CUSTOMER SERVICE

INTRODUCTION TO CUSTOMER SERVICE:

No discussion of outbound logistics systems would be

considered complete without the inclusion of customer
service. Having the right product, at the right in the right
quantity, without damage or loss, to the right customer is an
underlying principle of logistics systems that recognizes the
importance of customer service.

Customer service is often the key link between logistics

and marketing. If the logistics system, particularly outbound
logistics, is not functioning properly and a customer does not
receive a delivery as promised, the company could lose
future sales. Even though manufacturing can produce a good
product at the right cost, and marketing can sell it; if
logistics does not deliver it when and where promised, the
customer will be dissatisfied.

WHAT IS CUSTOMER SERVICE?

The role of customer service is to provide time and place

utility' in the transfer of goods and services between buyer
and seller. Put another way, there is no value in the product
or service until it is in the hands of the customer or
consumer.

Definition:

Customer service as an activity: This level treats

customer service as a particular task that a firm must
accomplish to satisfy the customers needs. Order
processing, billing and invoicing, product return, and claims
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handling are all typical examples of this level of customer
handling. Customer service departments which basically
handle customer problems and complain also represent this
level of Customer service.

Customer Service as performance measures: The focus

upon performance measures for customer service is very
important because it provides a method for evaluating how
well the logistics system is functioning. Over time such
measures provide benchmarks to gauge improvement which
is especially important when a firm is trying to implement a
continuous improvement program. But this level of
involvement is not sufficient.

Customer Service as philosophy: In this level the view of

customer service is entirely consistent with many firms’
contemporary emphasis on quality and quality management.
Rather than narrowly viewing customer service as an activity
or as a set of performance measures, this interpretation
involves a dedication to customer service that pervades the
entire firm and all of its activities.

Thus, the concept of customer service as a philosophy

of management ensures an environment of customer-
focused thinking in all aspects of managing the firm.

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CUSTOMER SERVICE – EXPECTATION (THE 7 R’S)

The “seven R’s rule” offers a simple description of how

integrated logistics creates customer service. The seven R’s
mean having the Right product, in the Right quantity, in the
Right condition, at the Right place, at the Right time, for the
Right consumer and at the Right cost.

Any breakdown in the seven R’s disrupts the flow of

product and leads to poor customer service. Firms that
routinely deliver the seven R’s add value for customers and
create a competitive advantage for themselves.

CUSTOMER SERVICE – IMPORTANCE

Customer service defines the effectiveness of integrated

logistics in the channel of distribution. A 98 percent in stock
level means that the desired product is available to the
customer when required 98 percent of the time. This also
means that the firm accepts a 2 percent stock out level.

Integrated logistics activities determine stock

availability, which may in turn determine whether the firm
loses a customer or loses a sale, two major factors in
customer service cost. To, increase availability of the
product from 95 percent to 98 percent and improve
customer service levels, a manufacturer may choose air
transportation over trucks. For distances over 500 miles, air
is usually faster than roads in getting the product on the
shelves. Shorter transit time means lower inventory levels.

The question must be asked, though: do lower

inventories, improved customer service, and lower
warehousing costs offset the increased transportation cost?
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Air transportation costs more than motor transportation, so
the cost savings may not offset the increase in
transportation costs. Customer service costs may be difficult
to measure, so trade off may also be difficult to analyze. By
analyzing the cost trade-offs, the manufacturer can
determine. For example, that a 3 percent increase in product
availability costs too much in additional transportation,
inventory or other integrated logistics expenses. Keep in
kind that improvements in customer service can often be
made while also lowering other costs. Other factors besides
transportation and inventory costs should be considered in
setting the customer service mix.

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 CUSTOMER SERVICE - ELEMENTS

Customer service has multifunctional interest for a

company; but, from the point of view of the logistics
function, we can view customer service as having four
traditional dimensions: time, dependability, communications
and convenience.

(1) Time: The time factor is usually order cycle time,

particularly from the perspective of the seller looking at
customer service. On the other hand, the buyer usually
refers to the time dimension as the lead-time, or the
replenishment time. Regardless of the perspective or the
terminology, several basic components or variables affect
the time factor.

(2) Dependability: To some customers, dependability can

be more important than lead-time. The customer can
minimize its inventory level if lead-time is fixed. That is, a
customer that knows with 100 percent assurance that lead
time is ten days could adjust its inventory levels to
correspond to the average demand (usage) during the ten
days and would have no need for safety stock to guard
against stock outs resulting from fluctuating lead times.

Cycle time: Lead-time dependability then directly affects

the customer's inventory and stock out costs. Providing a
dependable, lead-time reduces some of the uncertainty a
customer faces. A seller, who can assure the customer of a
given level of lead-time, plus some tolerance, distinctly
differentiates its product from that of its competitor. The
seller that provides a dependable lead-time permits the
buyer to minimize the total cost of inventory, stock outs,
order processing, and production scheduling.

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Safe delivery: An order's safe delivery is the ultimate goal
of any logistics system. As was noted earlier, the logistics
function is the culmination of the selling function. If goods
arrive damaged or are lost, the customer cannot use the
goods as intended. A shipment containing damaged goods
aggravates several customer cost centers- inventory,
production, and marketing.

Correct Orders: Finally, dependability embraces the correct

filling of orders. A customer who has been anxiously
awaiting the arrival of an urgently needed shipment may
discover upon receiving the shipment that the seller made
an error in filling the order. The customer who has not
received what was requested may face potential lost sales or
production.

(3) Communications: The two logistics activities vital to

order filling are the communication of customer order
information to the order filling area and the actual process of
picking out of inventory the items ordered. In the order
information stage, the use of EDI or Internet-enabled
communications can reduce errors in transferring order
information from the order to the warehouse receipt. The
seller should simplify product identification such as product
codes in order to reduce order picker errors.

