Customer order cycle

This second section provides basic information about how managers plan, organize, lead, and control. This information is used in the later sections when discussing how to manage the customer order cycle and how to manage efforts to improve the supply chain. 

This section examines the customer order cycle, which is the flow of work that begins with the customer s order and finishes when the product is delivered to the customer. Managing this cycle is a vital ingredient in managing the supply chain. Chapter 8 will discuss the different techniques used by companies to manage their linkage with their customers. Chapter 9 will discuss how companies use information from customers and suppliers to transform their inputs into products that their customers want. Chapter 10 will discuss how companies manage their suppliers. 

Depending on the transaction in question, the subprocesses in Figure 1-4 can be applied to the appropriate cycle. When customers shop online at Amazon, they are part of the customer order cycle—with the customer as the buyer and Amazon as the supplier. In contrast, when Amazon orders books from a distributor to replenish its inventory, it is part of the replenishment cycle—with Amazon as the buyer and the distributor as the supplier. 

L. L. Bean executes all processes in the customer order cycle after the customer order arrives. All processes that are part of the customer order cycle are thus pull processes. Order fulfillment takes place from product in inventory that is built up in anticipation of customer orders. The goal of the replenishment cycle is to ensure product availability when a customer order arrives. All processes in the replenishment cycle are performed in anticipation of d and and are thus push processes. The same holds true for processes in the manufacturing and procuranent cycles. In fact, raw material such as fabric is often purchased six to nine months before customer demand is expected. Manufacturing itself begins three to six months before the point of sale. The processes in the L. L. Bean supply chain break up into pull and push processes, as shown in Figure 1-6. 

Ethan Allen makes customized furniture, such as sofas and chairs, for which customers select the fabric and finish. In this case, the arrival of a customer order triggers production of the product. The manufacturing cycle is thus part of the customer order fulfillment process in the customer order cycle. There are effectively only two cycles in the Ethan Allen supply chain for customized furniture (1) a customer order and manufacturing cycle and (2) a procurement cycle, as shown in Figure 1-7. 

Lead time is also affected by order cycle time, which includes the time it takes to transmit the order to the supplier, process the order, assemble the material, and transport them to the customer (1). Time between order and delivery may be affected by a number of factors. 

Suppose the lead time at each retailer i is periods, a deterministic constant, for i = 1,. . . , c. For instance, this can be the transportation time for a replenishment order to travel from the warehouse to the retailer or, in the case where stage i is a plant, the cycle time to build a customer order. Suppose the lead time at the warehouse is L . 

Customer service is a complex subject. However, it is usually measured in terms of the level of product availability, speed and consistency of the customer s order cycle, and communication that takes place between seller and customer. Management should establish customer service levels only after carefully studying customer needs. 

The most important measure of customer service is inventory avaUabUity within a specified order cycle time. A common measure of availability is the number of orders shipped complete within a specified time period as a percentage of total orders received. The measure(s) selected should reflect the customer s view of customer service. The best measure of customer service reflects the product s importance to the customer and the customer s importance to the company. 

The order cycle is the time that elapses between the customer s order placement and the time the product is received. The ability to achieve the targeted order cycle time consistently influences the amount of inventory held throughout the supply chain. Consequently, the speed and consistency of the order cycle are prime factors in supply chain design. Most customers prefer consistent service to fast service because the former allows them to plan inventory levels to a greater extent than is possible with a fast but highly variable order cycle. 

There are two visions of the relationship between company and customers, one from customer point of view with the different attributes for a delivered service, and another from a business point of view base on accounting rules. The companies, as DNSP, mainly worry over the second vision, trying to maximize the value of customer life cycle (Hughes, 2005) but according to the customer vision, the perceived service attributes by customers have to be considered for that maximization. In short, DNSP companies have to maximize the value of the customer life cycle and the quality service costing admissible values for the company. In this sense, some criteria have to be defined to relate the two points of view, in order to reflect the possible affections of poor quahty. To this aim, we will employ three hypotheses over standards ... 

Based on Wallace (2004), Sales and Operations Planning (S OP) is a business process that helps companies keep demand and supply in balance. It does that by focusing on aggregate volumes (e.g., product families or product groups), so that, mix issues (individual products and customer orders) can be handled more readily. It occurs on a monthly cycle and displays information in both units and dollars, thus it integrates operational and financial planning. 

Cycle stock—One of the two main conceptual components of any item in inventory, the cycle stock is the most active component, i.e., that which depletes gradually as customer orders are received and is replenished cyclically when supplier orders are received. The other conceptual component of the item inventory is the safety stock, which is a cushion of protection against uncertainty in the demand or in the replenishment lead time. 

