Answer Happy

Provide a thoughtful reflection of what you have learned. It is not a summary of the chapters, but rather a view of the concepts that are of value to your own learning experience. This can be a topic from the text readings of what you have learned.
Provide your own thoughts and ideas for this. Do not plagiarize your responses for this. Definitions are not to be included in your responses. Do not number the paragraphs. Appropriately cite your sources which are from the text you read above. Do not retype the instructions/requirements for this assignment.
Word Count Requirement: minimum 250 words
Procurement, which refers to the raw materials, component parts, and supplies bought from outside organizations to support a company's operations, is an important activity and closely related to logistics because acquired goods and services must be entered into the supply chain in the exact quantities and at the precise time they are needed. While procurement has been traditionally viewed as transactional in nature, studies indicate that the function's profile is rising due to the increased globalization and complexity of today's supply chains.1 Procurement is also important because its costs often range between 60 and 80 percent of an organization's revenues. The magnitude of procurement expenditures meant that procurement's historical focus in many organizations was to achieve the lowest possible cost from potential suppliers; oftentimes these suppliers were pitted against each other in "cutthroat" competition involving three-or six-month arm's-length contracts awarded to the lowest bidder. Once this lowest bidder was selected, the bidding cycle would almost immediately start again, and another low bidder would get the contract for the next several months. Today, by contrast, procurement has a much more strategic orientation in many organizations, and a contemporary procurement manager might have responsibility for reducing cycle times, playing an integral role in product development, or generating additional revenues by collaborating with the marketing department.2 Historically, procurement, purchasing, and supply management were terms that could be used almost interchangeably, but this is no longer the case. Although "procurement" and "purchasing" are sometimes viewed as synonymous terms, supply management is now viewed as a relational exchange approach involving a limited number of suppliers. You might recall from Chapter 5 that relational exchanges adopt a long-term orientation that can be characterized by attributes such as trust, commitment, dependence, and shared benefits. In addition, taking a supply chain perspective toward purchasing has led some companies to use the term strategic sourcing. This approach involves an increased focus on identifying and using data internally and across the supply chain so that a company can consolidate its purchasing power for enhanced value. For example, one company was spending over $5 million on corrugated boxes each year with five suppliers at five different locations. The company used a strategic sourcing approach to collect data to benchmark a standard price for corrugated boxes in the industry along with using external data to qualify potential alternative suppliers interested in their business at this price level. Another example of how data are affecting procurement comes from global shipping company Maersk. In an approach it terms "moneyball sourcing," Maersk has been able to analyze data from auction events to influence its procurement strategy. After analyzing over 8,000 e-auctions it found that every time it added an additional supplier to the auction, it was able to save an additional 1 percent. This relationship held true for up to eight suppliers.3
Electronic commerce continues to bring many changes to the procurement discipline, such as electronic procurement and reverse auctions, which were discussed in Chapter 20. Moreover, utilization of procurement cards (also referred to as p-cards) has also grown dramatically with the evolution of electronic commerce. P-cards are similar to charge cards such as Visa and MasterCard that are typically focused on personal use, with p-cards being used for an organization's buying needs. Organizations generally restrict the number of employees authorized to use procurement cards, and each month, an organization receives a detailed statement listing employees, details of their purchases, and purchase prices. P-cards may require control processes that measure usage and identify procurement trends, limit spending during the appropriate procurement cycle, and block unauthorized expenditures at gaming casinos or massage parlors.4 However, the incidence of fraud has been found to be low primarily due to investments that the card issuers have made in programs to seek out and eliminate it.5 P-cards can benefit organizations in several ways, one of which is a reduction in the number of invoices. Unlike personal credit cards, with p-cards an organization will make one payment for the total amount of purchases during one month, as opposed to making individual payments for each p-card holder. In addition, these cards allow employees to make purchases in a matter of minutes, as opposed to days, and procurement cards generally allow suppliers be paid in a more timely fashion. While the benefits of using p-cards increase exponentially as more people within an organization use them, expanding use beyond the domestic market can be a challenge. Issues associated with an expansion of p-cards overseas include currency differences, availability of technology, differences in card acceptance across countries, and cultural issues with the program. For example, in some Asian markets, employee turnover is so high that card security is a major concern. 6 Because entire textbooks are devoted to procurement, it's really not possible for us to cover all aspects of this topic in just one chapter. We'll begin our examination with a brief overview of possible objectives for procurement, and this will be followed by a description of supplier selection and evaluation. We'll also look at global procurement, sustainable procurement, and supply chain finance.