(4) Convenience: Convenience is another way of saying

that the logistics service level must be flexible. From the
logistics operations stand point, having one or a few
standard service levels that apply to all customers would be
ideal; but this assumes that all customers' logistics
requirements are homogeneous. In reality, this is not the
situation. For example, one customer may require the seller
to palletize and ship all shipments by rail; another may
register a truck delivery only, with no palletization; still
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others may request special delivery times. Basically, logistics
requirements differ with regard to packaging, the mode and
carrier the customer requires, routing, and delivery times.
Convenience recognizes customers' different requirements.

Martin Christopher proposes the following:

Ideally organizations should establish standards and monitor
performance across a range of customer service measures.
For example, using the pre-transaction, transaction and
post-transaction framework, the following measures provide
valuable indicators of performance:

Pre-transaction:
• Stock availability
• Target delivery dates
• Response time to queries

Transaction:
• Order fill rate
• On-time delivery
• Back-orders by age.
• Shipment delays
• Product substitutions

Post-transaction:
• First call fix rate
• Customer complaints
• Return/claims
• Invoice Errors
• Service Availability

PERFORMANCE MEASURES FOR CUSTOMER SERVICE

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There are four TRADITIONAL dimensions of customer
service from a logistics perspective. They are:

•Time
•Dependability
•Convenience
•Communication
These are essential considerations in developing a sound
and effective customer service program. They also provide a
basis for setting standards of performance for customer
service in the logistics area.

Now however, the standards have been changed as per

the needs of the customer. They have become customer
oriented as compared the previous (traditional) seller
oriented standards. The NEW BASIS of customer service
performance measures are:

•Orders received on time

•Orders received complete
•Orders received damage free
•Orders filled accurately
•Orders billed accurately
There was a problem with the traditional form of
customer service performance measures because they
looked after the performance of only pre-shipment. So any
problems that took place during the delivery of the good that
could cause problems and dissatisfaction to the customer
were not catered to. And thus the seller using the traditional
method of measurement would not have any basis upon
which to evaluate the magnitude and extent of the problem.

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 The current method (new method) focusing on the
measurement at the delivery level not only provides a
database to make an evaluation but also more importantly
provide early warnings of problems as they are developing.

For example: if the standard delivery for on time delivery is

98% and it slips during a given month to 95% an
investigation may show that a carrier is not following
instructions or even that the buyer is at fault by not being
ready to accept the shipments.

It is very difficult / demanding today for suppliers to

take up on time delivery measures. This is because
supplying goods on time is more important today than it has
ever been in the past and it is going to be even more crucial
in the future. This is because companies are now focusing on
new methods of inventory control such as just in time. In
this method of inventory management, the goods have to be
supplied EXACTLY when they are needed or said they are
going to be supplied. Suppliers today book their warehouses
and other store deliveries on the outbound side of logistics
based on the time that the companies give them. Their
production schedules could get messed up if the goods are
not supplied on time. Hence on time delivery performance
measures are very difficult and very important today.

Extremely good companies today are not using only one

measure of performance, but they are using several
standards to measure their performance simultaneously.
Using many measures of customer service make it even
more difficult to have high levels of customer service (it is
more difficult to have good levels of customer service when
you are using more than one measure of performance).

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For example: if a company is only using one of the
following:

• 95% of orders delivered on time

• 93% of the orders filled completely
• 97% of the orders delivered damage free

If the company only sets targets on achieving one of the

above standards, it would be challenging but possible. For
example, if the company sets out to achieve 95% of the
orders delivered on time, then they would have to focus on
all the activities on achieving that required performance. But
for a company to try and achieve all the three performance
levels simultaneously for every order and to attain a perfect
order level like 95% would be difficult.

Thus is short, if a company takes only one measure for

evaluating customer service levels, it will have a higher
chance of doing well and having a good customer service
level. Whereas if it takes up more than one standard then
there are chances of the company not doing as well in terms
of the customer service level, as the company would have to
focus attention on various parameters which would be
difficult. Also the number of perfect orders, if the company
takes up more than one performance measure, would be
less because the number of parameters that the order could
“not be perfect” would be higher.

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 IMPLEMENTING CUSTOMER SERVICE STANDARDS

• Setting standards: This highlights the key for

successfully developing and implementing customer service
standards.

The first point is to be careful of adopting easily

achievable performance standards; such standards may be
too low to be of practical value. While setting and adhering to
a meaningful standard should help to differentiate your firm
from the competition, setting standards at unrealistically low
levels will not help to establish a competitive advantage.

• Levels of Quality: Secondly, some current management

philosophies such as emphasis on total quality or on creation
of perfect order are very critical of any acceptable quality level
set below 100 %. This does not mean that a firm can achieve
100% performance at all times, for the use of 100%
represents an attitude more than a measurement. From a
practical viewpoint, however, establishing a desired quality
level that is less than 100 will generally limit, rather than
encourage superior performance.

• Communication with customers: Thirdly, the firm

should develop customer service policies and standards
through customer consultation. After adopting the standards,
the firm should formally communicate them to customers.
Certain firms prefer to keep silent about their customer
service standards and avoid letting their customers know their
exact policies and performance targets. The best approach,
however, is to communicate these policies and standards to
customers very openly.

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• Control of Customer Service: Fourth, the firm should
develop procedures to measure, monitor and control the
customer service quality called for by the firm's performance
measures and standards. Using techniques such as statistical
process control (SPC), obtaining feedback and taking
corrective action are essential to success. When customer
service standards are ineffective, the firm should not hesitate
to amend or discontinue them as appropriate.

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