains,
a point we return to shortly. Logistics today is also
concerned with what happens after a product has
been sold. Two major concerns are:
•
•
Reverse logistics: the return of unwanted goods
and packaging in the opposite direction
Waste: the discarding of product at any stage in
the supply chain due to quality problems – for
example, the disposal of out-of-date or
damaged stock by a retailer or by an endcustomer.
Chapter 1: Logistics and the Supply Chain
Figure 1.2
Chapter 1: Logistics and the Supply Chain
Other terms that are used to describe aspects
of managing the supply chain are:
• Purchasing and supply deals with a focal
firm’s immediate suppliers (upstream).
• Physical distribution deals with the task of
distributing products to tier 1 customers
(downstream).
Chapter 1: Logistics and the Supply Chain
• Logistics refers to management of
materials and information.
• Inbound logistics deals with links between
the focal firm and its upstream suppliers.
• Outbound logistics refers to the links
between the focal firm and its
downstream customers.
• Internal logistics deals with planning and
control of material flow within the
boundaries of the focal firm.
Chapter 1: Logistics and the Supply Chain
The essential points of supply chain
management were summarised long ago by
Oliver and Webber (1982):
• Supply chain management views the
supply chain as a single entity.
• It demands strategic decision making.
• It views balancing inventories as a last
resort.
• It demands system integration.
Chapter 1: Logistics and the Supply Chain
Supply chains should be views as
networks of organizations.
Figure 1.3
Chapter 1: Logistics and the Supply Chain
Figure 1.4
Flow measures the quantity of material (measured in
input terms such as numbers of components, tonnes and
litres) that passes through a given network per unit of
time.
Chapter 1: Logistics and the Supply Chain
Figure 1.5 Example of a confectionery network map
(Source: After Zheng et al., 1998)
What is the relationship between
material flow and information
flow?
Chapter 1: Logistics and the Supply Chain
1.2 Material Flow and Information Flow
Material flow should be synchronous.
It is important to keep materials flowing
from source to end-customer in a
supply chain.
To keep unnecessary build-ups of
inventory, flow must be orchestrated so
that parts movement is coordinated.
Chapter 1: Logistics and the Supply Chain
1.2 Material Flow and Information Flow
The goal is continuous, synchronous
flow. Continuous means no
interruptions, no dropping the ball, no
unnecessary accumulations of
inventory. And synchronous means that
it all runs like a ballet. Parts and
components are delivered on time, in
the proper sequence, exactly to the
point they’re needed.
Chapter 1: Logistics and the Supply Chain
1.2 Material Flow and Information Flow
Traditionally, sales were focused as stocked
developed.
Xerox realized that they should only make the stock
when they needed it, then ship it to the customer.
Three types of delivery were needed:
• Deliver JIT: Off the shelf commodity products
• Finish JIT: Middle-range products with 5-day
window
• Build JIT: Larger products planned months in
advance
Chapter 1: Logistics and the Supply Chain
Figure 1.6
Xerox: the impact on inventories
How did inventory reduction in
the supply chain lead to
improved competitiveness at
Xerox?
Chapter 1: Logistics and the Supply Chain
1.2 Material Flow and Information Flow
Information flow
Customer demand signals the trigger for the
supply chain to respond
Demand information is shared across the
supply chain by creating a demand chain to
enhance customer value.
IT is used to integrate demand and supply
data to keep the entire chain informed
Chapter 1: Logistics and the Supply Chain
Figure 1.7
Integrating demand and supply chains
How do products win orders in
the marketplace? How does
logistics contribute to
competitive advantage?
Chapter 1: Logistics and the Supply Chain
1.3 Competing through logistics
Within a given supply chain, it is
important that each organisation
understands how each group of
products competes in the marketplace,
and that it aligns its capabilities with
those of its partners.
Product = physical product +
accompanying service
Chapter 1: Logistics and the Supply Chain
1.3 Competing through logistics
Key advantage provided by logistics is:
• Availability of conforming product in
the marketplace at low cost
Logistics supports competitiveness of
the supply chain by:
• Meeting end-customer demand
through supplying what is needed in
the form it is needed, when it is
needed, at a competitive cost.