Because procurement has become more strategic in nature, its primary objective is no longer to only achieve the lowest possible cost of supply. Potential procurement objectives include, but are not limited to, (1) supporting organizational goals and objectives, (2) managing the purchasing process effectively and efficiently, (3) managing the supply base, (4) developing strong relationships with other functional groups, and (5) supporting operational requirements. Each objective will be briefly highlighted in the following paragraphs. First and foremost, procurement's objectives must support organizational goals and objectives. If, for example, minimal inventory is an organizational objective, then procurement probably should not be attempting to minimize total procurement costs. With respect to managing the purchase process effectively and efficiently, effectively is concerned with how well procurement keeps its promises, whereas efficiently refers to how well (or poorly) procurement uses company resources in keeping its promises. A third procurement objective, managing the supply base, refers to the selection, development, and maintenance of supply sources. Developing strong relationships with other functional groups recognizes that the interfunctional consequences of procurement decisions require more cooperation and coordination than has traditionally existed between procurement and areas such as logistics, manufacturing, and marketing. The lack of cooperation and coordination between procurement and other functions can result in supply shortages, excess inventory, frequent write-downs, and increased lead times. Supporting operational requirements means that procurement's focus is on satisfying internal customers and can be summarized by buying the right products, at the right price, from the right source, at the right specifications, in the right quantity, for delivery at the right time to the right internal customer.
One of procurement's most important responsibilities involves supplier (vendor) selection and evaluation. The selection and evaluation of suppliers is a process that involves stating an organization's needs and then determining how well various potential suppliers can fulfill these needs (see Figure 6.1 D). The first step in this process, identify need for supply, can arise from a number of considerations, such as the end of an existing supply agreement or the development of a new product. Situation analysis, the second step, looks at both the internal and external environments within which the supply decision is to be made. Internal considerations include identification of the relevant stakeholders, where the supply is needed, and the appropriate quantity and quality of the supply, as well as applicable supply policies (e.g., minority supplier initiatives). The external environment includes economic considerations, the legal and regulatory frameworks controlling the purchase, and the marketplace within which potential suppliers operate. Figure 6.1 Supplier Selection Framework Identify Need for Supply Situation Analysis Internal factors (e.g., supply policies) External factors (e.g., legal issues) Identify and Evaluate Potential Suppliers Sources of potential information Establish selection criteria Assign weights to selection criteria Select Supplier(s) Consideration of company policies (e.g., usage of minority suppliers) Evaluate Decision Compare actual and expected performances
Identify and evaluate possible suppliers is the third step. A myriad of sources can be used to identify possible suppliers, such as salespeople, trade shows, trade publications, and the Internet. It's important to recognize and understand the potential advantages and disadvantages of each source. For example, although trade shows might highlight offerings from several different supply sources (which could facilitate supplier comparisons), the costs to attend or exhibit at trade shows have skyrocketed in recent years; moreover, trade shows are often held only once a year. Evaluating suppliers can be facilitated if an organization (1) delineates relevant selection criteria and (2) assigns weights to these criteria. With respect to the latter, if an organization uses four relevant selection criteria, should all four be assigned equal weight (i.e., 25 percent per criteria), or should certain criteria be weighted more heavily than others (e.g., two criteria weighted at 30 percent apiece and two others weighted at 20 percent each)? This weighting technique serves as a foundation for generating a rating (score) for each possible supplier, and these ratings are instrumental in the fourth step of the supplier selection process, select supplier(s), which occurs when an organization chooses one or more companies to supply the relevant product. Selecting the most appropriate number of suppliers a firm should use has been the subject of continuing debate. Internal considerations, which were mentioned in Step 2, could influence the decision to use a single-source multiple-source approach. While the goal of