MODUL III - FORECASTING DEMAND FOR SERVICES

Demand forecasting is the process of using predictive analysis of historical data to estimate
and predict customers' future demand for a product or service. Demand forecasting helps the
business make better-informed supply decisions that estimate the total sales and revenue for
a future period of time.

How do you forecast demand for a new service?

For example, you can use time series analysis to decompose the historical demand data of a
similar or substitute product or service. The analysis segments data into different components
such as trend, seasonality, and random error, which can be used to forecast the demand for
your product or service.

Explore some of the methods and challenges of demand forecasting for new products or
services.
1 Identify the target market and customer segments. ...
2 Estimate the market potential and penetration rate. ...
3 Adjust for seasonality, trends, and events. ...
4 Validate and revise the demand forecast. ...
5 Here's what else to consider.

What are the different methods of demand forecasting?

The five most popular demand forecasting methods are:
1. Trend projection
2. Market research
3. Sales force composite
4. Delphi method
5. The econometric method.

1. Trend Projection

Trend projection uses your past sales data to project your future sales. It is the simplest and most
straightforward demand forecasting method.

It’s important to adjust future projections to account for historical anomalies. For example, perhaps you
had a sudden spike in demand last year. However, it happened after your product was featured on a
popular television show, so it is unlikely to repeat. Or your ecommerce site got hacked, causing your sales
to plunge. Be sure to note unusual factors in your historical data when you use the trend projection
method.

2. Market Research
Market research demand forecasting is based on data from customer surveys. It requires time and effort to
send out surveys and tabulate data, but it’s worth it. This method can provide valuable insights you can’t
get from internal sales data.

You can do this research on an ongoing basis or during an intensive research period. Market research can
give you a better picture of your typical customer. Your surveys can collect demographic data that will
help you target future marketing efforts. Market research is particularly helpful for young companies that
are just getting to know their customers.

3. Sales Force Composite

The sales force composite demand forecasting method puts your sales team in the driver’s seat. It uses
feedback from the sales group to forecast customer demand.

Your salespeople have the closest contact with your customers. They hear feedback and take requests. As
a result, they are a great source of data on customer desires, product trends, and what your competitors are
doing.

This method gathers the sales division with your managers and executives. The group meets to develop
the forecast as a team.

4. Delphi Method

The Delphi method, or Delphi technique, is one of the qualitative methods of demand forecasting that
leverages expert opinions on your market forecast. This method requires engaging outside experts and a
skilled facilitator.

You start by sending a questionnaire to a group of demand forecasting experts. You create a summary of
the responses from the first round and share it with your panel. This process is repeated through
successive rounds. The answers from each round, shared anonymously, influence the next set of
responses. The Delphi method is complete when the group comes to a consensus.

This demand forecasting method allows you to draw on the knowledge of people with different areas of
expertise. The fact that the responses are anonym zed allows each person to provide frank answers.
Because there is no in-person discussion, you can include experts from anywhere in the world on your
panel. The process is designed to allow the group to build on each other’s knowledge and opinions. The
end result is an informed consensus.

5. Econometric

The econometric method requires some number crunching. This quantitative type of forecasting combines
sales data with information on outside forces that affect demand. Then you create a mathematical formula
to predict future customer demand.

The econometric demand forecasting method accounts for relationships between economic factors. For
example, an increase in personal debt levels might coincide with an increased demand for home repair
services.
Managing Capacity and Demand

Whereas capacity management is a response to demand, demand management is an attempt

to shift demand. Given the relative inflexibility of capacity organizations may seek to smooth
demand by reducing the variability and fluctuation of existing patterns.

How do you manage capacity and demand?

To manage your demand and capacity, you need to collect and analyze data from various sources, such as
customer feedback, service level agreements, performance metrics, resource utilization, and market
trends.

What is the difference between managing capacity and managing demand?

Demand management identifies potential demand variations. Capacity management is a response to

demand. Capacity management aims to ensure resources are available, so business activities and
production can thrive under any circumstances. In general, demand fluctuates while near-term capacity
remains constant.

 Demand capacity: Demand management helps you coordinate capacity demands, such as
production time, inventory and resources. Capacity planning is critical because it directly impacts
cost centers. Operating expenses are impacted when demand and capacity are out of sync, so
coordination is essential to achieve alignment.

 Demand chain: The demand chain relates to the customer demanding products or services as and
when required, referred to as pull. In the internet economy, the demand chain-based e-fulfillment
model condenses time, is pull-oriented from the customer and is based on real-time event
 monitoring, inventory and information for forecasting and planning — in other words, the end
consumer is king.

 Demand communication: In the collaborative demand management model, you communicate

forecast demand to all stakeholders, business areas and teams affected by the forecast. Everyone
then works in a spirit of transparency to a common goal.

 Demand modeling: Demand modeling works from the bottom up. This activity breaks demand
components into external and internal factors and the demand stream, and it examines how each
factor influences purchases to ascertain future demand.

 Demand shaping: Demand shaping is an operational supply chain management strategy where a
company uses price drops, incentives and other tactics to induce customers to purchase specific
items. Demand shaping helps the business match demand for a specific product to the planned
supply.

 Demand sensing: This predictive tool is a game-changer in high-demand ecommerce scenarios.

Demand sensing depends on data sent in near-real-time. New mathematical techniques to sense
demand make it possible to quickly understand what is selling, who is buying and how the
product or service impacts market demand.

 Demand prioritizing: Identifying and prioritizing projects is the basis of demand management.
By examining potential risk factors, organizational capacity, financial value and implications, you
can form policies based on priority items.

Demand Management Strategy

Superior demand management requires high-quality data that teams then analyze continuously — often
daily, depending on the environment and type of business. The process includes updating forecasts based
on that data to inform strategies.

In 2015, the Transportation Journal synthesized more than 100 demand management studies and found
that “consensus in competitive orientation, operational strategies and the environment led to superior
performance.”

Today’s demand management strategies still focus on cost reduction, revenue enhancement and
streamlined operations.

Example of a demand management strategy

The pandemic underscored the effects of global events on product demand and supply chains. Even
though COVID-19 was not something most companies planned for, those that already used demand
management strategies to handle disruptions, particularly in retail, fared better than those with no strategy
in place.

