Thema Logistics/Supply Chain Customer Service

Assoc. prof. dr. Ieva Meidut

Customer service is the way logistics interfaces with marketing and as such represents the output of the firm's entire logistics effort. Given that pivotal role, it is reasonable to assert that customer service is the most important logistics concern. The level of customer service provided has a direct impact on the company's market share, costs, and, by implication, its profitability. Yet despite the importance of customer service to the overall success of the organization's marketing strategy, managers often do not understand the crucial role that logistics plays in keeping customers happy.

Customer service can be viewed in one of several ways. Sometimes customer service is seen as an activity; that is, something that the organization provides. A customer service department that handles complaints, special orders, billing, etc. often evidences this aspect of customer service. Similarly, customer service can be viewed as a measure of performance.

For example, if the firm can ship completed orders within 24 hours of receipt 95 percent of the time, it is providing good customer service. Unfortunately, both of these views are very narrow. In the former case, customer service activities seem to focus on resolving problems rather than proactively meeting customer needs.

In many retail stores, for example, the customer service department is hidden away in a far corner of the building where it serves as a place for customers to take their grievances. In the latter instance, attaining some desired level of functional performance can lead management to focus on those tasks required to meet some internal standard rather than truly satisfying the customer.

Visionary firms view customer service as a corporate philosophy that defines the way the business is conducted. Certainly, this type of organization may also have a customer service department or utilize performance standards, but the focus in this case is on the customer not the process, in other words, the logistics system is managed so as to provide the customer the level of service they desire which, in turn, leads to customer satisfaction, repeat business, and profit

Since logistics customer service is necessarily a part of a firms service offering, we will begin with service from the firms perspective and then distill out those elements that are specific to logistics.

Kyj and Kyj observered that: ...customer service, when utilized effectively, is a prime variable that can have a significant impact on creating demand and retaining customer loyalty.

To another customer service expert, customer service: ...refers specifically to the chain of salessatisfying activities which usually begins with order entry and ends with delivery of product to customers, in some cases continuing on as equipment service or maintenance or other technical support.

More simply, Heskett states that logistics customer service for many firms is: ...the speed and dependability with which items ordered (by customers) can be made available...

More recently, customer service has been referred to in terms of a fulfillment process, which has been described as: ...the entire process of filling the customers order.

This process includes the:

receipt of the order (either manual or electronic), managing the payment, picking and packing the goods, shipping the package, delivering the package, providing customer service for the end user and handling the possible return of the goods.

Customer Service Elements

From a corporate-wide perspective, customer service has been viewed as an essential ingredient in marketing strategy. Marketing has often been described in terms of an activity mix of four Ps product, price, promotion and place, where place best represents physical distribution.

A comprehensive study of customer service, sponsored by the National Council of Physical Distribution Management, identified the elements of customer service according to when the transaction between the supplier and customer took place. These elements are grouped into: pretransaction, transaction, and prosttransaction categories.

Pretransaction elements establish a climate for good customer service. Providing a written statement of customers service policy, such as when goods will be delivered after an order is placed, the procedure for handling returns and back orders, and methods of shipment, let customers know what kind of service to expect.

Establishing contingency plans for times when labor strikes or natural disasters affect normal service, creating organizational structures to implement customer service policy, and providing technical training and manuals for customers also contribute to good buyersupplier relation.

Transaction elements are those that directly result in the delivery of the product to the customer. Setting stock levels, selecting transportation modes, and establishing order-processing procedures are examples. These elements, in turn, affect delivery times, accuracy of order filling, condition of goods on receipt, and stock availability.

Posttransaction elements represent the array of services needed to support the product in the field; to protect consumers from defective products; to provide for the return of packages (returnable bootless, reusable cameras, pallets, etc.); and to handle claims, complaints, and returns. These take place after the sale of the product, but they must be planned for in the pretransaction and transaction stages.

