1 1 Chapter 3 Logistics Customer Service Strategy

2 2 Customer service is a process for providing significant value added benefits to the supply chain in a cost-effective way.

3 Customer Service  Customer service is generally presumed to be a means by which companies attempt to differentiate their product, keep customers loyal, increase sales, and improve profits.  Its elements are:  Price  Product quality  Service  It is an integral part of the marketing mix of:  Price  Product  Promotion  Physical Distribution Creating value, loyalty and satisfaction through supply chain activities Customer service here CR (2004) Prentice Hall, Inc.

4 CUSTOMER SERVICE CAN BE DEFINED AS: an activity or function to be managed such as order processing or handling of customer complaints, actual performance on particular parameters, such as ability to ship complete orders for 98 percent of orders received within a 24-hour period, part of an overall corporate philosophy, rather than simply an activity or performance measures.

5 Customer service is the measure of how well the logistics system is performing in providing time and place utility for a product or a service. This include activities such as :  The ease of checking stock,  Placing an order, and  Post sale support of the item

6 Customer Service The level of customer service provided to customers determines whether the organization will retain existing customers and how many customers it will attract. The customer service level that an organization provides has a direct impact on its market share, its total logistics costs and, ultimately, its overall profitability.

7 Customer service is often confused with the concept of customer satisfaction “customer satisfaction represents the customer’s overall assessment of all elements of the marketing mix: product, price, promotion, and place”

8 8 Customer Service Marketing side Logistics side

Elements of Customer Service Transaction elements Written statement of policy Customer receipt of policy statement Organization structure System flexibility Management services Installation, warranty, alterations, repairs, parts Product tracing Customer claims, complaints, returns Temporary replacement of products Stockout levels Order information Elements of order cycle Expedited shipments Transshipment System accuracy Order convenience Product substitution Posttransaction elements Pretransaction elements

10 Customer Service Classifications pre-transaction elements written statement of customer service policy, customers informed with a written statement of policy organization structure system flexibility management services

11 transaction elements stock out level order information availability system accuracy consistency of order cycle special handling of shipments transshipments order convenience product substitution Customer Service Classifications

12 post-transaction elements installation warranty, repairs, service parts, product tracking customer complaints-claims returns product replacement Customer Service Classifications

13 Performance Levels: Key Measurements Frequency - Sales Calls Response Time From Sales Rep. Damage-free shipments Time to Submit Orders Normal Lead-time Requirements Acceptable Range - Lead-time Incidents resolved within 24 hours First contact resolution Incident number Fill Rate - Required % Policy on Stock-outs 2 5

14 Kano’s Classification expected type of service attractive type of service one-dimensional service elements

15 Kano’s Classification expected type of service The expected type of service does not create much satisfaction, and mostly remains unnoticed; however, lack of it causes considerable dissatisfaction. It is important to recognize the minimum acceptable level of expected service, because a lower level increases dissatisfaction rapidly, and a higher service level rises costs without corresponding compensation to the customer value.

16 As an example of an expected service element for all these customer types is the availability of exceptional order information, which is considered as necessary service in case of delivery delays or other exceptional occurrences.

17 attractive type of service The attractive type of service is offered by the supplier specially planned to exceed the customer expectations. The value attributes under this dimension of the Kano model, are neither explicitly demanded nor expected by the customer but are latent. These service elements can create satisfaction, but the absence of them does not cause dissatisfaction, because customers are not used to getting them. Attractive service elements can effectively be used as means of differentiating service offering from competitors.

18 one-dimensional service elements In the case of one-dimensional service elements, both satisfaction and dissatisfaction are possible customer reaction depends more or less linearly on the level of the service offered. Order fill rate The better the order fill rate the more satisfied the customer, and vice versa.

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20 Service Failures Service failure is a term associated with the problematic occasions that a customer has during the service processes the number and the extent of the problems that the customers encounter in order to get the products or services and the recovery options offered by the company can be performance indicators.

21 Common Customer Service Complaints CR (2004) Prentice Hall, Inc. 12% Damaged goods 31% Product or quality mistakes 7% Other 6% Frequently cut items 44% Late delivery

22 Penalties for Customer Service Failures B2B CR (2004) Prentice Hall, Inc.

23 Penalties for Customer Service Failures B2C 71,000 consumers in 29 countries to learn how they react to stock-outs 11 categories ranging from personal hygiene products to snack foods

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25 Reasons for stockout

26 Complaining Behavior Complaining behavior may be viewed in terms of a set of possible customer responses to dissatisfying purchase experiences. In general, complaint options include seeking redress (i.e., a refund, exchange, repair, or apology, etc.), engaging in negative word-of-mouth (i.e., telling other people about one’s dissatisfaction), exiting (i.e., vowing never to repatronize the seller), contacting third parties (e.g., writing a letter to a newspaper, taking legal action, etc.).

27 Recovery A three dimensional view of justice has been applied to examine how customers respond to recovery efforts. Customers develop justice-based normative recovery expectations and compare it with recovery performance in the recovery evaluation

28 Recovery Distributive Justice the perceived fairness of the redress offered to consumers to resolve their complaints. types of redress include refunds, exchanges, repairs, discounts on future purchases, store credits, etc., or some combination them. it is important to recognize that perceptions of distributive justice rest with individual complainants and reflect their impressions of tangible outcomes. compensation in line with the perceived costs experienced by the customer

29 Procedural justice The process of recovery Procedural justice refers to the perceived fairness of the policies, procedures, and criteria used by decision makers in arriving at the outcome of a dispute or negotiation. Fair procedures are consistent, unbiased and impartial, representative of all parties’ interests, and are based on accurate information and on ethical standards. In a study of service encounter incidents, flexibility, waiting time/responsiveness, and efficiency as dimensions of procedural justice.

30 Interactional justice Interactional justice refers to the manner in which people are treated during the conflict resolution process; for example, with courtesy and respect or rudely. truthfulness, the provision of an explanation, politeness, friendliness, sensitivity, interest, honesty empathy and assurance, directness and concern, and effort. acceptance of blame and the offering of an apology

31 Four methods have been suggested before establishing customer service strategies: 1.Determining customer service labels based on customer reactions to stock outs at the retail level 2.Cost/revenue trade-offs 3.ABC analysis of customer service 4.Customer service audits

32 Cost/Revenue Trade-offs What increase in sales volume is required to break even on the customer service requirements?

33 Impact of incremental customer service levels on revenues, logistics costs and profits Incremental customer service Incremental cost or revenue Logistics costs Revenue Maximum incremental profit

34 ABC analysis A Customer-Product Contribution Matrix Customer Category PRODUCT CATEGORY ABCD I12610 II34712 III IV V

35 ABC analysis Making the Customer-Product Contribution Matrix Operational Priority RangeIn-Stock Standard Delivery Standard Order Completeness Standard %48 hours99% hours hours hours93

Customer Service Standards Reflect the customer’s point of view. Provide an operational and objective measure of service performance. Provide management with cues for corrective action. 3-14