The Foley and Lardner LLP 2020 Global Supply Chain Disruption and Future Strategies Report, a survey
of 150 C-suite manufacturing executives in various industries, found that companies have learned the
lesson that disruptions are a present and future threat, and strategies are needed to fend them off.
Demand management strategies that have gained prominence post-pandemic include:

 More robust contingency plans: What-if exercises prepare companies for emergency situations
and test the effects of changes, without production schedule disruption. Theoretical exercises
preview potential impacts on issues such as inventory levels, whether KPIs are affected and how
adaptable the team is to changing conditions.

 Forecasting flexibility: Manufacturers should strive to accurately predict customer demand in

any circumstance. One strategy is to look at previous demand and forecasts to determine
forecasting accuracy and note whether the strategy needs to change — regardless of current
variable conditions. One of the best ways to improve flexibility is to use multiple forecasting
methods based on different situations in the market, selling profiles and lifecycle phases.

 Focus on resilient and flexible processes: Some companies are moving away from single supply
sources to multi-sourcing to mitigate possible interruptions in supply chains. Analyzing the risk
attached to each supplier, sub-supplier and step can ensure smoother delivery in any
circumstance.

 Less focus on just-in-time models: Just-in-time production was the up-and-coming model pre-
pandemic. Now, companies place less emphasis on lean inventory and more on ways to prevent
shortages that affect delivery.

Psychology of waiting

The psychology of waiting is the study of how people perceive and react to waiting. It is a complex topic,
with many factors that can influence how we experience waiting. The longer the wait, the more likely we
are to experience negative emotions such as boredom, frustration, and anger.

What are the 10 principles of waiting?

The 10 principles of waiting detail the factors that make waits feel longer. The time we wait feels longer
when it is: unoccupied, before or after a process, uncertain in duration, unexplained, unfair, physically
uncomfortable, or when we are alone, anxious, new to service or the product is cheap.

What are the applications of waiting line?

Waiting line model application is an attempt to minimize the cost through minimization of inefficiencies
and delays in the system. The input process is usually called The arrival process. Arrivals are called
customers. We assume that no more than one arrival can occur at a given instant.

Waiting Line (Queue) Management

Introduction

The waiting line or queue management is a critical part of service industry. It deals with issue of
treatment of customers in sense reduce wait time and improvement of service.

Queue management deals with cases where the customer arrival is random; therefore, service rendered to
them is also random.
A service organization can reduce cost and thus improve profitability by efficient queue management. A
cost is associated with customer waiting in line and there is cost associated with adding new counters to
reduce service time.

Queue management looks to address this trade off and offer solutions to management.

Waiting Line Problems

Waiting in line is common phenomena in daily life, for example, banks have customers in line to get
service of teller, cars queue up for re-filling, workers line up to access machine to complete their job.
Therefore, management needs to work on formulae, which will reduce wait time and create
delighted customers without incurring an additional cost. Generally, queue management problems are
trade off’s situation between cost of time spent in waiting v/s cost of additional capacity or machinery.

Finite and Infinite Population

In a waiting line scenario, there are cases of finite population of customers and infinite population of
customers.

 A finite population scenario considers a fixed or limited size of customers visiting the service
counter. It also assumes that customer once served will leave the line thus reducing overall
population of customers.

However finite population model also considers a scenario where the customer after getting served will
re-visit the service counter for re-service, leading to increase in finite population.

 An infinite population theory looks at a scenario where subtractions and addition of customer
do not impact overall workability of the model.

Queuing System

To solve problems related to queue management it is important to understand characteristics of the queue.
Some common queue situations are waiting in line for service in super-market or banks, waiting for
results from computer and waiting in line for bus or commuter rail.

General premise of queue theory is that there are limited resources for a given population of customers
and addition of a new service line will increase the cost aspect to the business. A typical queue system has
the following:

1. Arrival Process: As the name suggests an arrival process look at different components of
customer arrival. Customer arrival could in single, batch or bulk, arrival as distribution of time,
arrival in finite population or infinite population.

2. Service Mechanism: this looks at available resources for customer service, queue structure to
avail the service and preemption of service. Underlining assumption here is that service time of
customers is independent of arrival to the queue.

3. Queue Characteristics: this looks at selection of customers from the queue for service.
Generally, customer selection is through first come first served method, random or last in first
 out. As a result, customers leave if the queue is long, customer leave if they have waited too long
or switch to faster serving queue.

Service Configuration

Another aspect of waiting line management is the service configuration. There are four types of service
configuration, and they are as follows:

 Single Channel, Single Phase (e.g. ship yards and car wash)

 Single Channel, Multi Phase (e.g. bank tellers)

 Multi Channel, Single Phase (e.g. separate queue of man and women for single ticket window)

 Multi Channel, Multi Phase (e.g. Laundromat, where option of several washers and several
dryers)

Managing Facilitating Goods

What do you mean by facilitating goods?
Facilitating Goods: The material purchased or consumed by the buyer or items provided by the consumer.
Examples are food items, auto parts, legal documents, golf clubs.

What are the 3 most important inventory control techniques?

In this article we'll dive into the three most common inventory management strategies that most
manufacturers operate by: the pull strategy, the push strategy, and the just in time (JIT) strategy.

What is an example of facilitating goods and services?

Supporting Facility: The physical resources that must be in place before a service can be sold. Examples
are golf course, ski lift, hospital, airplane. Facilitating Goods: The material consumed by the buyer or
items provided by the consumer. Examples are food items, legal documents, golf clubs, and medical
history.

Service Process Orientation

1. Customer as Coproducer

2. Front and Back Office Perspectives

3. Service Profit Chain Focus on Internal and External Customers

4. Quality (perceptions vs expectations)

5. Focus on Both Efficiency and Effectiveness

6. Use IT as Productivity Enabler for Both Internal and External Customers

What is the best inventory model?

Three of the most popular inventory control models are Economic Order Quantity (EOQ), Inventory
Production Quantity, and ABC Analysis. Each inventory model has a different approach to help you
know how much inventory you should have in stock. Which one you decide to use depends on your
business.

What is an inventory review?

A periodic review system is a method of inventory replenishment that involves checking the stock levels
of items at fixed intervals and ordering enough to meet the expected demand until the next review. This
system can help you reduce inventory costs, avoid stockouts, and simplify ordering decisions

Why is it important to review inventory?

Inventory Accuracy Provides Better Knowledge of Your Business. When you manage your inventory
accurately, you will have a much better understanding of how much product you will need to have on
hand to meet customer demands. This will ensure that you don't have to worry about running out of items
all the time.

