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Improving the overall customer service level : a case study at Philips

Jezuita, Lena (2017) Improving the overall customer service level : a case study at Philips.

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Abstract:The well-known international company Philips has the mission to improve the life of 3 billion people through their innovations. The driving factor for reaching this goal is to improve customer service while maintaining low inventories and low costs. The target customer service level for 2020 is to deliver 95% of all order lines on time and in full. The order line fill rate of the division of Philips that we study is 89% at the start of this research. Philips is interested in researching how to reach the 95% and still stay profitable. Therefore, the goal of this research is the following: The goal of this research is to improve a part of Philips’ supply chain in order to improve the customer service level in the most profitable way. The scope of this research is to find ways for customer service level improvement for a certain range of products. We decide to only research how to improve product availability at the warehouses, since low product availability is the main reason for a low customer service level. The order line fill rate for product availability at the warehouse is called CSL-availability. The CSL-availability at the start of this research of the studied division of Philips is 91%. Comparing this to the 89% order line fill rate, we can conclude that only 2% of the order lines are not fulfilled due to other reasons than availability at the warehouse, whereas 9% cannot be fulfilled because of stock-outs at the warehouses. The scope of this research is limited to two product groups, where one already has a 93% CSL-availability, but can improve the total CSL-availability by 1,5% and thus has a big influence on the total average customer service level. The other product group has a CSL-availability of 87%. This leaves more room for improvement, but due to the relative low amount of order lines for this product type only a 0,5% total CSL improvement can be achieved. Solutions for improvement that we find during this research however can probably also be implemented for other product groups. The biggest challenge for Philips is to achieve a high service level at low cost, because customers expect highly customized products and fast delivery times. Variability in demand and low forecast accuracies are found to be the main reasons for stock-outs at the warehouses. We researched different ways of coping with demand variability and come to the conclusion that for this scope lead time reduction is the most viable solution. Possible solutions are: changing the mode of transportation from sea to air, late customization or a dual sourcing strategy where a percentage of the products are transported by air and the rest by sea. We built a simulation model to quantify the impact of lead time reduction on the CSL-availability year to date and performed a cost analysis. For the analysis, we chose one SKU per product group, since there is no more data available. Due to the wide variation of SKUs of product group A, the chosen SKU represents only 0,5% of all order lines and is therefore not representative for the whole product group. We recommend Philips to also study other SKUs before implementing a solution for this product group. The SKU of product group B represents 43% of all order lines. Therefore, our conclusions about this product group are much more valuable.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:50 technical science in general
Programme:Industrial Engineering and Management MSc (60029)
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