1

Creating customer value and developing logistics strategy

2

Customer value

Customer value is created when the

perceptions of benefits received from a

transaction exceed the total costs of ownership

(price and other related costs with purchase):

3

Logistics and customer value

Higher customer service and lower costs:

4

Components/drivers of customer value

5

Factors affecting customer value

1. Total cost ownerships:

Price

Other costs associated (e.g. inventory, ordering costs

etc.)

2. Gap between perception (perceived benefits) and

expectations:

Perception should be greater than expectations

6

Improving customer value

• Marketing task: improving the perceived benefits and/or

reducing the total costs of ownership

• Marketing and logistics strategy: maximizing this ratio

relative to that of competitors

• B2B scenario: superior logistics performance, enabling

business-customers to serve their customers better with

less inventory and lower ordering costs

7

Linking customer value to supply chain strategy

Trade-off among service elements:On-time performance Order fill rate Invoice accuracy

A statement of how, where and when value is to be created for specific customers or market segments

Availability Responsiveness Reliability

Efficient Responsive Partly efficient partly responsive

8

Value delivery systems and competitive advantage

Value ‘delivered to customers’ is critical to maintaining competitive advantage

Delivery systems:

o physical delivery of products

o presentation of service

o marketing channel mix

o flexibility of responses

o linking buyer-supplier logistics

o linking buyer-supplier information systems

Design of delivery system (should be linked to both customers’ and suppliers’ value

chains)

9

Role of firms/suppliers in customers’ profitability

In business-to-business marketing (e.g. manufacturer to distributor) supplier influences

customer sales and profitability:

increase the customers’ chance of selling more product (revenue sharing)

and/or reduce their total costs ownership

increasing return on shelf-space [(profit/shelf-space) or (profit/sales)*(sales/shelf-

space)]

Note: profit/shelf-space is the margin and sales/shelf space is the shelf-space productivity. Direct

product profit (DPP) is also used as a tool in shelf-space profitability (useful for retailers,

super markets etc. who are into retail business)

10

Direct product profit (DPP) and shelf-yield

11

Understanding costs-to-serve in supply chain strategy

Customer profitability matrix