Corporate customer service is the sum of all these elements because customers react to the total mix. Of course, some elements are more important than others.

Also a firm's customer service strategy is built around five key concepts explained below:
Dependability is perhaps the most important concern from the customer's point of view simply because it addresses very basic parts of the buying process. Dependability may be in the form of product availability; that is, the item is on the shelf when the customer wants to purchase it. It may also refer to such things as meeting promised delivery dates, filling orders correctly, and providing accurate billing statements. Indeed, dependability simply means that the firm can be relied on to do what it claims it will do.

 Time relates to the order cycle; that is, how long it takes for the goods to be delivered after the order has been placed. The emphasis today in many developed markets is on speed - the faster the better. However, in emerging nations merely getting a product to the customer on a regular basis may be more important than how long it takes the item to make the journey.
For example, the William Wrigley Jr. Company sells approximately 400 million sticks of chewing gum each year in China. The firm relies on a thousand-mile system of trucks, rusting freighters, tricycle carts, and bicycles to connect their factory in Guangzhou with the myriad of small shop owners and street vendors throughout the country that ultimately sell the product to customers. In short, though complex and risky, their distribution system routinely provides the buyer with a fresh, soft and sugar-dusted product, but little else in the way of customer service

 Convenience deals with things like ordering accessibility, hours for pick-up and delivery, frequency; of sales calls, technical assistance, and after-sales service.
For instance, the British department store Marks & Spencer faces a unique set of problems as they continue their European expansion. Merely putting products on the shelf is not enough to satisfy customers in France, for example. When the company opened its second store in Paris, it offered carryto-car service, a terminal for mobile phones, public telephones, and cashdispensing machines. Furthermore, customers can utilize home computers to find out about the store through the French home shopping and information network Minitel.

 Communications encompasses activities like cargo tracing, answering customer inquiries, billing, arid information management.
Federal Express and UPS both rely on extensive proprietary communications systems that allow carrier personnel to tell a shipper exactly where a given piece of cargo is in the transportation process.

In addition, communication also implies that the firm listens to its customers, finds out what their needs are, and makes every effort to satisfy them.
For example, Terrence A. Austin, an associate partner with Andersen Consulting LLP in San Francisco, suggests that personal computer (PC) manufacturers have traditionally been obsessed with technology features and price performance while ignoring customer needs. "PC manufacturers routinely announce 10 day order lead times ('but we wanted it in three days,' customers say), 90 percent order fill rates ('we think that should be at 95 percent or 99 percent'), and three days between request and commit ('we would like to see that drop to one day')," Austin says. "Yet when you ask PC customers what they actually got from the PC industry, you hear of order lead times of 20-30 days, 50 percent to 65 percent fill rates, and a 10-day to 30-day difference between request and commit

 Honesty implies that the company keeps the promises it makes to its customers. Pledging more than can be delivered virtually guarantees that customers will be dissatisfied, so managers must be careful not to overstate customer service levels when there may be considerable pressure to do so.

The way in which these elements are combined determines the firm's customer service strategy.

Customer service within the logistics system

Dependability Time Convenience Communication Honesty Cost

In addition, this mix of variables directly affects logistics costs, so managers must ensure that revenues justify these expenses. That is, the level of service offered must be consistent with customer needs. Providing too little service leaves customers dissatisfied and virtually guarantees that they will take their business elsewhere. Often, however, firms provide more service than their customers require. This practice raises costs because the company would have had many of these buyers anyway. It also elevates their expectations for the next encounter and, at times, can even be off-putting.

The challenge, then, is to combine these variables in a way that meets customer needs at the lowest possible cost. Note that the firm may spend a significant amount on customer service when its buyers demand a great deal of attention. As long as the revenues generated justify those expenses, managers should be comfortable with those costs.

