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Chapter 3 Business logistics&Transportation flashcards |

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  • Who is the Customer?

    From perspective of the total supply chain
    -End user of product in consumer market
    -Company is customer in business market

    From perspective of specific firm within a supply chain
    -Intermediate customer organizations exist between the firm and end users

    From perspective of a logistics manager
    -Any delivery location. For example, consumer home's, retail / wholesale businesses, receiving docks of manufacturing plants and warehouses

    Overview of Customer Relationship Management

    Customer-focused marketing
    Customer service
    Customer satisfaction
    Customer success
    Developing customer relationship management strategy

    The focal point of a business strategy must be the customers that it intends to serve

    -Customer needs and requirements are more basic than products and services - match products to needs

    -Different customers (segments) have different needs and requirements

    -Products and services become meaningful only when available and positioned from the customer's perspective

    -Profit is more important than sales volume (Is customer willing to pay for modifications?)

    Transactional Marketing

    A traditional strategy with a focus on creating successful individual transactions between the company and its customers

    Relationship marketing

    A new strategy with a focus on the development of long-term relations with key supply chain participants in an effort to develop and retain long-term preference and loyalty

    Micromarketing or One-to-One Marketing recognizes

    that each individual customer may indeed have unique requirements
    For example, Wal*Mart and Target are both mass merchandisers - However, their requirements to interact logistically with suppliers differs significantly.

    One-to-one relationships can

    Significantly reduce transaction costs.
    Better accommodate customer requirements.
    Move individual customer transactions into a matter of routine.

    Discrepancies Must be Overcome to Enable Exchange of Goods and Services

    -Discrepancy in space refers to the fact that the location of production activities and location of consumption are seldom the same
    -Discrepancy in time refers to the difference in timing between production and consumption
    -Discrepancy in quantity and assortment refers to the mismatch between customer demand and manufacturing supply
    -Customers seek small quantities and wide assortment
    -Firms specialize in large quantities of a limited assortment

    Spatial convenience is

    the amount of shopping time and effort will be required on the part of the customer

    Lot size

    is the number of units to be purchased in each transaction

    Waiting time is

    the amount of time the customer must wait between ordering and receiving products

    Product variety and assortment differs by

    -supply chain

    Supermarkets may have over 35,000 items on the shelves
    Warehouse stores generally stock 8,000 to 10,000 items with only one brand and size of an item
    Convenience stores may stock only a few hundred items

    Four Generic Supply Chain Service Outputs Eliminate Discrepancies

    Spatial convenience
    Lot size
    Waiting time
    Product variety and assortment

    Three Levels of Customer Accommodation

    Customer service
    Customer satisfaction
    Customer success

    Supply chains provide a mix of services, both generic and custom, in order to accommodate a range of customer requirements

    Basic Customer Service Provides Customers ...

    With the right amount
    Of the right product
    At the right time
    And the right place
    In the right condition
    At the right price
    With the right information

    Basic Elements of Customer Service

    Fill rates
    Stockout frequency
    Orders shipped complete

    2.)Operational Performance
    Malfunction recovery

    3.)Service Reliability
    Damage free
    Error-free invoices
    Shipment matches order
    Shipped to correct location


    The Capacity to have Inventory When Desired by a Customer

    Fill Rate

    measures the magnitude or impact of stockouts over time


    occurs when a firm has no product available to fulfill customer demand

    Orders Shipped Complete

    requires shipping everything that a customer orders to count as a complete shipment

    Operational Performance

    Deals with the Time Required to Deliver a Customer's Order

    -Speed of the performance cycle is the elapsed time from when a customer established a need to order until the product is delivered

    -Consistency of the order cycle is measured by the number of times that actual cycles meet the time planned for completion

    -Flexibility is a firm's ability to accommodate special situations and unusual or unexpected customer requests

    -Malfunction Recovery is a firm's ability to quickly implement contingency plans when a failure occurs in the supply chain

    Service Reliability

    Ability to Perform All Order-related Activities & Provide Critical Information
    -Service reliability involves a combination of logistics attributes beyond simply availability and operational performance.

