Project Report
on
Understanding the Implications of Customer Service over cost
and vice versa
Submitted to:
Submitted by:
Ankur Singh
Vikas Pasricha
FORE SCHOOL OF MANAGEMENT
1. Order Processing Optimization
Order Processing Starts when the Customer places an order and seller receives it
either by telephone, mail or in any other way.
In order to avoid any delay and to reduce the lead time and wastage of resources
there is a need of proper Order-Processing System.
As soon as the order is placed the completeness of order must be checked and
creditworthiness of customer be checked. Since we have old customers so no need of
that part otherwise it is required.
Some Ideas: (i) So we need to set up our distribution Setups or warehouses in such a
manner or according to our Customer Base. Lets Assume If a company is having more
sales in North India then South India then they can set up small warehouses in regional
areas to avoid any chance of increase in lead time and less in South India. Since we are
having less sales so we can work it with Small Number.
(ii) Set up your plant according to demand and transportation cost and more overly the
facilities of transportation, land rates, Document Procedures, Taxations like VAT which
vary from state-to- state.
(iii) Supply chain management software offers a complete set of inventory management,
manufacturing and purchasing capabilities that helps move inventory to the right place,
at the right time, at the right cost. Gain an in-depth, real-time view into key supplier,
inventory and
shop floor performance indicators. Self-service capabilities for partners, vendors and
customers improve collaboration throughout the entire supply chain.
(iv) If we continue our previous example company can take land and plant on lease and
Set up its manufacturing units in the middle of two zones. Lets say in Rajasthan so that
it is able to cover the Market of 3 Zones in one go i.e North Zone, West Zone and Central
Zone. With all these solutions company will have benefits like-
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Improved Inventory Accuracy
Improved Efficiency
Reduced Shipping errors
Simplified Multiple Order Processing
Reduced Lead Time
Improve Customer Satisfaction and lead to Brand Loyalty
2. Transportation Optimization
The Role of Transportation is much more complex than carrying goods for the
proprietors. By means of well-handled transport system, goods could be sent to the
right place at right time in order to satisfy customers’ demands. It brings efficacy,
and also it builds a bridge between producers and consumers. Therefore,
transportation is the base of efficiency and economy in business logistics and
expands other functions of logistics system. In addition, a good transport system
performing in logistics activities brings benefits not only to service quality but also to
company competitiveness.
A company doesn’t have their plants in remote areas but it districts or areas where
they have Proper Road Facility, Rail Availability and even Shipping facilities in case
to export goods to neighboring countries.
Scenario: Customer orders 800 pieces of Mr. Muscle every week. But due to high
demand he asked for more 200 pieces to supply within a span of 2 days and lets assume
our breakeven point where atleast minimum sales must be that much is 340. Margin
assumed 20%. Freight cost is assumed to be full Big truck load cost 5000(Constant and
freight damages as 4%). Cost per unit 100 Rs.
Proposed Solution:
Units
Cost
Margin
SP
Freight Cost
Cost of transit loss
Net Profit
800
80000
16000
96000
5000
4000
7000
200
20000
4000
24000
5000
1000
- 2000
340
34000
6800
40800
5000
1700
100
Ideas: (i) During the contractual agreement process with the 3PL there is a need to
state a clause that the damages, if any, will be borne by the 3PL Service providers.SO
that it will be a win-win situation will figure out what is the minimum quantity needs to
be ordered.
(ii) To reduce Freight or transit cost for specially small orders they can switch over to
Tata Ace which are small in size and carry small lots as it will reduce the freight cost by
some margin rather than sending half-container loads.
(iii) Online Bidding System should be placed with logistic Provider with least bid will get
the deal. It will help in reviewing other logistic service providers price.
3. Warehousing Optimization
Ideas- (i) Instead of owning the warehouse a company can outsource it or can have
Public or government-owned warehouses which help company in cost cutting.
(ii) Break-Bulk Function- The warehouse in it serves the Purpose of receiving Bulk
Shipments through economic long distance transportation from plant and breaking into
small shipments for local delivery to various distributors.
Distributor A
Mumbai
Plant in
Mumbai
Warehouse
in Mumbai
Distributor B
Nagpur
Distributor C
Pune
(iii) Processing/Postponement: This Functionality of warehousing enables
postponement of commitment of products to customers until orders are received from
them. This is utilized by manufacturers for storing Products ready up to packing stage.
These products are packed and labeled for the particular only on the receipt of the order.
4. Network OptimizationSupply chain networks have increasingly become global and dispersed. A variety of
factors—ranging from cost structures, tax laws, skills and material availability, new
market entry and others—have driven companies to redesign and reconfigure their
supply chains continually. The consequent increase in complexity of market, channel,
supply networks and distributed facilities has rendered related planning more intricate
and complex.
Ideas(i)
(ii)
(iii)
Design the optimal or “best” supply chain network and product flows given
customer service level requirements and operational constraints, from
supplier to manufacturing to distribution.
Reduce total supply chain costs (sourcing, manufacturing, warehousing,
transportation and inventory carrying cost) while meeting customer
expectations by setting up plants in the area which is less prone to
environmental hazards and far away from cities.
Use Hub and Spoke Model to reduce the lead time and deliver the goods to
customers without any delay to maintain healthy long term relationships
which flipkart is doing with having its main hubs in every zone to minimize
cost and time.
5. Focus on Core Strengths and Outsource all other Activities
Many organizations try to do to many things but on the verge of doing that they
don't realize that they can outsource repetitive or tasks or one-off projects (for
e.g. determining the optimal distribution network; the payment and audit of
freight bills or supporting enhancement of its information systems,
transportation). Quite often it seems as though an organizations' internal
resources are able to do better job in the short run but it will not continue for the
long run period by relying upon a specialized third-party provider, a better value
will be realized in the long term. Focusing on the core competencies will help you
grow companies business to large scale.
6. Set up Plant in SEZs
Companies can set up their plant in SEZs to avoid taxation Procedures which act as
the one of the factor in the rapid increase in Cost. Though it involves a huge cost but
it is one time cost with SMART Cities all around the corner they can set up their
plant in SEZs to avail the benefits of less taxation policies and help the company to
import and export goods with less restrictions.