Supply chain management

TCO HPP PLANT

We divide it in 4 macro categories:

1. Initial investment = purchasing cost (building + plant & energy connection) + handling cost (=transporting a plant). They come from a quotation. It seems high but it is actually just a fraction of the total cost (in this case < 20%).
2. Operating costs annual costs. Manpower, energy, packaging are very high costs. Packaging→is outside of the company control. It can suggest the company to change the supplier of packaging.
3. Maintenance cost composed of: preventive maintenance (=before a failure happens),→scheduled maintenance (=with a given frequency), reactive maintenance (=a failure occurs and we need to change a component).
4. End of life cost revenue from sale.→Total cost = sum of the above components

Discounted total cost = cost applying the interest rate→ each year we have to calculate the discounted cost to the interest rate.

Formula = total cost / [(1+interest rate) ^ year of life]

Savings should be referred

To the same moment in time, if I had the same saving today I could have a benefitted interest rate.

Operating cost: For this plant to work, we need: energy, manpower, water, maintenance, safety equipment, lubricant

End of life cost: The material can be sold once the plant has finished its lifetime (revenue from the sale)

It is always necessary to make a specific computation, because sources change.

Example of quiz:

A warehouse has a lifecycle of 40 years. Its building cost accounts for 20,000,000 €. At year 10 and 30, some extraordinary maintenance interventions should be carried out, with a cost of 400,000 € and 600,000 € respectively. At the end of the lifetime, the building can be sold at a price of 2,000,000 €. The interest rate is 0.93%. The total cost of ownership (TCO) accounts for:

NB: warehouse lifecycle is usually 50-80 years.

For year 0 the discount rate = 1 regardless of the interest rate.

You have to block the interest rate on the formula by clicking Fn+F4.

CHECK

EXCEL FILE TCO CALCULATION!!! CUSTOMER SERVICE Role: to provide 'time and place utility' in the transfer of goods and services between buyer and seller as there is no value in the product or service until it is in the hands of the customer or consumer (product availability) 'Availability' could be seen as an indicator of customer service. linked not only to time and place but also: Delivery, Frequency, Reliability, stock levels and order cycle time (lead time = product should be available when requested). => customer service is determined by the interaction of all those factors that affect the process of making products and services available to the buyer: 1. Pre-transaction elements = before a product is purchased. factors that relate to corporate policies or programs. Examples are: a) Written customer service policy (Is it communicated internally and externally? Is it understood? Is it specific and quantified where possible?) b) Accessibility (Are we easy tocontact/do business with? Is there a single point of contact?) c) Organization structure (Is there a customer service management structure in place? What level of control do they have over their service process?) d) System flexibility (Can we adapt our service delivery systems to meet particular customer needs?) 2. Transaction elements = when product is purchased. customer service variables directly involved in performing the physical distribution function. Examples: a) Order cycle time (What is the elapsed time from order to delivery? What is the reliability/variation?) b) Inventory availability (what % of demand for each item can be met from stock?) c) Order fill rate (what proportion of orders are completely filled within the stated lead time?) d) Order status information (How long does it take us to respond to a query with the required information? Do we inform the customer of problems or do they contact us?) 3. Post-transaction elements = supportive of the product while in use, for instance, product warranty.parts and repair service, procedures for customer complaints and product replacement. Examples: a) Availability of spares (What are the in-stock levels of service parts?) a) Availability of spares: What are the in-stock levels of service parts? b) Call-out time (How long does it take for the engineer to arrive and what is the 'first call fix rate'?) b) Call-out time: How long does it take for the engineer to arrive and what is the 'first call fix rate'? c) Product tracing/warranty (Can we identify the location of individual products once purchased? Can we maintain/extend the warranty to customers' expected levels?) c) Product tracing/warranty: Can we identify the location of individual products once purchased? Can we maintain/extend the warranty to customers' expected levels? d) Product tracing/warranty (Can we identify the location of individual products once purchased? Can we maintain/extend the warranty to customers' expected levels?) d) Product tracing/warranty: Can we identify the location of individual products once purchased? Can we maintain/extend the warranty to customers' expected levels? The relative importance of pre-transaction, transaction, and post-transaction elements depends on the particular product/market situation. There is no universally appropriate list of factors that exist (there may be factors other than those listed above which have significance in a specific market). It is essential for any business to have a clearly identified policy towards customer parts and repair service, procedures for customer complaints, and product replacement.

service.→IMPACT OF OUT-OF-STOCK

Corsten and Gruen (2004): when stock-out occurs on the shelf => significant cost penalty by both manufacturers and retailers

The authors found that:

• on a typical day a customer in an average supermarket will face stock-outs on 8% of items he/she is willing to buy
• Different reactions of customers to stock-out of a product are possible:
  • 26% of shoppers decide to buy a similar product from a different brand
  • 31% would try to shop elsewhere the same product
• Over 2/3 of shopping decisions are made at the point of purchase, i.e. the purchase is triggered by seeing the product on the shelf. If the product is not on the shelf then the purchase will not be triggered
• Persistent stock-outs can also drive customers away from the brand and/or the store permanently.