What are the 4 inventory models?

The four types of inventory most commonly used are Raw Materials, Work-In-Process (WIP), Finished
Goods, and Maintenance, Repair, and Overhaul (MRO). You can practice better inventory control and
smarter inventory management when you know the type of inventory you have.

Role of inventory in services.

Good inventory management allows service businesses to run more efficiently by providing the right
resources at the right time. Accurately tracking what needs restocking can help reduce costs associated
with reordering too much and avoid lost profits due to out-of-stock items.

What are the roles of inventory?

The primary role of an inventory system is to track your products and supplies. An effective system keeps
records of when you purchased inventory, when you sold it and how much you have on hand. It also tells
you the location of your inventory.

What is the major role of inventory in operations?

The role of inventory management is to ensure the business has the stock needed to run smoothly while
minimizing stock costs. It can make the difference between your business turning a profit and making a
loss. And that's why it's so important for your business to have accurate financial data on your inventory.

What are the two main tasks of inventory?

The two sides are Inventory Control and Inventory Replenishment.

What are service supply relationships?

Service supply relationship management is a systems approach that recognises the customer-supplier
duality found in the delivery of services. For services, customers are suppliers of significant inputs (i.e.,
minds, bodies, belongings, and information) to the process.

What Is Supplier Relationship Management (SRM)?

Supplier relationship management (SRM) is a critical function in many organizations because good
relationships with vendors can lead to better prices, better planning, better responses to adverse events
and less risk in operations and supply chains. Some supplier relationship management best practices are
easy and straightforward to execute, while others take more work and imagination.

What Is Supplier Relationship Management (SRM)?

Supplier relationship management (SRM) is the systematic and ongoing practice of evaluating an
organization’s vendors — of both goods and services — to determine whether any changes could be
made to improve business operations.

Key Takeaways

 Supplier relationship management (SRM) is an ongoing process that’s valuable for some
businesses and vital for others — especially those trying to maintain a competitive edge.

 Good SRM requires analysis of thoughtfully collected quantitative data, as well as more
qualitative vendor relationship–building skills.

 SRM can help businesses get better prices, more reliable deliveries and more useful and
innovative products to suit their needs.

 While some SRM best practices take a lot of work, others are simple and intuitive, such as being
nice to your suppliers, communicating clearly, understanding their needs and paying them on
time.

 In other words, SRM involves thinking about what you prefer from your own customers and
delivering the same thing to your vendors.

Supplier Relationship Management Explained

There isn’t universal agreement about the exact set of tasks covered by SRM, but, broadly speaking, its
goal is to add value to your organization by helping you make better choices about how to engage with
suppliers and potential suppliers.

Perhaps most obviously, evaluating suppliers’ strengths and weaknesses is a key SRM task. For example,
one supplier might be faster while another is less expensive — this kind of assessment can present supply
chain managers with a clear way to decide which types of orders should go to each company. Deciding
which goods to buy from each supplier is equally critical, as is knowing when to add new suppliers. There
are advantages to be gained by not adding a new supplier to manage and negotiate with, but if another
company offers a better product or service in some category that none of your current vendors can match,
it could be well worth the extra work and coordination. In SRM, knowing when to negotiate, with whom
and for what goal can be an art all by itself, even before the art of negotiation starts. Supplier relationship
management also includes knowing when and how to sever ties with a supplier, either because of an
incompatibility (e.g., they can’t meet new business requirements, or perhaps they started making too
many mistakes) or because a relationship has reached its natural end (e.g., your company stopped selling
the product made with that supplier’s inputs).

While most of these relationship management tasks can be performed analytically, there’s also a human
factor to consider and manage. Relationships between organizations almost always involve relationships
with people at those companies, too. These may take the form of connections between purchasing
managers and salespeople, warehouse workers and delivery drivers, attorneys and attorneys (when
contracts need to be drawn up) or even CEO and CEO (most common in small companies or significant
relationships). It’s easy to fall into the trap of prioritizing just the analytical or relationship component of
SRM, but great relationship managers put effort into both.

Supplier Relationship Management Process

There are several ways to break down the SRM process. Every company will cite at least slightly
different responsibilities and procedures, but the following steps should be part of any good SRM process.

Segment the Supply Base

Supplier segmentation is the practice of organizing suppliers into useful groups so you can glean insights
that will improve supplier relationships, including the kind of effort and attention each group requires. For
example, dividing up suppliers by which item they provide may shed light on where the business risks
having too few suppliers or where there is confusion — and potential savings left on the table — by
having too many.

You can further segment suppliers using a schema like the Kraljic matrix, which separates supplied items
according to their risk and how important they are to the company’s bottom line. For example, you may
be in a good position to negotiate more aggressively on price, even when an item contributes a lot of
profit, if that item is easily available from multiple suppliers. Nor should you need to hesitate much when
negotiating with suppliers that provide noncritical items that are easily available and widely abundant —
the goal there should be to reduce the administrative and logistical burdens of acquiring the items in order
to focus on more important tasks. Beyond these day-to-day negotiations and decisions, the insights
derived from this type of segmentation prove even more valuable when you’re forced to do triage after
sudden supply chain disruptions, which have become more common in recent years.

There are many ways to segment suppliers, and good supplier relationship managers use as many
methods as appropriate to provide value to the business. Don’t be afraid to try out a variety or even create
one of your own.

Create a Supplier Strategy

This step is a combination of two things: (1) deciding on your ideal supplier scenarios — that is, what you
want your supplier arrangements to “look like”; and (2) figuring out what moves and changes are needed
to make that happen, or at least to bring your actual arrangements closer to the ideal.
Let’s illustrate a supplier strategy in action with this hypothetical case. Suppose your Supplier A is great,
but the prices are too high; Supplier B is difficult to deal with; and Supplier C isn’t reliable enough to be
your sole vendor for a mission-critical component. Your ideal arrangement would be to obtain lower
prices from A, improve interaction processes and establish clearly defined responsibilities with B and
give a different supplier some of the business you’re currently giving to C, which will mitigate risk by
building a relationship with a redundant provider.