both approaches is to provide the buying organization with the best value of a supplied part, each offers distinct advantages. Multiple sourcing proponents argue that by having more than one supplier increased amounts of competition, greater supply risk mitigation, and improved market intelligence can arise. Single sourcing, on the other hand, consolidates purchase volume with a single supplier with the hopes of enjoying lower costs per unit and increased cooperation and communication in the supply relationship. However, the achievement of these potential savings is connected to the buyer's relative size in the market. For some smaller buyers, single sourcing might actually reduce their alternatives and ultimately raise the price they pay.9 The final step of the supplier selection process, evaluate decision, involves a comparison of expected supplier outcomes to actual supplier outcomes. There are two primary approaches for evaluating suppliers: process based and performance based. process-based evaluation is an assessment of the supplier's service and/or production process (typically involving a supplier audit D). A supplier audit usually involves an onsite visit to a supplier's facility. The goal of this visit is to gain a deeper knowledge of the supplier. Supplier audits can involve assessments of the supplier's structure (management, people, quality, innovation), resources (technology, processes), health (financials, risk), and responsibility (social, environmental). 10 A performance-based evaluation is focused on the supplier's actual performance on a variety of criteria, such as cost and quality. This evaluation can be facilitated if an organization has explicitly defined selection criteria, as mentioned in Step 4. Many companies use supplier scorecards to report performance information to their suppliers. Scorecards can be categorical (simple check-off items that reflect supplier performance), weighted point (weights assigned to multiple categories with defined performance scales), or cost based (attempts to quantify total cost of doing business with a supplier over time). 11 PolyOne Corp., a producer of latex, compounds, and plastics, has used a scorecard program with its top suppliers to improve on-time delivery and grow sales.12 The preceding paragraphs have presented supplier selection and evaluation as a seemingly straightforward and easy-to-follow process, but supplier selection and evaluation can actually be quite complex. First off, supplier selection and evaluation generally involve multiple criteria, and these criteria can vary both in number and importance, depending on the particular situation. As an example, a study involving the procurement of electronic components 13 looked at 10 possible selection criteria, whereas 16 selection criteria were investigated in a study of overseas vendors by Canadian apparel buyers.14
Second, because some vendor selection criteria may be contradictory, it is important to understand potential trade-offs between them. For instance, it may be difficult for a supplier to achieve both competitive pricing and high-quality supply. Third, the evolution of business practices and philosophies, such as just-in-time, green purchasing, and supply chain management, may require new selection criteria or the reprioritization of existing criteria. As an example, whereas EDI capabilities might have been an important supplier selection criterion in the early 1990s, in the contemporary environment Internet-related capabilities (e.g., tracking, pricing) have assumed increased relevance and importance.15 Procurement Portfolio Approach Learning Objective 6.4 101 As part of the situation analysis mentioned previously, procurement managers must continually be aware of the supply and demand characteristics of the raw materials, component parts, and supplies they purchase. Kraljic's Portfolio Matrix (see Figure 6.2L) is used by many managers to classify corporate purchases in terms of their importance and supply complexity with a goal of minimizing supply vulnerability and getting the most out of the firm's purchasing power. 16 The matrix delineates four categories: noncritical (low importance, low complexity), leverage (high importance, low complexity), strategic (high importance, high complexity), and bottleneck (low importance, high complexity). Each category requires distinct procurement strategies for managing supply. For example, p-cards might be used for noncritical items, leverage items might rely upon reverse auctions, and strategic items would tend to use long-term, cost-based contracts with key suppliers, whereas firms may turn to buying consortiums to address the complexity of bottleneck items. Many researchers and companies have built upon Kraljic's approach by proposing new portfolio dimensions for classifying both products and suppliers.17 The key will be for procurement to work with other functional areas to identify the most appropriate segmentation dimensions for their firm. This segmentation should also be reviewed and updated on a regular basis.