Barriers to Quality Customer Service

There are a number of impediments to providing quality customer service on a continuous basis. Some of these variables are controllable by management, some are not

Controllable factors
Lack of customer segmentation. Some firms offer all customers the same level of service. This strategy could result from a conscious decision by management, but it may also reflect a lack of appreciation for customers' needs. The fact is that all customers should not necessarily receive the same service. Any organization has a small number of customers that generate a large share of corporate revenues. In fact, Pareto's Law (also known as the 80/20 rule) states that 80 percent of the firm's profits come from 20 percent of its customers.

Management would probably do virtually anything to keep these people happy. Most buyers will not fall into this category and, although management wants to satisfy this group as well, these customers simply do not buy enough to warrant the higher service levels provided to the company's most important customers When only one level of service is offered, it often tends to be high. Thus, managers find they are spending more on customer service than they need to and may in fact be alienating those premier buyers by making them feel less valued by the organization

 Misuse as a selling tool. Occasionally, better customer service is promised as an incentive to close a sale. Faster delivery, liberal return policies, or other benefits may be offered even though they are not, in fact, a part of the firm's customer service strategy. This misuse of customer service virtually guarantees customer dissatisfaction since the firm may be unable or unwilling to keep those promises.

 Short-term management decisions. When an organization finds itself in financial difficulty, managers begin looking for ways to improve short-run profitability. Two options are immediately available. One is to cut inventories. This action not only lowers costs but reduces assets, thus benefiting the firm twice. A second action is to shorten the duration of accounts receivable, a move that makes customers pay sooner and improves the company s cash flow. However, both of these decisions can have long-term negative implications for customer service. Reducing inventories by itself can ultimately lead to more stock outs and lost sales. As far as the buyer is concerned, reducing the grace period for accounts receivable is essentially the same as raising the price because interest income for those lost days disappears. Thus, sales can fall over time.

 Employees. Hiring unqualified workers and insufficient employee training can both add to poor customer service. Competent people must be employed and educated thoroughly in the firm s customer service philosophy. They must know what their responsibilities are and what actions they are empowered to take to satisfy the customer. Workers must thoroughly understand what management expects of them so that customers can be treated accordingly. If employees are afraid they will be disciplined because they offer a compensatory meal or a free airline ticket to a disgruntled customer, for example, they will never make that concession even if management expects them to do so.

Uncontrollable factors
Unfortunately, despite management's best procedures and intentions, customers may still be dissatisfied. Factors outside the control of the organization can also bear on the buyers' overall assessment of their experience.

Uncontrollable variables impacting customer satisfaction

 Customers. Sometimes customers can seem like their own worst enemies. They don't follow directions, comply with procedures, or generally do what they are supposed to do. In other words, individual traits, characteristics, and experiences can also influence the buyer's perception of satisfaction. Unfortunately, if the customer is having a bad day they may end up feeling dissatisfied regardless of the institution's intentions.

 Other customers. In instances where many customers are present, the number and behavior of others can impact one's level of satisfaction. If a restaurant is crowded with loud people, for example, customers seeking a quiet leisurely meal will probably be dissatisfied with their experience.

 Employees. Workers can have bad days just like customers. Though indoctrinated to behave a certain way, they can occasionally let their emotions override their training with respect to customer treatment. An indifferent or rude employee can totally undo the firm's entire customer service effort.

 Script. A script describes a typical sequence of behaviors a customer must undertake to accomplish a task at a particular business. It is rarely written down; the customer's expected to simply know what to do based on experience or observing others. For example, when customers walk into a restaurant for the first time they must make some immediate decisions. Should they simply sit down or wait to be seated? If they seat themselves, where should they sit? How do they order their food? Are they served or do they serve themselves? After the first experience or two, people generally learn the script for that particular situation. If the script is too confusing or difficult to understand, however, customer dissatisfaction may result.

Improving Customer Service Performance

 Understand customer needs. It is absolutely essential that management learns what services its customers most value and how much they are willing to pay for those amenities. Invariably, this sort of research will show that all customers do not seek the same things. This effort will, in turn, give managers the information needed to conduct an ABC analysis, whereby customers can be categorized based on the profits they provide to the firm. Customer service strategies can then be developed to meet these specific needs.