But that’s not a realistic strategy until it translates into a plan of action. For Supplier A, are you going to
get a competing offer to try to bargain them down, or will you offer to give them more business in
exchange for a volume discount? For Supplier B, are you going to spend more time getting to know their
team and processes to reduce friction, or do the issues require a more formalized approach with explicit
responsibilities built into the next contract renegotiation? Before finding a backup for Supplier C, do you
give C some warning, and do you look among your existing vendors first (which may allow you to build
redundancy with minimal disruption to C’s flow of business from your organization), or do you look to
take 50% of the business away from C and have the new supplier split responsibilities equally?

Collaborate With Suppliers

Recognizing the nuanced role of collaboration in SRM is not always intuitive to supply chain managers.
If you’re buying things from a company, that’s the relationship, right? Once you’ve coordinated orders,
payments and deliveries, what further collaboration is required? A lot of advice on managing suppliers
and procurement focuses so much on the transactional components that the value of a good collaborative
relationship can be lost.

Collaboration with suppliers can come in two forms: informal human-to-human connections and formal
collaborations between the two organizations. Informal collaboration happens organically with good
relationship management. Beyond orders, deliveries and payments, people get to know each other’s
businesses and what’s important to them. Suppliers can give you advance notice of potentially eventful
changes like price changes, deals, shortages and new product introductions, while customers can keep
suppliers similarly informed about their needs and wish lists. Sometimes these relationships become
deeper and more formalized, to the point where the purchasing business has a direct collaborative hand in
developing the products it buys.

When you look closely, you can find these collaborations everywhere. For example, Visa and Citigroup
are vendors for Costco, providing payment processing services, and the three companies collaborate to
produce the co-branded Costco credit card. The transportation sector sees similar collaborations. From
battery technology companies working with electric vehicle makers to aircraft makers working with
airlines to decide what types of R&D to invest in, supplier-customer collaboration is a driving innovative
force behind many of the products we see becoming more advanced year after year. Additionally, the fact
that big companies buy from small startups has long been instrumental in helping those startups grow into
a role as an ideal supplier of the future, attuned to the needs of their most helpful large customers.

Execute the Strategy

For supplier relationship managers who have acquitted the first three steps well, the next three should be
easy. Excellent and adaptable planning goes a long way toward smooth execution. When executing
strategy, start by following the plan you laid out when developing that strategy. Things won’t always go
exactly as planned but having good collaborative relationships with suppliers will help you adjust on the
fly, and good supplier segmentation will help you figure out what’s most important when you’re in a
situation that requires triage.

Improve Supplier Quality

There are two main ways to improve supplier quality. The first is to change what companies supply which
items, when. By segmenting and determining the strengths and weaknesses of your suppliers, you can
maneuver timing of orders so that the quality of your orders improves, and/or the speed and reliability
with which those orders are delivered rises, too. You can also work directly with a supplier to improve its
quality — either in an objective sense or as it specifically pertains to your business. Sometimes this can
be achieved just by asking. What might be a meaningful product improvement to you could be a very
simple change for a supplier to make — they just need to know you need it. For example, suppose you’re
buying safety signage for a factory. If your sign maker doesn’t know that your walls are almost the same
color as its default sign color, it won’t know to offer you a different color to make the signs stand out.
And if you don’t ask, you might not realize the sign maker has the capability to easily make signs in
another color.

Continually Monitor and Adjust

This step marks the difference between having a supplier relationship and managing a supplier
relationship. It’s what turns SRM into a critical business function. It’s not enough to do these things once.
Your business needs will change; your suppliers will change; technology will change; customer
expectations will change; and economic conditions will change. Everything needs to be monitored
continually, and all related decisions need to be revisited and reevaluated periodically so course
corrections can be made. When you’re setting things up, you can do yourself a favor by putting in place
good data collection infrastructure (in terms of both technology and human processes for collecting data
and making sure it’s accurate). Keep in mind that monitoring doesn’t just mean monitoring your
suppliers, but also their competitors and the marketplace in general. The information you collect here will
feed back into segmentation and strategizing, and these steps will start anew.

Reactive vs. Strategic Supplier Relationship Management

Strategic SRM is about thinking long-term. It’s being deliberate and making moves to continuously
improve your supplier relationships and the value you get from those companies. It’s something you can,
and should, plan for months, quarters and even years into the future. But things don’t always go as
planned. When that happens, and you need to react fast, good SRM practices can turn a potential disaster
into a manageable challenge.

Sometimes, suppliers will make huge mistakes, or adverse events will befall them or arise somewhere
else along the supply chain in which they operate. In these cases, you may need to be reactive — place an
emergency order, pick up a new supplier in a hurry without your normal vetting process, fire an existing
supplier or ask a supplier for something unusual. If you’re good at monitoring the market and your
suppliers’ competitors, you may already have a short list for new suppliers you could reach out to in a
pinch. If you’ve built good collaborative relationships with your existing suppliers, they may be more
willing and/or able to accommodate an emergency request. And if you’ve set up clear expectations and
responsibilities, a supplier could already be working on a solution to your liking before you even find out
there’s a problem.

Keep in mind that not all events that require reactive management are bad. Sometimes new technology
will hit the market, new products will be innovated or new customers with unique needs will come your
way. Just as with the adverse events mentioned above, good SRM will set you up to handle these well.
For better or worse, surprises will happen, and your plans will need to adjust. Supply chain best practices,
including SRM, will enable you to adapt your plan quickly and realistically and then swiftly get back to
being more strategic and less reactive.

Goals of Supplier Relationship Management

The ultimate goal of SRM is to improve your operations’ reliability, decrease costs and foster growth
through having good relationships with the right suppliers. But what does that look like in practice? Here
are three common goals of effective SRM that can add value to almost any large organization.

Develop and Enhance Relationships With Suppliers

This sounds obvious, but a key goal of supplier relationship management is to develop and improve
relationships with suppliers. This means a lot more than setting up contracts, placing orders and being
nice to them (though that all matters). By proactively choosing the kind of relationship you wish to
develop with each supplier, you can ensure that the most critical inputs for your business are among the
most reliably and efficiently procured. Better yet, you can develop personal relationships to the point
where the company’s most important suppliers are willing to work with you through any unexpected
adverse events. Relationships of this quality could even evolve into collaborative partnerships, should an
opportunity arise to work together to make suppliers’ next generation of offerings be even better suited to
your organization’s needs.

Mitigate Supplier Risk

A lot of SRM is focused on improving operations for when things go as planned. But among the biggest
values any company gets from SRM are improved operations on days when things go wrong, not to
mention the reduced chance of something going wrong on any given day.