Supplier Development (Reverse Marketing) Our description of supplier selection and evaluation has taken a "traditional" approach in the sense that there has been underlying assumptions that (1) suppliers initiate marketing efforts toward purchasers and (2) potential suppliers are available and willing to serve prospective purchasers. However, because it has become increasingly common for potential suppliers not to be available and willing to serve prospective purchasers, some purchasers are taking a more proactive role in the procurement process. To this end, supplier development (reverse marketing) refers to aggressive procurement involvement not typically part of supplier selection and can include a purchaser initiating contact with a supplier or a purchaser establishing prices, terms, and conditions, among other behaviors. There are several key reasons for why purchasers are adopting a more proactive and aggressive role in the procurement process. One is the myriad of inefficiencies associated with suppliers initiating marketing efforts toward purchasers, such as suppliers possessing inadequate, insufficient, or untimely information. A second reason for more proactive and aggressive procurement is that the purchaser may be aware of important benefits, such as reduced inventory and improved forecasting accuracy, which are unknown to the supplier. Yet another reason is that achieving competitive advantage in the supply chain is predicated on purchasers adopting a more aggressive approach so as to compel suppliers to meet the necessary requirements.18
While world trade continues to grow, the pace of this growth has slowed significantly since the 2008/2009 world economic downturn. The continuing growth of globalization means that many organizations, rather than relying on local and domestic suppliers, will continue to cast a wider net in search of supply sources. Indeed, a recent procurement study projected that half of all firms would have a global spend of over 40 percent.20 Global procurement (sourcing), which refers to buying components and inputs anywhere in the world, is driven by two primary reasons, namely, the factor-input strategy and the market-access strategy. With the factor-input strategy, an organization is seeking low-cost or high-quality sources of supply, whereas the market-access strategy involves sourcing in markets where an organization plans to do significant business. A global sourcing development model would include the following components: planning, specification, evaluation, relationship management, transportation and holding costs, implementation, and monitoring and improving. Each of these will be briefly detailed next. Planning is the first step in global procurement and involves an honest assessment of global sourcing opportunities and challenges. The outcome of this stage should be a set of global procurement policies and procedures that are consistent with an organization's overall objectives. Specification involves quantifying and qualifying current sources across a variety of dimensions such as quality, costs, reliability, and standardization, among others. An earlier section in this chapter discussed supplier selection and evaluation, and although the evaluation process associated with global procurement has similarities, there are potential differences as well. For example, should an organization use the same standards to evaluate international sources as are used to evaluate domestic sources? Another component in a global sourcing development framework, relationship management, has been discussed in previous chapters. Relationship management in global procurement is exacerbated by potential difficulties in cross-cultural communication such as language and time considerations. Because global sourcing increases the distance that components and inputs must be moved, managers must consider trade-offs between transportation and holding costs. The choice of a faster transportation alternative (e.g., air) will likely create higher transportation costs and lower inventory holding costs; alternatively, a slower transportation alternative (e.g., water) will create lower transportation costs and higher inventory holding costs. Implementation, or carrying out, is often a major shortcoming to many global procurement plans; indeed, some organizations fail to specify an implementation plan. Moreover, the eater uncertainty associated with globa burcing means that implementation must be flexible d provide guidance for decision making when confronted with the unexpected. Finally, monitoring and improving means that performance measures must be established for global procurement systems and that these measures should be reviewed on a regular basis. Comparisons can be made between actual and expected performance, and the results of these comparisons can be used to improve the global sourcing process. Commonly used performance measures for monitoring global sourcing systems include the percentage of shipments that arrive early or late, completeness of orders, and percentage of orders accepted or rejected on delivery.
Establishing a successful global sourcing strategy can be one of the most difficult assignments for the procurement function. As organizations continue to expand their supply bases, many are realizing hidden cost factors are affecting the level of benefits that were projected to be achieved through this approach. Some of these hidden costs include increased costs of dealing with suppliers outside the domestic market, duty and tariff changes that occur over the life of a supply agreement, increased inventory-related costs associated with global supply chains, and rising levels of logistics cost volatility (e.g., ocean freight rates) that can occur unexpectedly.21 Thus, when assessing the costs of global sourcing, it is important to examine all cost implications of this strategy. The need to fully evaluate the implications of global sourcing has motivated an increased examination of the total cost of ownership (TCO) when procuring items from outside countries. When taking a TCO approach, firms consider all the costs that can be assigned to the acquisition, use, and maintenance of a purchase. 22 While these additional costs can take many forms, logistics costs related to the typically longer delivery lead times associated with global shipments are a key consideration. Ideally, firms should create their own TCO models that provide a more realistic view of the costs of global sourcing. 23 3 Phillips, a Dutch electronics company, has recently transformed its global procurement process. As the company implemented a new product design process, the need to change its approach toward procurement arose. Driven by a need to build stronger relationships with its suppliers, Phillips redesigned its procurement away from the traditional approach of focusing on driving costs down by negotiating more favorable supplier pricing. Phillips' procurement organization now engages early on in the product design process, closely coordinating with suppliers and focusing on value to customers. A key aspect for this transformation was making sure its procurement professionals had a more holistic approach for its decision making. 24 Recently, rising transportation and energy costs, growing desires to be able to quickly adapt to changing market trends, along with risk and sustainability concerns have all influenced an examination of near-sourcing (procuring products from suppliers closer to one's own facilities) by many firms. 25 Given that procurement strategies and logistics strategies are intertwined, managers considering when to source globally and when to source close to their home markets must carefully consider the inbound and outbound logistics implications of these decisions. Decisions that made sense a few years ago in terms of labor cost savings may not be as clear-cut in today's environment.