Chapter 1: Logistics and the Supply Chain
1.3 Competing through logistics
Logistics advantage means setting goals that
are:
• Clear
• Measurable
• Quantifiable
Hard objectives for creating logistical
advantage
• Quality
• Time
• Cost
Chapter 1: Logistics and the Supply Chain
1.3 Competing through logistics
Hard Objectives
• Quality – the most visible aspect of supply
chain performance
• Time – measures how long a customer has
to wait in order to receive a given product
or service
• Cost – is important for all supply chain
processes because they translate into price
advantages
Chapter 1: Logistics and the Supply Chain
1.3 Competing through logistics
Supportive capabilities are three more ways
for creating logistical advantage with regards
to hard objectives:
• Controlling variability in logistics processes
• Dealing with uncertainty
• Sustainability
Chapter 1: Logistics and the Supply Chain
1.3 Competing through logistics
Supportive Capabilities
• Controlling variability in logistics
processes – Variability refers to real and
identifiable differences within a population
• Dealing with uncertainty – uncertainty
refers to our lack of knowledge and having
to deal with unpredictable events
• Sustainability – addresses the
improvement of social and environmental
issues in the design of logistics systems.
Chapter 1: Logistics and the Supply Chain
1.3 Competing through logistics
Controlling variability
Variability undermines the dependability with which
a product or service meets target.
Dependability is used to monitor a supplier’s
performance in such terms as:
• On-time – percentage of orders delivered on-time
and the variability against the target
• In-full – percentage of orders delivered complete
and the variability against the target
• On-quality – percentage of defects and the
variability against the target.
Chapter 1: Logistics and the Supply Chain
1.3 Competing through logistics
Dealing with Uncertainty
Dealing with uncertainty means responding rapidly to
unknown problems that affect logistics processes. The
implication of uncertainty for supply chain processes
is that they need to be flexible.
Flexibility comes in two basic forms:
• Proactive – to create the capability in advance to
handle uncertainty
• Reactive – to cope with uncertainty in a focal firms
internal or external environment
Chapter 1: Logistics and the Supply Chain
1.3 Competing through logistics
Sustainability
Sustainability is defined as the development that
meets the needs of the present without
compromising future generations.
The three sustainability values are:
Environmental – a focal firm is concerned with
reducing consumption of non-renewable energy and
materials.
Social – ensuring that goods are manufactured in
socially responsible conditions
Economic – the net value that a firm generates after
social and environmental values have been taken into
account.
Chapter 1: Logistics and the Supply Chain
1.3 Competing through logistics
Case Study 1.3: Measuring schedule
variability
Scheduled demand = S
Call-off quantity = A
Difference = D
D=S–A
• Produced to schedule S > A and supplier will
overproduce and end up with excess stock
• If S < A, the effects could be a reduction in stuck by
the supplier or a shortfall (S – A) of parts from the
supplier
Both conditions have different logistical implications.
Chapter 1: Logistics and the Supply Chain
Distribution of differences between scheduled and actual demand for
WestCo
Figure 1.8
Chapter 1: Logistics and the Supply Chain
Distribution of differences between scheduled and actual demand
for EastCo
Figure 1.9
Chapter 1: Logistics and the Supply Chain
1.3 Competing through logistics
Case Study 1.4: Nokia deals with uncertainty
• The key differences between Nokia
and Ericsson was that while Nokia
was transparent with their problems,
Ericsson was not.
• Once Nokia realized the problem,
they threw great resources to resolve
the supply problems.
Chapter 1: Logistics and the Supply Chain
1.3 Competing through logistics
Case Study 1.5: Plan A at Marks and Spencer
•
•
•
•
The firm has embedded sustainability into the
company’s culture.
Note trade-offs between economic risk of €300m
and potential social and environmental gains
which are hard to quantify in financial terms.
Many Plan A goals are unquantifiable, but the
impact of perceived goodwill appears to offset it.
By integrating corporate responsibility with
finance, the company has ensured sustainability
will be a part of the company’s growth strategy.