Supplier risk comes in many forms: miscommunication; mistakes; adversarial moves, like sudden price
hikes or demands you weren’t prepared to meet; and even outright dissolution of the relationship (e.g.,
due to one party’s choice or the supplier going out of business). Good SRM mitigates these risks in a
number of ways: You’re less likely to be surprised if you’re on top of events and communicating well
with your suppliers; you’re more likely to get advance notice about potential issues from people with
whom you have a good relationship; good customers have more bargaining power than bad customers;
and good SRM means having more backup options and a diversified supply chain for the times when
risks become real.

Optimize the Value Chain

Supplier relationship managers are primarily focused on the suppliers themselves, but it also pays to take
a step back and view suppliers in the context of the business’s larger value chain. Taking that broader
view can help you optimize value for the business and its customers through product innovations, lower
prices and reduced risk. For example, if you as an American manager think that having only one provider
of steel frames and components is too risky, you might decide to get a second. But maybe the company
that appears to be the best choice for an additional vendor gets its steel from the same Chinese steel mills
as your first. Choosing that supplier would mitigate some risk (such as if your first supplier has
operational problems or goes out of business), but it doesn’t mitigate as much risk as choosing a provider
that buys steel from an American mill, since that would also lessen the risk associated with trade policy
(e.g., tariffs) and port bottlenecks.

Optimizing the value chain can also mean looking at what you have and finding ways to get more value
from it. Sometimes this is straightforward, like looking for places to squeeze extra savings and better
prices out of the flow of goods; and sometimes it means thinking outside of the box, like looking for
opportunities to collaborate with suppliers on innovation and R&D.

Supplier Relationship Management Benefits

Supplier relationship managers who do everything right consistently gain the following five key benefits:

 Reduced costs.

This is the first goal of most SRM operations — saving money with each transaction. The first part of
supplier relationship management is picking the suppliers with whom to have relationships, and for many
types of supplies and services, cost is going to be a key differentiator (subject to minimum standards in
other areas, such as quality).

 Better-managed risks.

As discussed above, risk management is a huge and often undervalued goal of SRM. By being proactive
about supplier relationship management, you can reduce the probability of a bad event occurring (by
doing things like building in redundancies), as well as minimizing the cost of an adverse event when one
does occur (by being ready with mitigation strategies and alternatives).

 Enhanced supplier responsiveness.

Good relationships grow from good two-way communication. Keeping suppliers informed of your
business’s evolving needs and circumstances makes them more likely to keep you abreast of theirs. It also
encourages them to be more responsive to your requests, both the expected ones and the surprises. And at
a practical day-to-day level, people who like you are going to be better about responding to your requests
than people who don’t, so being nice to your suppliers, both in terms of human interaction and logistical
considerations like paying them promptly, pays benefits in the end.

 Improved visibility.

Good SRM improves the visibility of your value chain and operations, while also improving your vision
into the goings-on within and surrounding your business. Good supplier relationship management will
yield detailed knowledge about your inbound goods and the progress of services. From putting GPS
trackers on trucks to getting notifications when certain steps in the production and shipping process are
completed to just getting a casual “heads-up” from a supplier when something unusual is happening,
SRM means better vision and, consequently, fewer surprises.

 Use of suppliers’ full capabilities.

As your supplier relationships deepen, it often pays to get to know what else they can do for you. Maybe
they can provide other things you need beyond what you approached them for; maybe they have expertise
in logistics or dealing with some government’s red tape that could help you as well; maybe there are
opportunities to collaborate; and more. The first mission of SRM is getting what you need today, but
there’s a lot of value to be gained in exploring what you might need or want tomorrow. Not taking
advantage of value that your suppliers can offer is just leaving money on the table.

Supplier Relationship Management Challenges

SRM does many wonderful things for an organization, but it’s not without its challenges. SRM requires
frequent and dedicated attention to quantitative and qualitative factors, as well as being careful not to fall
into some common pitfalls. Here are four main categories of SRM challenges:

 Lack of alignment.

Considering SRM’s focus on the positive potential of supplier collaborations, innovation and deep,
meaningful relationships, it can be easy to overlook the fact that your interests won’t always be perfectly
aligned with those of your suppliers. The greatest, omnipresent lack of alignment has to do with price:
Businesses and their suppliers negotiate over those numbers in a roughly zero-sum game where each side
wants a price more to their liking. But that’s not the only place where interests may diverge. Some
suppliers may be looking to get into your business and become a competitor, while your own R&D group
may be trying to make a supplier obsolete. Less dramatically, sometimes two organizations just have a
hard time getting on the same page. Absent strong incentives to work well together, it takes extra work on
from the SRM team to achieve strong alignment.

 Mismanaging supplier diversity.

Supplier diversity is the goal for two very different challenges, despite their common label: lowering
supply chain risk and increasing the volume of purchasing your organization does with minority-owned
businesses. The former requires finding a balance between two competing priorities: More diversification
leads to more redundancy and less risk, but less diversification can lead to deeper relationships and better
prices. Giving one company all of your business could make you a favorite customer that enjoys volume
discounts; but if something happens with that company’s reliability, you’re in a lot of trouble and won’t
have much leverage. Meanwhile, placing tiny orders with hundreds of suppliers will give you excellent
redundancy such that losing several per year wouldn’t be an issue, but it’s a lot to manage and the sheer
volume makes it hard to build good relationships. The right balance will depend on the particulars of your
business and whatever the good or service in question happens to be.

The second part of this supplier diversity challenge is about sourcing more inputs from companies that are
majority owned (51%) and operated by people who have been historically underrepresented or
underserved in the economy. This includes suppliers owned by minorities and women, as well as those
owned by veterans, people with disabilities and LGBTQ+ people. Beyond “doing good” by increasing
economic opportunity for these diverse communities, some research shows that businesses with supplier-
diversity programs “do well” for themselves, too, by boosting their brands, building a more competitive
supplier base, increasing their agility and resiliency and bolstering their connections to diverse buyers. A
key challenge for this type of supplier-diversity program is that, because minority-owned businesses have
been underserved by the economy, many don’t have the financial wherewithal to handle a large contract
from a major customer. Often, some form of supply chain finance will be necessary to bring a deal to
fruition.

 Not mitigating risk and continuity.