Demand management can be defined as "the creation across the supply chain and its markets of a coordinated flow of demand."1 A key component in demand management is demand (sales) forecasting, which refers to an effort to project future demand. Without question, demand forecasting is helpful in make-to-stock situations (when finished goods are produced prior to receiving a customer order). However, demand forecasting can also be helpful in make-to-order situations (when finished goods are produced after receiving a customer order). Make-to-order situations generally involve some combination of standard and custom components, and forecasting could be quite helpful in projecting the standard components needed. For example, although a computer manufacturer might not be able to forecast the exact configuration of each order for computers that it receives, the manufacturer might be able to forecast the percentage of orders for laptop and tablet computers (i.e., standard components). Entire books are devoted to demand forecasting, and space limitations preclude a comprehensive discussion of the topic in this text. Rather, we will offer an overview of demand forecasting so the reader can understand forecasting's role in determining what the customer wants. Demand Forecasting Models2 The three basic types of forecasting models are (1) judgmental D, (2) time series, and (3) cause and effect D. Judgmental forecasting involves using judgment or intuition and is preferred in situations where there is limited or no historical data, such as with a new product introduction. Judgment forecasting techniques include surveys and the analog technique, among others. With survey forecasting, questionnaires (surveys) are used to learn about customer preferences and intentions. A strong understanding of survey design and population sampling methodologies is necessary in survey forecasting, and you should recognize that customer intentions don't always translate into actual behavior. Analog forecasting involves determining an analog (similar item) to the item being forecast and then using the analog's demand history as a basis for the relevant forecast. A key challenge is selecting the appropriate analog to use. An underlying assumption of time series forecasting is that future demand is solely dependent on past demand. For example, if this year's sales were 7 percent higher than last year's sales, a time series forecast for next year's sales would be this year's sales plus 7 percent. Time series forecasting techniques include, but are not limited to, simple moving averages and weighted moving averages. The simple moving average is calculated by summing the demand across different time periods and then dividing by the number of time periods. Because each time period is assigned the same importance (weight), the simple moving average may not adequately reflect recent upturns or downturns in demand. To address this shortcoming, the weighted moving average technique assigns greater importance (weight) to the more recent data. The differences in forecasted demand between the simple and weighted moving averages can be seen in the example in Table 7.1 Q.
It's important to recognize that the selection of a forecasting technique (or techniques) depends on a variety of factors, such as the situation at hand, forecasting costs in terms of time and money, and the accuracy of various forecasting techniques. With respect to the situation at hand, as pointed out earlier, judgmental forecasting is appropriate where there is little or no historical data available. Managers should also understand the time and monetary costs associated with each particular forecasting technique. Survey research, for example, can require quite a bit of both money and time, depending on the media (i.e., mail, telephone, electronic, in-person) used to collect and analyze the data. For example, in-person surveys can take a great of time to complete and can be quite expensive (e.g., compensation costs of the researcher who conducts in-person surveys). Forecasting accuracy refers to the relationship between actual and forecasted demand, and accuracy can be affected by various considerations. One of the challenges with the analog technique is selecting the appropriate analog, because an inappropriate selection will reduce forecast accuracy. For instance, when a movie studio releases a sequel to a previously successful motion picture, a forecasting analog based on the initial release will likely generate a different revenue estimate than a forecasting analog based on the performance patterns of sequels to other movies and one analog will be more accurate than the other. Forecast accuracy can have important logistical implications, as illustrated at Lighthouse Foods, where improved forecasting resulted in substantial reductions in the amount of finished goods inventory. More specifically, Lighthouse used to carry nearly twice as much inventory as actually needed for certain stockkeeping units (SKUs) because of inaccurate demand forecasts for those items. ³ Up to this point, we have treated demand forecasting as a discrete entity in the sense that each supply chain member generates its own demand forecasts. You may recall that Chapter 1 briefly mentioned the collaborative planning, forecasting, and replenishment (CPFR) concept, in which supply chain partners share planning and forecasting data to better match up supply and demand. Conceptually, CPFR suggests that supply chain partners will be working from a collectively agreed-to single demand forecast number as opposed to each member working off its own demand forecast projection. CPFR also suggests that supply chain partners will be working from a collectively agreed-to order forecast, which considers both forecasted demand and current inventory levels.4 A great deal of demand forecasting currently involves the use of computer software packages. Although this software can provide fast and detailed data, software packages should not be viewed as a panacea to an organization's demand forecasting. For example, enterprise resource planning (ERP) systems conceptually should lead to much lower forecasting errors. However, the Grocery Manufacturers Association found forecasting errors that averaged more than 20% among companies that had implemented ERP-based forecasts. It is important to keep in mind that no software package-regardless of its sophistication and cost-is capable of totally eliminating forecast errors.
