9

Customer Value

PowerPoint presentation
to accompany
Chopra and Meindl
Supply Chain Management,
6e 2016 Pearson Education, Inc.
Copyright

16 1

The Dimensions of Customer Value

Conformance to requirements.
Product selection.
Price and brand.
Value-added services.
Relationships and experiences.

Copyright 2016 Pearson Education, Inc.

16 2

Price and Brand

Price cannot be a differential in many
industries

Companies like Dell and Wal-Mart use cost

reduction strategies to improve profit

Brand names become a guarantee for

quality

Premium brands can ask for premium prices

Supply chain has to be more responsive
May increase costs which may be offset by higher
prices

Pricing in services more difficult

Opportunities for companies that can offer new

services

Copyright 2016 Pearson Education, Inc.

16 3

The Role of Pricing and Revenue

Management in the Supply Chain

Revenue management is the use of pricing

to increase the profit generated from a

limited supply of supply chain assets
Supply assets exist in two forms capacity
and inventory
Revenue management may also be
defined as the use of differential pricing
based on customer segment, time of use,
and product or capacity availability to
increase supply chain profits

Copyright 2016 Pearson Education, Inc.

16 4

The Role of Pricing and Revenue

Management in the Supply Chain

Revenue management has a significant

impact on supply chain profitability when

one or more of the following four
conditions exist
1. The value of the product varies in different
market segments
2. The product is highly perishable or product
wastage occurs
3. Demand has seasonal and other peaks
4. The product is sold both in bulk and on the
spot market

Copyright 2016 Pearson Education, Inc.

16 5

Pricing and Revenue

Management for Multiple
Customer Segments

Differential pricing increases total profits

for a firm
Two fundamental issues must be handled
in practice
How can the firm differentiate between the two
segments and structure its pricing to make one
segment pay more than the other?
How can the firm control demand such that the
lower-paying segment does not utilize the
entire availability of the asset?

Copyright 2016 Pearson Education, Inc.

16 6

Allocating Capacity to a Segment

Under Uncertainty

Effective use of revenue management

increases firm profits and improves service

for the more valuable customer segment
Create different versions of a product
targeted at different segments
Tactics for multiple customer segments
Price based on the value assigned by each
segment
Use different prices for each segment
Forecast at the segment level

Copyright 2016 Pearson Education, Inc.

16 7

Pricing and Revenue Management

for Perishable Assets

Any asset that loses value over time

is perishable
Two basic approaches

1. Vary price dynamically over time to

maximize expected revenue, dynamic
pricing
2. Overbook sales of the asset to account
for cancellations

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16 8

Pricing and Revenue Management

for Seasonal Demand

Seasonal peaks of demand common in

many supply chains

Off-peak discounting can shift demand from
peak to non-peak periods
Charge higher price during peak periods
and a lower price during off-peak periods
Increases profits for the owner of assets,
decreases the price paid by a fraction of
customers, and brings in new customers
during the off-peak discount period

Copyright 2016 Pearson Education, Inc.

16 9

Pricing and Revenue

Management for Bulk and Spot
Contracts

Problems constructing a portfolio of long

term bulk contracts and short-term spot

market contracts
Decide what fraction of the asset to sell in
bulk and what fraction of the asset to save
for the spot market
The amount reserved for the spot market
should be such that the expected marginal
revenue from the spot market equals the
current revenue from a bulk sale

Copyright 2016 Pearson Education, Inc.

16 10

Using Pricing and Revenue

Management in Practice
1. Evaluate your market carefully
2. Quantify the benefits of revenue
management
3. Implement a forecasting process
4. Keep it simple
5. Involve both sales and operations
6. Understand and inform the customer
7. Integrate supply planning with
revenue management
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16 11

SC Performance Measures

SC performance affects the ability to

provide customer value

Need to develop independent criteria
to measure supply chain
performance.
Presence of many partners in the
process/requirement of a common
language.

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16 12

SCOR Model

Supply Chain Operations Reference-Model (SCOR)

Developed a set of metrics for supply chain

performance
Members are in the process of forming industry
groups to collect best-practice information

Process reference model

Analyzes the current state of a companys
processes and its goals,
Quantifies operational performance
Compares it to benchmark data.

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16 13

SCOR Level 1 Metrics

Perspectives

Metrics

Measure

Supply chain reliability

On-time delivery
Order fulfillment lead time
Fill rate
Perfect order fulfillment

Percentage
Days
Percentage
Percentage

Flexibility and responsiveness

Supply chain response time

Upside production flexibility

Days
Days

Expenses

Supply chain management cost

Warranty cost as percentage of revenue
Value added per employee

Percentage
Percentage
Dollars

Assets/utilization

Total inventory days of supply

Cash-to-cash cycle time
Net asset turns

Days
Days
Turns

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16 14

IT and Customer Value

Many valuable benefits for customers

and businesses.
Three aspects:

exchange of information between

customers and businesses
use of information by companies to
learn more about their customers so
that they can better tailor their services
enhanced business-to-business
capabilities.

Copyright 2016 Pearson Education, Inc.

16 15

Customer Benefits

Opening of corporate, government, and

educational databases to the customer.
Availability of uniform data access tools of the
Internet.
Innovations have had the effect of increasing
customer value while reducing costs for the
supplier of the information.
Automated teller machines (ATMs)
Voice mail
Internet

Opening of the information boundaries between

customer and company
Part of the new customer value equation
Information is part of the product.

Copyright 2016 Pearson Education, Inc.

16 16

Effects of the Internet

Increased importance of intangibles
Importance of brand names and other
intangibles

Service capabilities or community experience in

purchasing decisions.

Increased ability to connect and

disconnect
Increased customer expectations

Greater ability to compare and the ease of

performing various transactions

Tailored experience

Ability to provide each customer an individual

experience is an important part of the Internet.

Copyright 2016 Pearson Education, Inc.

16 17

Business Benefits
Use information captured in the supply

chain to create new offerings for

customers.
Sense and respond to customers desires
rather than simply make and sell products
and services.
Many forms of analyses:
Sophisticated data mining methods
Correlate purchasing patterns
Learn about each individual customer by
keeping detailed data of preferences and
purchases.

Method applied depends on the industry

and business model.

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16 18

Business-to-Business
Benefits

e-marketplaces

Using the Internet to improve supply chain

collaboration by providing demand information
and production data to its suppliers.
Outsource but maintain control too

Various arrangements between

manufacturers and distributors for sharing

information on inventory that results in
cost reduction
Motivated by the risk-pooling concept
Allow manufacturers and distributors to reduce
overall inventory by:

sharing information about inventory in all

locations
allowing
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Education, Inc. any member of the channel to share16the
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