The increasing frequency of supply chain disruptions in recent years and unusually high turnover in
businesses (namely, closures and acquisitions that have become more common) have made business
continuity more challenging. The continuity risk associated with these disruptions presents an evolving
problem to supplier relationship managers. A few techniques that have proved helpful to some include
looking further up the value chain to get more warning when detrimental issues might occur (i.e., look at
the suppliers of your suppliers, and their suppliers, and so on), diversifying supply chains — which could
turn outages into shortages or even no disruption at all — and proactively communicating with suppliers
about your upcoming needs and giving more advance notice than ever before.

 Lack of visibility.

We talked about how visibility is a good thing, but it doesn’t happen organically. It’s something that
needs to be developed through good relationship management. And even with excellent visibility, you’ll
almost never have as much insight into a supplier organization as you do into your own. Combatting lack
of visibility requires both hard and soft approaches — for example, mandating supply chain visibility aids
(like access to real-time truck GPS data) while also keeping in close touch with your contacts at the
supplier organization.

What is service supply chain?

The service supply chain is the part of the supply chain dedicated to providing service on products. It
addresses the supply of parts, materials, personnel and services needed to provide timely and effective
product service, such as repair and maintenance.

The service supply chain also involves the logistics required to return a product for repair, servicing,
replacement or recycling, a process called reverse logistics. Many manufacturers often turn to third-party
logistics providers (3PLs) to manage this part of the service supply chain.

Service supply chain vs. manufacturing supply chain

The term supply chain originally referred to the supply of raw materials, parts and other goods needed in
the manufacturing process. Supply chain management (SCM) is now a broad range of activities for
planning, controlling and executing not just the flow of materials for producing a product, but the
product's distribution to wholesalers, retailers and end customers. In contrast, the purpose of the service
supply chain is after-sales service and support for a product, such as scheduled maintenance and repairs
made under warranty.
SCM is a major component of most enterprise resource planning (ERP) software suites. While it
historically focused on the manufacturing supply chain, it has broadened to include the supply chains of
service industries, retailing and others. Few ERP and SCM vendors offer software expressly for service
supply chain management, instead handling it in their standard offerings.

Certain service processes, such as field service management, have dedicated software that accesses the
service supply chain through integration with SCM and ERP systems. In addition, service lifecycle
management (SLM) processes and software handle many of the product-service steps, including reverse
logistics and parts management.

The phrase service supply chain is also sometimes used to denote a category of supply chains for service
industries, such as finance, healthcare, hospitality and professional services. It can also mean a network of
service providers and supporting elements, such as the management of information, processes,
competencies and money. Some reference sources divide the category into product service supply chains
and service-only supply chains.

Service chain management explained

There are also similar-sounding terms that mean something different. For example, service chain
management has significant overlap with the service supply chain, especially in regard to the parts and
materials needed to provide efficient service.

However, service chain management focuses more on the "chain" of services themselves and the people
who provide those services, in addition to the physical side. It is analogous to SCM, but instead of
finished goods, it involves the flow of services to the customer.

VEHICLE ROUTING PROBLEM

Vehicle routing problem (VRP) is a generic name given to a whole class of problems concerning the
optimal design of routes to be used by a fleet of vehicles to serve a set of customers. VRP is a
generalization of the TSP problem widely described in the previous section.

What is the vehicle routing problem theory?

The vehicle routing problem (VRP) is concerned with optimizing a set of routes, all beginning and ending
at a given node (called the depot), to serve a given set of customers. This chapter discusses several
construction heuristics for the VRP, and improvement heuristics.

What is the vehicle routing strategy?

It involves minimising the total route cost and establishing the maximum number of stops each vehicle
can make while keeping operating costs to a minimum. It considers factors such as the number of
vehicles, vehicle capacity, time constraints, location of customers, order priority, speed limits, and traffic
patterns.
How do you manage after sales service?

10 after-sales activities that increase customer lifetime value

1. Send a personalized thank you. ...

2. Cross-sell with paired products or services. ...

3. Provide product training materials. ...

4. Offer support services. ...

5. Upgrade your packaging. ...

6. Seek feedback. ...

7. Repair mistakes quickly and generously. ...

8. Establish a loyalty program.

1. Send a personalized thank you.

If you’ve ever sent a thank you card to your grandma for that comfy pair of holiday socks, you’re already
familiar with this tried-and-true gratitude practice. These days, it’s a rarity to receive a real card in the
mail, so when you send one, it stands out.

Sending postcards or notes doesn’t have to be complicated. Trigger a “thank you” reminder in your
workflow so it’s just another step in your automated sales process. Depending on the nature of your
business, consider a personal phone call, follow-up email, or even a quick text message. Never
underestimate the value of a sincere “thank you” message.

2. Cross-sell with paired products or services

Pairing your product with the perfect add-on can improve a customer’s experience. Suggest a pouring
spout for that Italian olive oil, a hand-crafted dipper for a jar of acacia honey, or a wireless controller with
a new gaming system. Warranties or special maintenance services can also optimize the experience.

You can incentivize with real-time gifts, too. If you have customers waiting for appointments or shopping
onsite, offer complimentary WiFi or soft drinks to improve their visit.

Don’t think of “cross-sell” as a dirty word. When done right, it helps your customers fully enjoy your
products and ensures they’re getting their money’s worth.

3. Provide product training materials

Got a product that’s a little tricky? Make training a part of the purchase. Help your new (and old)
customers learn the ropes with online tutorials, videos, apps, or online appointments with a specialist.
New purchases aren’t any fun if you can’t figure out how to use them.
For non-software products, ensure each purchase comes equipped with installation manuals, technical
sheets, or booklets. After all, where would we all be without those IKEA stick figures to help us count
nuts, bolts, and screws?

Whether your training materials are virtual or physical, seriously evaluate what your customers will need
to make their post-purchase experience easier and more enjoyable. You want them to get the most out of
your product right out of the gate. Head off frustration by providing the materials they’ll need and letting
them know how to get in touch with customer service if they have questions.

4. Offer support services

Sometimes, things go wrong. It happens to everyone. Make it easy for your customers to figure out how
to get help when things go south by providing multiple avenues of contact. Different demographics may
prefer different services. For instance, older customers frequently prefer to call a sales support line and
talk to a real human, while younger folks are more likely to hop into a chat with a bot or rep. More DIY-
type customers may seek out troubleshooting guides on your website to address the issue independently.