Customers are important to organizations, and organizations that view customers as a "nuisance" may not last very long in today's highly competitive business environment. Consider several metrics associated with unhappy customers. A frequently cited metric is that it costs approximately five times as much to develop a new customer as it does to retain an existing one. In addition, approximately 95% of unhappy customers do not communicate their unhappiness to the responsible organization and they won't return as customers- but they will tell nine people about their unhappiness. 11 Quite simply, it's easier for an organization to keep an existing customer than to acquire new customers. To this end, customer service strives to keep customers happy and creates in the customer's mind the perception of an organization with which it is easy to do business. Customer service can be an excellent competitive weapon. It is more difficult for competitors to imitate than other marketing mix variables such as price and promotion. Nordstrom's (a high-end retailer) has a long-standing reputation for excellent customer service, and this customer focus often leads Nordstrom's to do things that competitors cannot or will not match. For example, one of the authors was shopping at a Nordstrom's and found a belt that he liked, but the store didn't have the correct size in stock. Several days later, the author received a telephone call from a Nordstrom's salesperson indicating that the desired belt was available for purchase at the local store. The salesperson had located the belt at another Nordstrom's and had the belt expedited- via air freight-to the local store. With a retail value of approximately $45, it's likely that this particular Nordstrom's lost money on this purchase. It's a reasonable assumption, however, that few other retailers would copy Nordstrom's behavior in servicing the customer. Macroenvironmental changes, such as globalization and advances in technology, are causing organizations and individuals to demand higher levels of customer service. As was pointed out in Chapter 1, customer expectations continue to increase over time; if the associated performance (service) levels fail to keep up, then customer dissatisfaction is a likely outcome. In addition, as emphasized this chapter, reliable service enables a firm to maintain a lower level of inventory, especially of safety stocks, which produces lower inventory holding costs. Third, in an increasingly automated and computerized world, the relationships between customers and vendors can become dehumanized. This situation is both frustrating and inefficient from the customer's viewpoint. The firm that can offer a high level of customer service, especially on a personal basis, will find that it has a powerful sales advantage in the marketplace. 20 Furthermore, the increased use of vendor quality-control programs necessitates higher levels of customer service. In recent years, many firms, especially retailers and wholesalers, have become more inventory conscious. This emphasis has resulted in computer-assisted analysis to identify vendors that consistently give either good or bad levels of service. In the past, with manual systems, repeated and serious customer service errors occurred before a vendor's activities were singled out for corrective action. Today, these factors are automatically programmed into computers, and companies are able to closely monitor the quality of service they receive from each vendor. We've talked at some length about customer service, but we've yet to offer a formal definition of it. Keeping in mind that there are myriad customer service definitions, for our purposes customer service will be defined as "the ability of logistics management to satisfy users in terms of time, dependability, communication, and convenience."12 Let's take a closer look at each of these four dimensions of customer service.
