CUSTOMER SERVICE

by
Brian Willcox CFPIM
of
Action MRPII

Ask a salesman what customer service is and he will tell you it's all about having enough stock to deliver what the customer wants when he wants it. In a make to order environment, delivering what was promised, when it was promised.

Customer service is typically stated to be the delivery of product to the customer at the time which the customer or corporate policy specifies

This raises several questions, who is the customer, how do we make promises and what is the company policy

Our customers can be either the person who buys our finished product, a distribution network, another division of the company, or the work centre the job is going to next.

Order Promising

Order promising is the process of making a delivery commitment based on the availability of material and capacity. We all know that there is often a tendency to avoid having a formal system in this area. So what happens is that Sales promise the date the customer wants, without checking with manufacturing, and then in turn Production ignore the unrealistic promised date.
The principle is to make the maximum use of all inventory, including safety stock, but to protect all commitments to customers.

A method that can be used to make a firm commitment to customers is the availability to promise facility in the master production schedule. This is a calculation of the uncommitted stock by time period, thus allowing us to establish how much stock can be sold in which periods. This is normally an on-line facility and as new orders are taken, the figures are updated immediately. This prevents the same stock being committed twice. These periods can go well out into the future, in fact, the full length of the master production schedule, so long term future orders can be handled when received and promises given with confidence.

Companies that do not have an MRPII system with an MPS and available to promise facility find alternative ways of making promises to customers. One is to have a standard lead time for a particular product range. It works on the assumption that they will always be able to meet the delivery, irrespective of the number of orders they have already received or the amount of material that has been ordered to meet the forecast demand. This means that the method of promising deliveries is suspect and this is one of the reasons why the introduction of an MPS with an available to promise facility can greatly improve your performance to customers, because realistic dates are given.

Company Policy

Many companies establish basic priority rules for dealing with their orders. One rule may be that orders that have material available should be shipped immediately. Another rule could be - having divided the customers into A, B, and C categories where A is the high value business customer, this category will always be given preference to the smaller customers, A third approach could be - as certain items are more profitable than others, that the orders including the more profitable items are always handled first, and given preference when there are raw material shortages. Irrespective of the system to be used, if priority strategies are to be used, they must be agreed in a production planning meeting. The agreements should be defined clearly to the master scheduler and the order entry personnel.

Desired Service Level

What level of service do we want? The salesman will say 100% but can we afford it? We need to establish a target service level for the initial commitments made to customers. How many stockouts can the market take or how many are we prepared to accept, considering the financial implications? For orders that do not get delivered on time, what promise do we then give? How long will the customers wait? Will they come back again? For overdue orders, prioritise the customers by turnover or whatever method is acceptable in your company, make a new commitment and endeavour to meet it. These overdue orders also need an agreed service level which should be higher than the initial delivery promise. The service level cost increases exponentially as the service level percentage increases. A company must agree on the service level it will endeavour to meet accepting the cost of inventory that is needed to provide it.

Calculating Service Level

There are two ways of getting the same answer and the formula is:

                SL = Demand met from Stock x 100

                        Total Demand



        or   



                SL = (1 - Demand not Met) x 100

                        Total Demand

EXAMPLE:



In this example the second formula is used.
  If demand = 300 and demands met = 270,
 demands not met = 30

Therefore,

                

                S.L. = (1 - 30) x 100

                             300

                     

                     = (1 - 0.1) x 100

                     = 0.9 x 100

                     = 90%

        9 out of 10 demands are being met.

It is this service level percentage which is used to calculate our safety stock requirement. This figure is important not only on how it affects our customers but also, how it affects our inventory investment and thus our cash flow.

Renegotiating

Once a promise has been made to a customer and that date has been missed, we get into a situation where we need to re negotiate with the customer. One of the points to consider is that the service level which we aim to meet for re negotiated delivery dates should be higher than the original date service level. We are already in trouble on this item and if we miss this date, it will certainly irritate the customer further. If it is a manufacturing organisation that is purchasing material from us, their manufacturing schedule will be dependent upon the delivery of our material on time. Therefore it is important that we do meet our negotiated dates. All effort should be made to meet the original date, but there are occasions when it is impossible. It is important that once a problem is recognised, the information is passed to the master scheduler so he is able to discuss it with sales, marketing and the customer.

Notification of Delays

Once it has been established that a delay will occur on a customer's order and the promise will not be met, the customer should be informed immediately. From the customer's point of view, there is nothing worse than planning on receiving material and the day after it should have arrived, having to establish why it did not come. The creditability of the supplier then reaches an all time low. If the customer has advance notice of a late shipment, although he may not like it, at least he can try to plan around the problem.

Summary

We all desire 100% service to our customers but we have to be practical. We, as a company need to agree on the service we intend to give, fully understanding the financial commitment needed to support that decision.

Perhaps we could sum all this up as :-

More satisfied customers, means a higher service level which requires a higher inventory investment in the form of safety stock. and staff who are committed to service

June 1997

	Articles coming soon in this series...... July 1997 How often MRP?
	\| iSCM Articles \| MRP II Articles \| iSCM Library \| iSCM Home\|
	*© 1997 Action MRPII. All rights reserved.* Web page thoughtfully designed and maintained by:Stephen Thomas & Associates cc Last Updated 1st June 1997