Anticipate issues ahead of time so you can be prepared to address questions smoothly and swiftly.
Customers expect immediate results. In fact, more than two-thirds of consumers equate a positive
customer service experience with a fast resolution. It’s not enough to solve issues. You need to solidify
your customer service infrastructure so you can solve them as quickly as possible.

At the end of the day, positive customer service experiences cultivate brand loyalty. According to a
survey conducted by Microsoft Dynamics 365, a stunning 95 percent of respondents say that customer
service is important to their choice of (and loyalty to) a brand. Make sure that when your customers reach
out for support, resources are easy to find and efficient to use.

5. Upgrade your packaging

Packaging may not be the first thing that comes to mind for after-sales service improvement, but as tens
of thousands of YouTube videos prove, the unboxing process is a great opportunity to delight customers.
Make it fun to receive your product. A plain box gets the job done, but adding a little sparkle can drive
brand recognition and word-of-mouth referrals.

Use packaging as a chance to lean into value selling. Consider packing materials that are eco-friendly or
that can be repurposed. Minimalist packaging not only improves your customers’ carbon footprint but
also reduces yours. Let your customers know what you’re doing to be more green.

Remember, your packaging is always an extension of your brand. Make sure it suits your business. High-
quality, good-looking materials can greatly influence a purchasing decision, and a clever design generally
has high brand recognition value.
6. Seek feedback

Don’t keep yourself in the dark when it comes to customer satisfaction. Send follow-up surveys with clear
questions to learn how your customers feel about your products and what suggestions they have for
improvements.

Develop a clearly defined objective for each survey you send so you can ask the right questions. If you
want to know how likely a client is to refer you to a friend, ask them questions about company rating—
don’t ask how often they’d like to receive emails from you. Targeted questions bring in useful data. Plus,
ingenious techniques like offering 10 percent off their next purchase can both encourage customers to
complete surveys and increase the likelihood of future sales.

7. Repair mistakes quickly and generously

Mistakes happen. When they do, don’t brush them off or ignore them. A mistake is an opportunity to
demonstrate great customer service.

Let’s say you sell high-end body care products, and a customer has received the wrong scent of the quad-
milled French bar soap. When they reach out to customer support via live chat, be empathetic and
apologize for the inconvenience. Empower your service reps to replace the order and throw in something
extra—like sample-size soaps or a travel candle. Customers take note of this level of care and share their
stories with friends and family, as well as on social media.

When you can, simplify the process for customers to replace or return items. A no-fuss return policy,
especially for online orders, makes your company stand out from the competition and can tip the scales in
your favor.

8. Establish a loyalty program

Customers who return to your business again and again deserve your appreciation. Reward customer
loyalty and encourage repeat business with perks, discounts, free merchandise, or early access to new
products. Many businesses utilize a points system with graduating levels of incentives the more a
customer buys. Consider a small “freebie” sample product or add-on service with a purchase. After all,
who doesn’t love free stuff?

However you choose to reward loyalty, be generous with benefits so your clients want to join the
program. Customers who are part of a loyalty program typically spend up to 18 percent more than those
who are not. Crafting a unique, on-brand loyalty program is well worth your time and resources.

9. Share event-focused offers

The sales landscape shifts quickly, and certain sales trends can be tough to predict. But there are some
events we can always count on. Birthdays, holidays, and even tax season give you the chance to connect
with customers.
While not every event calls for an all-out celebration, your customers will take note of a timely message
wishing them “Happy birthday!” with a small discount or free item. And this process doesn’t have to be
labor-intensive. When events are consistent, you can automate annual messages through your customer
relationship management (CRM) platform.

For other events like holidays or back-to-school season, reaching out to customers keeps your brand fresh
in their minds. Use these messages to let them know about any changes to your hours and what
promotions you have in the works. Adding a coupon code to your message is another chance to boost
your chances for a repeat purchase and start the sales cycle over again.

10. Ask for referrals

Don’t be shy about asking for referrals. According to sales legend Dale Carnegie, an overwhelming 91
percent of customers are willing to give referrals, but only 11 percent of salespeople actually ask for
them.

Consumers who find your business through word of mouth are four times more likely to buy. If you’re
not already asking your customers to spread the word, you should start. Be sure to show your appreciation
by offering incentive discounts or coupon codes. While it feels good to share a positive experience, it
feels even sweeter when you get a little something extra for it.

What are the services of transportation?

Transportation services include the movement of goods and services, people, and animals from one
location to another by rail, road, air, sea, cable, space, or pipeline. Transportation services can be divided
into three different areas: infrastructure, vehicles, and operations.

What are the 4 types of transportation?

The four primary modes of transportation in logistics are shipments by truck, ship, train and plane — also
known as road, maritime, rail and air shipments. While each of these modes of transportation has unique
benefits, knowing which method is right for your business requires careful consideration.

What are the 3 main categories of transportation?

The different modes of transport are air, water, and land transport, which includes rails or railways, road
and off-road transport. Other modes of transport also exist, including pipelines, cable transport, and space
transport.

How do you optimize a route?

Following are five ways you can use route optimization software to improve efficiency, lower
operational costs, and increase revenue:

1. Visualize Delivery Routes. ...

2. Cut Delivery Times. ...
3. Auto-dispatch to Avoid Bottlenecks. ...
 4. Improve Customer Experience. ...
5. Continually Improve Performance.

1. Visualize Delivery Routes

If you have to spend time trying to decipher a route, that's a problem. This is often the case with physical
and paper maps, or text-only directions.

Route planner software translates delivery routes into a visual map, so dispatchers and drivers can see at a
glance exactly where the different stops are, who's going where, and any updates that occur based on real-
time traffic conditions.

Onfleet’s integrated route optimization engine factors in multiple variables — time, location, traffic, and
vehicle capacity — to map out the most efficient routes for your delivery trucks. And, if anything
unexpected comes up (eg: accident, flat tire, etc.), routes can be re-optimized in real time, with updates
automatically sent to the appropriate drivers.

This level of automation incorporates smart GPS and alleviates a lot of administrative burden for delivery
managers.

2. Cut Delivery Times

We mentioned earlier that algorithms can help create optimized delivery routes. If you've been planning
manually until now, you might have some reservations about trusting “a robot” with such an important
task. An optimized delivery route can save you 20% to 40% on fuel and drive time, though, so it’s
definitely worth looking into. An optimized delivery route can save you 20% to 40% on fuel and drive
time, though, so it’s definitely worth looking into.

