2.10 Discussion and Practice

Consider the five dimensions of logistics customer service: availability, timely delivery, transparency, protection against disruption, and operational efficiency. How do each of these dimensions complement one another? What tradeoffs exist among them? Be prepared to explain your thought process.

Thinking about your online purchase behavior for clothing items worth $50 or more, how important are each of the five dimensions to your decision making? Explicitly weight each dimension. Be sure your weights add up to 1.0. Discuss your thought process for weighting each service dimension? Under what circumstances would you change your weightings?

Consider the various relationships in your life (e.g., significant other, parents, children, friends, colleagues, boss, etc.). Each of these people expect you to dedicate part of your week’s 168 hours to meeting their relationship needs. If you are like most people, you don’t have enough time to do everything you would like to do—or that your network wants you to do. Apply the principles of tailored logistics to these relationships. Which are transactional? Which are strategic alliances? With this in mind, how could you change your behavior to better allocate your time and balance your life?

Imagine you are the owner of a small, entrepreneurial start-up. You feel stretched to the snapping point by the demands of your various customers. Trying to keep everyone happy, you have never really prioritized your customer relationships. Apply Pareto's Law to the following dataset of your customers. Which customers are your “A,” “B,” and “C” customers? Why did you decide to draw the dividing lines where you did? Under what circumstances would you consider promoting a “C” customer to a higher classification? Why might you demote an “A” customer to a lower classification?

As the owner of a small, entrepreneurial bioengineering firm, you recently received the profitability results for your first year’s operations. You were shocked to see that your pre-tax margin was only 6%. Given your industry’s high R&D expenses, you need at least double-digit profit margins to stay in business. Until you saw the numbers, you had thought you were consistently hitting your targeted 15% profit margin. Your sales team had been growing the business and building some strong relationships with top-name customers.

Before panicking, you had called a friend who happened to be a supply chain professor. She offered a little help. Her class was discussing activity based costing management (ABCM). She offered to put a field-study team together to analyze individual customer profitability. The results of the customer-profitability analysis follow below. What are your key takeaways from the refined costing analysis? What discussions are you going to pursue with 1) your sales team and 2) your customers? Develop a short script for each of these discussions in preparation for a role play.

Calculate the expected stockout cost for the following scenario.

How would your stockout costs change under the following scenarios? Please treat each scenario as independent from the others.

• Scenario #1: A new competitor enters the market, offering a product that doubles defections. That is, among customers who try the new rival’s product, twice as many switch permanently.

• Scenario #2: You modify your product/service offering so that only half as many customers are willing to buy from a rival. Among those who do buy elsewhere, the mix of lost sales/lost customers remains the same.

• Scenario #3: More refined analysis reveals that the $50,000 cost of a lost customer is too low. The real costs are $250,000.