A similar pressure on purchasing source loyalty seems to hold true for in industrial (B2B) markets.

In fact, as more and more companies adopt 'just-in-time' strategies, with minimal

SERVICE AND LOGISTICS:Customer service and logistics play a crucial role in the success of any business. In today's competitive market, customers expect fast and reliable delivery of products. This puts pressure on suppliers to shorten their delivery lead times and ensure reliable delivery. Moreover, customers are increasingly looking to streamline their supplier base and do business with fewer suppliers. This means that suppliers need to work hard to become a preferred supplier in their industry. One way to achieve this is by prioritizing superior customer service. While cost reduction is an important goal for businesses, it should not come at the expense of value creation. Efficiency is important, but effectiveness in delivering value to customers should not be compromised. The impact of customer service and logistics extends beyond the end customer. It also affects intermediate customers such as distributors. Traditional marketing focused on generating demand, while current marketing emphasizes developing strong relationships with intermediaries and creating customer and consumer franchises. In conclusion, customer service and logistics are essential components of marketing. Meeting customer expectations for fast and reliable delivery is crucial for success in today's market. Additionally, building strong relationships with intermediaries and prioritizing value creation are key strategies for businesses to thrive.

SERVICE AND CUSTOMER RETENTION

“People don’t buy products, they buy benefits”=> The totality of the offer delivers customer value

E.g.: a finished product in a warehouse is the same as a finished product in the hands of the customer in terms of its tangible (technical) features. Clearly, however, the product in the hands of the customer has far more value than the product in the warehouse. Distribution service in this case has been the source of added value.

Centre: core product - the basic product as it leaves the factory→

Outer part: service surround - all the added value that customer service and logistics provide.→

Possible value-added elements:

• Customer service
• Logistics activity
• Advertising or branding
• Packaging
• In general: all elements that enhance the perceived value of the product to the customer).

Branding alone is NOT sufficient to differentiate the product.→=> creation of strategies for servization (=converting the product into a service).

Marketing goal: "getting and keeping customer"

Getting = finding and attracting new customers or markets.

Retaining = increase the profit of existing customers (customer retention) existing customer→can provide higher profit contribution and have the potential to grow in terms of value and frequency of purchases.

Measure of customer retention

• Customers loyal to a supplier => lifetime value goes up
• The longer the customer stay with an organization (life expectancy), the more profitable they become
• Retained customers typically cost less to sell to and to service.

As the relationship develops, there is an increased likelihood that they will give a greater part of their business to a supplier whom they are prepared to treat as a partner.

Satisfied customers tell others => further business from new customers

Two evaluation Indexes of customer retention:

1. # customers that we still have after 1 year of a business

This will be a fraction of the original one

likely that we lost some customers.

BUT: it is likely that we have new customers.

2) value of purchases (amount of economic value of a business) made by the retained customers after 1 year.

Assumption: retained customers will increase amount of business by purchasing different items.

It is a measure of the capability of the company to increase the level of purchases by retained customers.

Comparison: value of purchases one year ago and value of purchases by retained customers.

Customer service is a variable that explains retain customers! Why?

Creation of relationships with customers correct management of logistic companies:

→=> high level of satisfaction by customers=> they won’t look for alternative suppliers (especially in markets characterized by high levels of ‘promiscuity’)

Relationship marketing organization should consciously strive to develop marketing → strategies to strengthen customer loyalty: examples:

-airline company develops a frequent-flyer program-

Fidelity cards are offered by retailers and credit card companies as a way to reward customers based on the value of their purchases.

A market-driven supply chain is focused on meeting the needs of customers. Here are the steps to create a market-driven supply chain:

The first step is to understand the service needs of customers in the market where the company operates. Each customer will have different requirements, but they can often be grouped into segments based on similar service needs.

No two customers will ever be exactly the same in terms of their service requirements.

However, customers will often fall into 'segments' characterized by a broad similarity of service needs.

Knowing the specific service issues that differentiate customers is crucial in creating a market-driven supply chain.