Don't think of it as losing control of your routes, but rather that this algorithm is your personal assistant
and can make your job a lot easier. Not to mention your customers will be much happier! Of course, the
best routing solutions will allow you to make manual adjustments to the routes even after they’ve been
optimized. There will always be an element of human knowledge that is nearly impossible for any
algorithm to consider, so manual tweaking might be necessary.

3. Auto-dispatch to Avoid Bottlenecks

Imagine not having to print out and hand your drivers a pile of paper before each delivery route. Route
planning software can make that happen.

First off, everything will be digital. Second, you can sit back and relax as the software dispatches drivers
for you, telling them exactly when to go, where to go, and providing any instructions they’ll need along
the way.

With Onfleet, delivery managers can set rules to automatically assign deliveries based on proximity and
route distance, while collecting proof of delivery - photos, signatures, and barcodes - right from their
mobile phones.
4. Improve Customer Experience

These are the most common expectations customers have about deliveries:

Some route optimization software, such as Onfleet, doubles as real-time driver tracking and visibility
software, so you know exactly where your drivers are at all times.

For instance, if one of your drivers is delayed for anyreason, this will be visible in real time to both the
company and the recipient, and the estimated delivery time will update automatically.

This means customers won’t need to call your support team, as they can see when their delivery is
arriving.

With Onfleet, customers will receive automatic status updates when a delivery has started, as well as
delivery ETAs, via automatic SMS notifications. The platform also allows customers to communicate
with drivers, dispatchers, and call centers, enabling your team to solve problems in real time.

5. Continually Improve Performance

Route optimization is not a one-and-done task. It's essential to track delivery operations and continually
make improvements to ensure they’re as efficient as possible.

Most route planner software comes with reporting capabilities, so you can see precisely which areas need
to be improved to lower costs and increase profits.

For example, every delivery operation should be tracking KPIs such as:

 On-time rates

 Service times

 Successful deliveries

 Customer feedback ratings

 Idle time

 Dropoffs per pickup

9 Benefits of Efficient Route Optimization

Besides telling drivers where to be and when to be there, route optimization has many other benefits.

Reduced fuel costs

Less time spent on the road means less money spent on fuel.
Reduced vehicle maintenance costs and downtime
Similar to the first point, less time spent on the road also means less wear and tear on your delivery
vehicles.

Improved customer experience

Real-time updates on drivers’ whereabouts mean estimated delivery times are always accurate - but just in
case, customers also have the ability to talk to the driver directly.

Reduced manual route planning

You can spend less time planning routes and doing admin work by automating tasks with route planner
software. The time saved can be better spent working on getting new business and other revenue-
generating endeavors.

Respond to schedule changes in real time

Routes are updated right away when unforeseen circumstances come up, like traffic on the road,
accidents, weather conditions, and more. Drivers receive these updates in real time, so they don’t need to
spend time figuring out what to do next.

Increased number of daily deliveries

More deliveries means more business, but over-scheduling can make your drivers burn out and annoy
your customers with longer delivery times or inaccurate delivery windows. Route optimization software
tells you when you need more drivers to complete deliveries within specified delivery windows.

Improved driver satisfaction

When you optimize routes, you eliminate the problem of overlapping delivery territories, long delays, and
incomplete deliveries, which reduces stress for drivers. And, of course, happier drivers = happier
customers!
Deliver products faster
Simple, optimized routes result in faster deliveries.

Healthier bottom line

All the benefits of route optimization mean more money in your pocket.

SERVICE INNOVATION

Service innovation refers to any positive changes in the services sector that alter how services are
provided or introduce new services. The main aim of innovative services is to simplify existing customer
processes to enhance ease and speed.

 Service innovation refers to any positive changes in the services sector that alter how
services are provided or introduce new services.
 The main aim of innovative services is to simplify existing customer processes to
enhance ease and speed.
 Innovation can be a game-changer for companies that help them to stay at the top of the
charts and earn brand loyalty.
  Especially now, services should incorporate new technology and the internet to stay
ahead or at least at par with competitors.

Service Innovation Explained

Service innovation ideas are of huge significance in the services industry. How to offer better
services to customers? What can keep them loyal? Innovative services are the answer.
Customers, especially in this digital era, want to keep everything simple. One-touch payments
are an apt example of this. As a result, the share of innovators and early adopters is increasing
quickly.

Services are no more seen as merely complementing products. Increasingly, people consume
more services than products – data, internet, food delivery, entertainment, etc. As a result,
companies that bring more and more innovations to the field have a higher success rate. Hence,
the importance of consumer service innovation for any company.

Besides, innovation can help propel the economy. It sets the new norm, which is often cheaper
and easier. For example, consider the financial service innovation from online banking to e-
wallets to one-touch and no-contact payments.

What is the service productivity?

In services, productivity is related to how effectively input resources in a service process are
transformed into economic results for the service provider and value for its customers.

How do you measure service productivity?

Service industries can measure productivity by considering the number of tasks performed or the
number of customers served in a given time period. Other measures might be whether the service
delivered measured up to company or customer standards and whether performance deadlines
were met.

What is the importance of service productivity?

In manufacturing, lower productivity is generally good for both the provider and the customer as
it leads to lower costs and prices. In services, higher productivity for the provider could lead to
lower productivity (through poorer experience and perceived satisfaction and value for example)
for the customer.

Why do we need service innovation?

Why is service innovation important? Innovation of any kind is important as it is a significant

step forward. Without innovation, all businesses and processes would be stagnant. Innovative
services help businesses have the edge over their competitors and, thus, gain a higher market
share.

When can a service innovation be patented?

An innovative service can be patented under the utility patent prescribed by United States law.
For this, it must be obvious that the innovation alters existing processes or services. Protection
under the patent rights can be exercised for a limited time only, usually 20 years.

Why is service innovation important?

Innovation of any kind is important as it is a significant step forward. Without innovation, all
businesses and processes would be stagnant. Innovative services help businesses have the edge
over their competitors and, thus, gain a higher market share. This leads to higher profits and a
loyal customer base.

What are the stages of product and service innovation?

According to the Harvard Division of Continuing Education, innovation has four important
stages. First, the company needs to look for problems and opportunities. For example, they
should identify any supply-demand gap in the market. Secondly, they should brainstorm
innovative ideas to fill the gap or solve the problem. The third step is to make a prototype or a
service model to understand its efficacy. Lastly, the company can introduce it to the market and
keep making improvements.

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