P D ratio According to the APICS Dictionary, lOtb edition, P is the manufacturing lead-time. D is the customer required delivery time. If the ratio exceeds 1.0, the customer order will be delayed or production will start as a result of a forecast (make-to-stock). The demand-driven supply chain approach argues that different segments of the supply chain can be driven by either forecasts or actual demand. In general, actual demand is more desirable than forecasts. In this book, we use cycle time to refer to processes for manufacture and distribution and lead-time as a market-driven requirement for delivery. 

As shown in Figure 11.1, any production framework actually defines a production process push-pull boundary across the order fulfillment cycle. On the left of the boundary, we have the production resources made available by the push-based planning processes. Customer orders arise, on the right of the boundary, to compete for these limited short-term production resources. The ATP system executes at the interface of the push-driven flow and pull-based flow systems. It plays a critical role in making best use of available resources, including raw materials, work-in-process, finished goods, and even production and distribution capacities, to commit customers order requests over a period of time across a supply chain. By doing so, it coordinates activities across the push-pull boundary of a supply chain. 

Relationships in a supply chain should be identified in both the B2B and the B2C markets. They are governed by different responsibilities, as the behaviours of institutional and individual customers are dissimilar. To meet the strict requirements of both markets, companies more often focus on suppliers, who play a vital role in adding customer value (Helander and Moller 2007). Building supplier relationships is aimed at boosting the effectiveness and efficiency of flow processes in the supply chain by reducing costs, shortening cycles (e.g. production, order completion) or lessening the probability of disruptions that may cause delays and the failure to complete customers orders in line with their expectations. 

Lean is defined as an operations philosophy that reduces the total cycle time between taking a customer order and its shipment by eliminating waste. Hafey says that all processes can be broken down, or mapped, to yield a series of steps. These steps can then be categorized... 

The demand cycle is the cycle of time covering from when a customer buys or orders from a retailer or wholesaler. The demand cycle can also be based on the forecast of demand. If the retailer holds the product in stock then the demand cycle will comprise of order request, order fulfilment and order receiving. However, if the product is not readily available then the customer order request wiU form a part of demand forecast which also includes predicted demand, market inteUigeuce and promotion of the product. 

Order cycle time (also known as lead time) is the elapsed time from the placement of an order by the customer to the receiving of dehvery (see Figure 7.6). It is important to state standards to suit customer requirements and analyse the total cycle time into relevant components. Lynch and Cross (1991) claim that only 5 per cent of cycle time is devoted to adding value. In many cases the product is waiting to be worked on 95 per cent of the time. (This excludes raw materials in stock and finished goods in the warehouse.)... 

Order fill is the percentage of first time satisfied orders. From the customer s point of view this is probably the most important measurement The order is the correct quantity and quality. The next most important measure as far as the customer is concerned is if the delivery is on time On time delivery can be expressed as a percentage of full orders delivered on time. On time may be determined by the standards of order cycle time set for a customer or the agreed date of delivery as set by the customer. 

Key performance indicators (KPIs) It includes measurement of performance such as asset utihzation, customer satisfaction, cycle time from order to delivery, inventory turnover, operations costs, productivity and financial results (return on assets and return on investment). 

It has been suggested that the role of customer service Is to provide time and place utility In the transfer of goods and services between buyer and seller. Put another way, there Is no value In the product or service until It Is In the hands of the customer or consumer. It follows that making the product or service available Is what, In essence, the distribution function of the business Is all about. Availability Is In Itself a complex concept. Impacted upon by a galaxy of factors which together constitute customer service. These factors might Include delivery frequency and reliability, stock levels and order cycle time, for example. Indeed It could be said that ultimately customer service Is determined by the Interaction of all those factors that affect the process of making products and services available to the buyer. 

This component of current assets is crucial to the liquidity of the business. In recent years its importance has been recognised as more companies become squeezed for cash. It is not always recognised, however, that logistics variables have a direct impact on this part of the balance sheet. For example, the shorter the order cycle time, from when the customer places the order to when the goods are delivered, the sooner the invoice can be issued. Likewise the order completion rate can affect the cash flow if the invoice is not issued until after all the goods are despatched. One of the less obvious logistics variables affecting cash and receivables is invoice accuracy. A customer who receives an inaccurate invoice is unlikely to pay and the payment lead time will be extended until the problem is rectified. 

The customer s order cycle refers to the length of time that the customer is prepared to wait, from when the order is placed through to when the goods are received. This is the maximum period available for order fulfilment. In some cases this may be measured in months but in others it is measured in hours. 

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