Alan Mercer

Responding to customer enquiries in make-to-order companies Problems and solutions

Make-to-order companies are in the business of supplying products in response to a customer order in competition with other companies, on the basis of price, technical expertise, delivery time and reliability in meeting due dates. Dealing properly with enquiries is the major problem that MTO companies face. A lack of co-ordination between sales and production at the customer enquiry stage often leads to confirmed orders being delivered later than promised and/or being produced at a loss. The treatment of an enquiry is a multi-stage decision process. The initial decision is whether or not to prepare a bid, and if so, how much effort to put into the specification and estimation process. The MTO company has the choice of putting in a lot of effort to prepare a competitive bid or making a quick estimate with a high safety margin to allow for errors and unforeseen problems expecting further later negotiation with the customer. Consideration has to be given to the likely accuracy of the cost estimates produced. The feasibility of being able to produce the order with the current work load at different delivery times needs to be evaluated together with any extra costs incurred. An input/output planning approach based on the control of a hierarchy of backlogs of work is proposed to produce a dynamic capacity planning model to determine the capacity to provide at each work centre in future time periods, allocating overtime, transferring operators, process as split batches etc. In setting the price and lead time to quote to the customer, the probability of winning the order plays an important role. A model based on a chi-squared analysis of data on past enquiries is proposed to divide the market into sectors of similar orders. It is extended to produce a strike rate matrix for each sector giving the probability if winning orders in that sector as a function of the price and lead time quoted. A general model for the whole enquiry process is presented, together with a decision support/expert system. This indicates where the qualitative judgmental rules, typically used by companies, could be used to advantage.

Integrating marketing and production planning in make-to-order companies

Abstract Make-To-Order companies are in the business of supplying products only in response to a customers order. They may supply unique products made to a customers specification and/or a limited range of products. They range from the traditional job shop, e.g. cutting pieces of metal to a specific shape, to producers of machine tools, e.g. a vulcanising line. A major problem is the divide between sales/marketing and production. The production function is often faced with unrealistic delivery dates for incoming orders. This arises when the sales force quote delivery dates and prices which will maximise the chance of the company winning the order. The lack of coordination with production often leads to confirmed orders being delivered later than promised by sales and/or being produced at a loss, or alternatively production has to delay other orders with consequent extra costs. The need to integrate sales and production planning considerations at the customer enquiry stage in deciding how to respond has been pointed out by several authors, yet little research has been carried out. The paper will discuss some possible approaches to the problem. These essentially depend on estimating routinely the probability of winning an enquiry order, dependent on many factors including price and lead time etc. Companies do not traditionally keep records of this data, particularly records of unsuccessful bids and on competitors. In addition, the paper describes the experience of setting up a system to collect such data in a major UK company and the potential uses of such a database.

The optimum markup when bidding with uncertain costs

Abstract The use of Friedmans approach to bidding is examined in situations where the competitors all bid with the same markup and the same distribution of uncertainty in the cost estimate. The optimum markup is found for different distributions of the cost estimates, for different versions of the expected profit and for different formulae for the probability of winning. It is shown that the different distributions and different methods have significant effects in some, but not all cases. The Friedman method is reliable in some instances but may be harmful in others.

Note on a conflict of assumptions in bidding models

Abstract A controversy over the most appropriate model for some bidding situations is examined. It is shown that the models are based on four common assumptions and a fifth which depends on the bidding situation.

The grocery superstore vehicle scheduling problem

Scheduling the deliveries from a regional distribution centre (RDC) to large stores of a major retailer of fast moving consumer goods includes every possible vehicle routeing complexity. Usual constraints, like the size of the vehicle and the length of the driving day, apply. More importantly, loading feasibility is a major factor, with frozen goods being at the front, produce and perishable products in the middle, and groceries at the tail of the rear end loading vehicle. Moreover, these three product types have different time windows, determined store by store. Items like medium movers and alcoholic drinks may only be stocked at particular hub depots, from where they must be collected and then delivered to the retail outlets. Collections of salvage are made from the stores and goods from suppliers are backhauled to an RDC, which may not be the vehicle base. Then there may be trunking between RDCs. In this case study, deliveries and collections by vehicles at an RDC are presently scheduled by updating daily a basic plan prepared every 6 months, using the skills of an experienced distribution professional. A simulated annealing-based algorithm has been developed to speed up the process by circumventing the need for the skeletal schedule. In the application tested, the solution produced by the algorithm requires the same number of vehicles as actually used, although the total delivery time is slightly longer. Further improvements, particularly in the quality of the initial solution, may be possible by exploiting the problem structure in recognizable ways.

VARIATIONS IN PRICE ELASTICITIES

Abstract Multilevel analyses have been performed on weekly scanner data obtained from 74 stores of a large retailing chain for 30 competing items of a household product group. Discrete price change parameters for the brand being modelled reflect the fact that prices do not change from week to week. Their estimates show that the price elasticity is not constant. Variance components models for four of the products suggest that a brands inherent attractiveness is affected by the social and demographic characteristics of the retail outlets catchment area. However, random slopes models indicate that there are no systematically different price effects between stores.

Differences in bidding strategies

Abstract Methodological understanding is increased and the appreciation of discernible competitive bidding strategies widened by investigating the problems of two construction companies, one being a kitchen equipment manufacturer and the other a civil engineering contractor. Detailed strategies are estimated for the former but not for the latter, due primarily to the greater uncertainty in cost estimates for civil engineering contracts producing larger variability in outcomes.

An education in operational research: A personal viewpoint

Abstract A distinction is drawn between management, management science and operational research, which determines the content of operational research courses. Personal views are expressed on how the subjects should be taught and practical experience given, so fitting graduates for careers in operational research and in management.

The direct marketing of insurance

An insurance company, like many in the financial services industry, will advertise a product in the press and some readers will avail themselves of it. Often the cost of an advertisement will exceed the income derived from the accepted respondents in the following years. It only becomes profitable if acquiring names into a database results in purchases in future years of the advertised and other, cross-sold products. Therefore evaluating advertising effectiveness requires the development of future lifetime values (LTVs), which vary over time between individuals for the different products. Real examples include evaluating the media vehicle, size, content and frequency of advertisements.

Style and principles

The EJOR editors announce new measures to contain the growth in the journals size and to facilitate the publication process, whilst continuing to provide sympathetic help to authors.