    1.)Damage free measures how many shipments arrive without damaged products
    2.)Error-free invoices measures what percentage of invoices contain no errors
    3.)Shipment matches order measures how many shipments contain the exact amount of product ordered
    4.)Shipped to correct location measures how many shipments are made to the customer's selected location

    Plus a capability and willingness to provide customers with accurate information regarding operations and order status

    The Perfect Order is an order that is:

    -Delivered complete
    -Delivered on time
    -Delivered at the right location
    -Delivered in perfect condition
    -Delivered with complete and accurate documentation (e.g. packing list, invoiced at correct price)

    This requires the total order cycle performance to be executed with zero defects

    P (zero defects)

    = .97 x .97 x .97 x .97 = .885

    Basic service platform

    Operational performance level
    Service reliability level
    Availability level

    Many firms establish their basic service platforms using two factors:

    Competitor or industry acceptable practice
    -Minimum and average service performance levels have emerged in most industries

    The firm's overall marketing strategy
    -High service levels needed to compete on basis of logistics competency
    -Low service levels are more common when competing on the basis of price

    Zero-defect approach is not taken across the board for all customers

    Establish internal performance standards for each service component to reflect industry practice, cost, and resource requirements

    Expectancy disconfirmation states if

    a customer's expectations of a supplier's performance are met or exceeded, the customer will be satisfied
    If Perceived Performance > = Expectations, then Satisfaction
    If Perceived Performance < Expectations, then Dissatisfaction

    Customer Expectations Related to Logistical Performance

    Knowing the customer

    The Model Identifies Gaps Managers Must Fill to Help Satisfy Their Customers

    1.) Knowledge
    2.) Standards
    3.) Performance
    4.) Communications
    5.) Perception
    6.) Satisfactions/quality

    Increasing Customer Expectations

    Performance that meets customer expectations one year may result in extreme dissatisfaction the next year

    Competition in an industry will often raise the minimum standards that customer expect

    3 Levels of Customer Focus

    Level 1: Customer service
    Assess industry and competitor practices
    Achieve internal standards for performance cycles

    Level 2: Customer satisfaction
    Assess customer perceptions of satisfaction
    Manage performance cycle levels to keep customers satisfied

    Level 3:Customer success
    Assess customer requirements
    Extend supply chain to include our customer's customer
    Provide value-added services for select customers
    Manage performance cycles and levels to address needs of each customer segment in the extended supply chain

    Achieving Customer Success Requires Knowledge of Individual Customer Requirements

    Not all customers have the same requirements
    Know your customers' processes
    Determine how your capabilities can enhance your customers' performance
    Extend the supply chain boundaries to include next-destination customer requirements
    Introduce new performance metrics
    Develop value-added services for select customers

    Customer Success Requires a Comprehensive Supply Chain Perspective

    Us -> Our customer -> Our customer's customer -> Us

    Value-Added Services

    refer to unique or specific activities that firms can jointly develop to enhance their efficiency, effectiveness and relevancy

    Transportation carriers, warehouse firms and other specialists may become intimately involved to make value-adding activities a reality
    For example, a retail customer may desire a unique palletization alternative to support its cross-dock activities for its individual stores
    Each store requires different quantities of specific product to maintain in-stock performance with minimum inventory

    Developing a Customer Accommodation Strategy

    Basic principle of supply chain logistics is that customers should be segmented based on their service needs
    Supply chains must be adapted to serve those segments

    Companies need:
    1.)A framework for choosing the appropriate customer specific strategies
    2.)Programs for customer relationship management

    Customer relationship management (CRM) is

    a process for improving the overall performance of a business by better understanding and anticipating the wants and needs of customers

    One CRM example - Procter & Gamble has employees who live and work in the city of its largest customer Wal*Mart

    Logistics has primary responsibility for many of the processes that drive value and customer success

    Basic Customer Service Provides Customers ...

    With the right amount
    Of the right product
    At the right time
    And the right place
    In the right condition
    At the right price
    With the right information

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