Chapter 1: Logistics and the Supply Chain
1.3 Competing through logistics
Soft Objectives
There are other ways in which logistics
advantage may be gained.
Examples of soft objectives are:
• Confidence – queries answered promptly,
courteously, and efficiently
• Security – customer’s information and
property treated in a confidential and
secure manner
Chapter 1: Logistics and the Supply Chain
1.3 Competing through logistics
Order Winners and Qualifiers
Order winners are factors that directly and
significantly help products to win orders in
the marketplace.
Order qualifiers are factors that are regarded
by the market as an ‘entry ticket’. Unless the
product or service meets basic performance
standards, it will not be taken seriously.
Order winners and qualifiers are specific to
individual segments.
Chapter 1: Logistics and the Supply Chain
Table 1.1
Different product ranges have different logistics performance objectives
Chapter 1: Logistics and the Supply Chain
1.4 Logistics Strategy
Defining Strategy
• Strategy is about planning as distinct from
doing.
Hayes and Wheelwright (1984):
• Logistics strategy is the set of guiding
principles, driving forces and ingrained
attitudes that help to coordinate goals,
plans and policies, and which are
reinforced through conscious and
subconscious behaviour within and
between partners across a network.
Chapter 1: Logistics and the Supply Chain
1.4 Logistics Strategy
Defining Strategy
Whittington (2000) proposes four approaches to
setting strategy.
He starts by suggesting different motivations for
setting strategy:
• How deliberate are the processes of strategy
setting? These can range from clearly and carefully
planned to a series of ad hoc decisions taken on a
day-to-day basis.
• What are the goals of strategy setting? These can
range from a focus on maximising profit to
allowing other business priorities such as sales
growth to be included.
Chapter 1: Logistics and the Supply Chain
1.4 Logistics Strategy
Defining Strategy
What are the implications for the way in which supply
chain strategy is approached in different
organisations? Following is a brief description of
Whittington’s four options:
• Evolve. ‘Strategy’ is not something that is formally
undertaken at all. ‘Our strategy is not to have a
strategy’ is a typical viewpoint. Operating decisions
are taken in relation to the needs of the moment,
with financial goals as the main guiding principle.
• Classical. While financial goals are again the main
guiding principle, these are achieved through a
formal planning process. This is called ‘classical’
because it is the oldest and most influential option.
Chapter 1: Logistics and the Supply Chain
1.4 Logistics Strategy
Defining Strategy
• Accommodate. Here, decisions are back to the dayto-day mode, but financial objectives are no longer
the primary concern. Strategy is accommodated
instead to the realities of the focal firm and the
markets in which it operates.
• Systemic. This option for strategy setting sees no
conflict between the ends and means of realising
business goals. While goal setting takes place across
all major aspects of the business (including human
resources, marketing and manufacturing policies),
these are linked to the means by which they will be
achieved in practice.
Chapter 1: Logistics and the Supply Chain
Figure 1.10
Four options for crafting strategy
Chapter 1: Logistics and the Supply Chain
1.4 Logistics Strategy
Aligning Strategies
•
•
•
If different links in the supply chain are directed
towards different competitive priorities, then the
chain will not be able to serve the end-customer
as well as a supply chain in which the links are
directed towards the same priorities.
That is the basic argument for alignment in the
supply chain (Cousins, 2005).
Where the links are directed by a common and
consistent set of competitive criteria, then that
supply chain will compete better in the
marketplace than one in which the links have
different, conflicting priorities. This is the concept
of ‘focus’, the view that you cannot be good at
everything.
Chapter 1: Logistics and the Supply Chain
1.4 Logistics Strategy
Case Study 1.6: Talleres Auto
Talleres Auto (TA) is an SME based in Barcelona. TA
attends to broken-down vehicles, providing a
roadside repair and recovery service.
• Two of the parts that TA frequently uses are
starters and alternators, which were obtained
from a local distributor.
• In turn, the local distributor ordered parts from a
prime distributor. Starters and alternators were
obtained from a remanufacturer, who replaced the
windings and tested the products using parts
bought from a component supplier.
• A diagram of this part of the supply chain is shown
in Figure 1.11.