Time Time refers to the period between successive events, and clearly the order cycle is an excellent example of the time dimension of customer service. At the risk of sounding redundant, many businesses today are looking to reduce order cycle times-longer cycle times translate into higher inventory requirements. Moreover, some customers now expect nearly instantaneous gratification-which explains why Amazon continues to add to the number of locations where it offers one-hour delivery for online orders. Dependability Dependability refers to the reliability of the service encounter. It consists of three elements, namely, consistent order cycles, safe delivery, and complete delivery. 13 Our earlier discussion of the order cycle highlighted the importance of consistency (reliability/dependability)-inconsistent order cycles necessitate higher inventory requirements. And although order cycle time is important, an increasing number of companies are trading off order cycle speed for order cycle consistency. More specifically, these companies are willing to accept a slower order cycle so long as it exhibits a high level of consistency. Safe delivery brings loss and damage considerations into play. Product can be lost or damaged for a multitude of reasons, but the reasons are rather immaterial to a customer-a lost or damaged product can cause a variety of negative ramifications for a customer, such as out-of-stock situations. Order fill rate D, or the percentage of orders that can be completely and immediately filled from existing stock, is one way of measuring the completeness of delivery. As is the case with loss and damage, incomplete deliveries result in negative customer ramifications, such as out-of-stock situations. It is unlikely that loss and damage can ever be totally eliminated; because orders are picked and assembled, they are handled-and every time product is handled it provides opportunities for loss or damage. However, the seller may be able to minimize the number of times an order is handled, perhaps by redesigning the order pick process. And, even if an organization has highly accurate demand forecasting, it's unlikely that it will be able to achieve a 100 percent fill rate (i.e., all incoming orders are filled completely). Consider the situation of the McDonald's restaurant where two people walked in and placed a take-out order for 142 Egg McMuffins! Although the restaurant was successfully able to fill this order (but not before ensuring that the two customers could pay for it), the inventory needed to fill it meant that a lot of other orders for Egg McMuffins went unfilled, at least until the next scheduled delivery of foodstuffs.
Communication Effective communication should be a two-way exchange between seller and customer, with the goal of keeping both parties informed. Moreover, effective communication requires that the correct parties be involved in the process; if a customer has a logistics-related question, then the customer should be communicating with someone with logistics expertise. Moreover, customer service can be enhanced if complete information is exchanged between the participants; a delivery address can be helpful, but detailed characteristics of the delivery address would be even more helpful, as illustrated by the case of the transportation company that was responsible for delivering a $750,000 shipment of computer racks. What the transportation company didn't find out- until it actually made the delivery-was that the customer was located on the seventeenth floor of an office building in the central business district of a major city. Because neither the transportation company nor the office building had the appropriate equipment to facilitate the shipment's handling, the delivery had to be delayed until the proper equipment could be located and brought to the building.14 Two-way communication between seller and customer has certainly benefited from technological advances such as cell phones, smart phones, and the Internet. These technological advances allow for less costly and more frequent contacts between the two parties. However, technology such as text messaging and the Internet can depersonalize the communication process, which is why periodic telephone interaction and even face-to-face contact between seller and customer are recommended. 15 You should recognize that face-to-face personal communication is an essential part of conducting business in some cultures. Convenience The convenience component of customer service focuses on the ease of doing business with a seller. Having said this, different customers may have different perceptions of the "ease of doing business" concept. For example, a college student the "ease of doing business" with a bank might mean access to automatic teller machines, whereas for a small business owner it might mean bank tellers who specifically focus on commercial deposits and withdrawals. As such, sellers should have an understanding of their customer segments and how each segment views the "ease of doing business." Moreover, from the seller's perspective, certain costs may be associated with convenience; for example, there may be a charge for pizza that's delivered to your residence or workplace (or "free delivery areas" might be very limited in geographic coverage). As a result, sellers must assess the extent to which their customers are willing to pay for convenience. For example, allowing customers to electronically arrange their own travel (e.g., computer, tablet, smart phone) is quite cost-effective for airlines in that the costs of processing an electronic ticket are extremely low relative to involving an airline sales agent in the process. As a result, customers who arrange their travel by telephoning an airline's customer service agent can be charged a fee for talking to the service agent (a service that for many years was "free" to the customer). The convenience dimension also plays a key role in a consumer's purchasing decision. Today's consumer likes to have multiple purchasing options at her/his disposal and organizations have responded by developing multichannel marketing systems, i.e., separate marketing channels to serve customers. A retailer, for example, can facilitate customer purchasing with bricks-and-mortar stores (one channel) as well as with website (another channel). The convenience dimension in multichannel marketing systems can be seen with omnichannel retailing-where a customer might place an order online and then pick up the order at a bricks-and-mortar store.