For example, the company's most important buyers (i.e. the top 20 percent in terms of revenue generation) would be included in the "A" group and could be offered very high service levels, while the "B" group might encompass the bulk of the firm's customers (the middle 60 percent) that buy less than the "A" group and would be satisfied with somewhat less attention. Finally, the least important users (the bottom 20 percent) would be placed in the "C" category and should receive a lower level still Management should provide its customers the service they desire without spending more on customer service than necessary.

 Monitor service delivery. Because the uncontrollable variables discussed earlier can upset the best laid plans, managers must seek constant customer feedback to ensure that service deficiencies are quickly identified and corrected. Customer surveys and interviews can provide useful insights, as can personal experience.
For example, managers may choose to put themselves into their customer's place by acting as a patron within their own organization. They might purchase items in one of their own stores trace a shipment through the firm's logistics system, lodge a complaint, or eat in a corporate restaurant, and then evaluate their customer service strategies based on that personal experience. Placing employees in the role of customers to evaluate service performance is sometimes referred to as "shopping," and is a technique that can provide some extremely powerful insights into how well or poorly management's customer service efforts are being received by buyers.

 Train employees. Employees must understand what the firm's customer service strategies are so that they know what their role is in implementing those plans. Very often the only interaction the customer has is with the frontline worker: the vehicle operator order taker, or clerk.

Therefore, for many customers, the company is represented by the lowest-ranking people in the entire organization. It is crucial that these employees understand the critical role they play in providing customer satisfaction and receive the training necessary to carry out their tasks. Top management must also give these customer contact workers the freedom and authority to take whatever action they deem necessary to keep the customer happy. The implication is not that unreasonable demands will be routinely satisfied. However, employees often know the best solution for a given situation and should be empowered to handle unforeseen events as they see fit. Management must always keep in mind that the optimum service level may not be the alternative with the lowest cost; it is the one that advances the long-term profitability of the firm.

Relative Importance of Service Elements

Sterling and Lambert studied the office systems and furniture industry and the plastic industry in some depth. From a large number of variables (99 and 112 respectively) representing product, price, promotion, and physical distribution, they were able to determine those that were most important to the buyers, customers, and influencers of purchases from these industries. Based on mean scores of importance, as indicated by respondents on a one to seven point scale, they rank ordered the service elements in each of these industries.

For the office systems and furniture industry, they concluded the following: The research showed that physical distribution is an integral and necessary component of the marketing mix, and that it offers a significant opportunity for firms to gain differential advantage in the marketplace. Evaluation of the 16 variables rated as most important by dealers, end users, and architectural and design firms disclosed that at least one-half were physical distribution/customer service variables.

For the plastics industry, nine of the 18 variables relied as most important were related to logistics. Of the remaining variables, five related to product quality, two to price, and two to the sales force.

The Sterling-Lambert research certainly suggests that logistics customer service is dominant in the minds of customers in the office systems and furniture industry and the plastics industry. Although such a small sample of industries may not be overly convincing, others have observed the same phenomenon.

In a similar study of the auto glass after market, Innis and La Londe found that six out of the top ten customer service attributes were logistical in nature. Notably, high fill rates, frequency of delivery, and information on inventory availability, projected shipping date, and projected delivery date at the time of order placement received high ratings among the retail customer base.

Further, LaLonde and Zinszer found that product availability (order completeness, order accuracy, and stocking levels) and order-cycle time (order-transit time and time for assembly and shipping) were dominant in the minds of users, being most important to 63 percent of the respondents in their study.

Shycon Associates surveyed purchasing and distribution executives across a large cross section of American industry, asking them to rate their suppliers.

In summary, the following are considered the most important logistics customer service elements. On-time delivery Order fill rate Product condition Accurate documentation