Chapter 1: Logistics and the Supply Chain
Figure 1.11
The Talleres Auto supply chain
Chapter 1: Logistics and the Supply Chain
1.4 Logistics Strategy
Differentiating Strategies
What makes a successful strategy? Five principles of
strategic positioning, related to logistics strategy:
• A unique value proposition: determining what
makes the product/service different from its
competitors.
• A tailored supply chain: governed by consistent
order winning and qualifying criteria.
• Identify the trade-offs: by choosing not just the
priorities but also what not to do. A responsive
supply chain is not compatible with an efficient
supply chain (Fisher, 1997).
• Align logistics processes: so that processes are
mutually reinforcing.
• Continuity: logistics processes are continually and
consistently improved over time.
Chapter 1: Logistics and the Supply Chain
1.4 Logistics Strategy
Trade-offs in Logistics
To reinforce the issue of differentiating
strategies, let us look at two commonly used
strategies:
• Cost: a high-volume product for which
demand is relatively stable throughout the
year.
• Time: a high variety product, which is
designed for a given season and which is
completely redesigned for the next season.
Saudi Electronic University
Logistics
Management
Chapter 2
Chapter 2: Putting the end customer first
Chapter 2: Putting the end customer first
Chapter 2: Putting the end customer first
2.1 The marketing perspective
‘Marketing’ has traditionally been associated with
anticipating, identifying and satisfying customer
requirements profitably. A more current definition
emphasises value in the context of the broader supply
chain – and that includes partners rather than just
customers:
Marketing is the activity, set of institutions, and
processes for creating, communicating, delivering,
and exchanging offerings that have value for
customers, partners, and society at large.
Chapter 2: Putting the end customer first
2.1 The marketing perspective
Harnessing customer power:
The basic assumption that customers choose – that
they know best what they want – means that they
have become the centre of the retailer’s universe. In
the best businesses, their decisions drive everything.
These choices are also judgements. They pick the
winners and losers in retail and in manufacturing. This
is not theoretical: they regularly pass verdicts, moving
from product to product and store to store. These
judgements send strong feedback – shocks might be a
better word – forcing change.
Chapter 2: Putting the end customer first
2.1 The marketing perspective
In Chapter 1, we referred to ‘tier 1 customers’ with
whom a focal firm deals directly, and to ‘endcustomers’ who are the individuals or businesses that
buy the finished ‘product’ at the downstream end of
the supply network. It is therefore usual to refer to two
types of customer:
• business customers: who represent the focal firm’s
immediate trading environment
• end-customers: who represent the ultimate
customer for the network as a whole
Chapter 2: Putting the end customer first
2.1 The marketing perspective
We also need to distinguish here between
customers and consumers. Webster (2000) defines
them thus:
• consumers are people who use or consume the
product;
• customers are individuals or businesses who
buy the product, meaning that they acquire it
and pay for it.
Chapter 2: Putting the end customer first
2.1 The marketing perspective
Rising customer expectations
Expectations have risen among customers in line with a
general increase in the wealth of developed countries
over the last half century. This increase in expectations
has many causes, including:
• better levels of general education;
• better ability to discern between alternative
products;
• exposure to more lifestyle issues in the media.
Chapter 2: Putting the end customer first
2.1 The marketing perspective
Rising customer expectations
The explosion in applications of internet
technology continues to have sweeping effects on
the way that business is transacted today.
Applications that have sprung from the world wide
web have impacted both B2C and business to
business B2B relationships.
• Business to consumer (B2C)
• Business to business (B2B)
• Supply chain implications
Chapter 2: Putting the end customer first
2.2 Segmentation
Segmentation describes how a given market might
be broken up into different groups of customers
with similar needs.
Profiles of the segments and evaluation of their
relative attractiveness to a focal firm can then be
developed.
There are many possible ways in which markets can
be segmented, including:
• Demographic
• Geographic
• Technical
• Behaviorial
Chapter 2: Putting the end customer first
2.2 Segmentation
The important characteristics of segments
(McGoldrick, 2002) are that they must be:
measurable: variables that can be easily identified
and measured;
• economically viable: capable of producing the
contribution that justifies the effort and cost of
marketing;
• accessible: geographically or in terms of media
communications;
• actionable: can be attracted and served
effectively.
Chapter 2: Putting the end customer first
2.2 Segmentation
The marketing mix is the set of marketing decisions that
is made to implement positioning strategy and to achieve
the associated marketing and financial goals. The
marketing mix has been popularly termed the ‘4 Ps’:
• product: range, sizes, presentation and packaging,
design and performance;
• price: list price, discounts, geographical pricing,
payment terms;
• promotion: sales force, advertising, consumer
promotion, trade promotion, direct marketing;
• place: channel selection, market coverage,
distribution systems, dealer support.
Chapter 2: Putting the end customer first
Segmentation principles can also be applied to industrial marketing. But ‘there
are distinct differences between the marketing of industrial products and
consumer goods’ (Millier and Palmer, 2000: 60), as summarised in Table 2.2.
Chapter 2: Putting the end customer first
2.3 Demand Profiling
• Marketing people want to forecast demand in
order to plan broad goals such as allocating the
salesforce, setting sales goals, promotions
planning and advertising campaigns.
• Logistics people need to know how many to
deliver, where and when to do so, for each sku
in the product range and for each channel – not
just for the range as a whole. This leads to a
common perception of the two functions –
marketing dealing in the abstract and logistics
dealing in the day-today realities.
Chapter 2: Putting the end customer first
Chapter 2: Putting the end customer first
Chapter 2: Putting the end customer first
Chapter 2: Putting the end customer first
2.3 Demand Profiling
In practice, the MAD may be exponentially
weighted to give higher weightings to the most
recent demand data.
The sidebar on Figure 2.3 shows how the total
(aggregate) demand for this product can be broken
down into four components:
• Base
• Trend
• Seasonality
• Uncertainty
Chapter 2: Putting the end customer first
2.3 Demand Profiling
Base and trend demands can be found by linear
regression analysis, and a seasonality index can be found
by dividing the original data by the trend for each period.
Uncertainty is usually allowed for by increasing the
forecast to provide a safety margin to make it unlikely
that there are missed sales opportunities.
Forecast demand for a future period n is then calculated
from;
So forecast demand for year 4 was based on projecting
historical data for these four components into the future
Chapter 2: Putting the end customer first
2.4 Quality of Service
•
•
•
Most supply chains that involve physical products end
with service processes such as retailing (grocery or
apparel), healthcare (pharmaceutical and other
medical goods) and distribution (motor cars).
Service processes mean that the customer is present
in some way, although distribution through webbased shopping, telephone and mail order mean that
customers do not have to be physically present.
Performance of service processes often differs
between employees, between customers and from
one hour to the next.
Chapter 2: Putting the end customer first
2.4 Quality of Service
• Quality of service takes place during service
delivery, which is the interaction between the
customer (B2B or B2C) and the service process.
• ‘Gaps’ can emerge between what the service is
supposed to be, what the customer expects it to
be, and how the customer perceives it when it is
delivered.
Chapter 2: Putting the end customer first
2.4 Quality of Service
• Gap 1 refers to differences between customer
expectations and how these have been developed
into a service specification by the supplier.
• Gap 2 refers to differences between how the
specification was drawn up and how it was
delivered.
• Gap 3 refers to differences between what the
customer expected and what he or she perceived
was delivered.
• Gap 4 refers to differences between how supplier
and customer perceived the service delivery.
Chapter 2: Putting the end customer first
Chapter 2: Putting the end customer first
2.4 Quality of Service
Customer loyalty
While plugging gaps in service quality helps to
improve customer satisfaction, this is a ‘qualifier’ for
long-term customer loyalty. The two concepts are not
the same. Piercy (2009) distinguishes them as
follows:
• Customer Satisfaction
• Customer Loyalty
Chapter 2: Putting the end customer first
2.4 Quality of Service
Customer loyalty
The benefits of customer loyalty are potentially huge.
The loyal customer should be viewed in terms of
lifetime spending potential. Loyal customers:
• generate long-term revenue streams (high lifetime
values);
• tend to buy m