1. Logistics and Customer Value
Given by
Youli Wang
PhD

2. Customer service chain
The mission of logistics management
Providing the means whereby customers’ service requirements are met at lowest cost, i.e. satisfying customers
A simple idea that is not always easy to recognize
Internal service chain
Everyone who works in the business understands that they must service someone
A chain of customers that links people at all levels in the organization directly or indirectly to the marketplace
Central concern of logistics management
Managing the customer service chain through the business and onwards
a simple idea that is not always easy to recognise if you are a manager involved in activities such as production scheduling or inventory control which may seem to be some distance away from the marketplace

3. The marketing and logistics interface
The power of customer service as a potential means of differentiation
Continual increase in customer expectations
Slow but inexorable transition towards ‘commodity’ type markets
Critical determinant in competition: customer services
Availability, i.e. the product in stock
Time has become a far more critical; short lead times
‘Place’, which might better be described in the words of the old cliché, ‘the right product in the right place at the right time’, was rarely considered part of mainstream marketing
customer is now more demanding, more ‘sophisticated’ Likewise, in industrial purchasing situations we find that buyers expect higher levels of service from vendors, particularly as more companies convert to just-intime logistics systems.
the power of the ‘brand’ is diminishing as the technologies of competing products converge, thus making product differences difficult to perceive – at least to the average buyer
The right product in the right place
at the right time

4. Delivering customer value
The success any business determined by the level of customer value that it delivers in its chosen markets
What is customer value?
Total cost of ownership rather than price
Costs other than the purchase price involved
Life-cycle costs
Iceberg effect

6. Delivering customer value
Competitive advantage
Successful companies will generally be those that deliver more customer value than their competitors
Role of logistics management
Functionality, performance and technical specification of the offer
Customer’s transaction costs including price and life cycle costs
Time taken to respond to customer requirements, e.g. delivery lead times
Availability, support and commitment provided to the customer

7. What is customer service?
The role of customer service
Provide ‘time and place utility’ in the transfer of goods and services between buyer and seller
There is no value in the product or service until it is in the hands of the customer or consumer
Factors impacting availability
Delivery frequency and reliability, stock levels and order cycle time
Customer service could be examined under three headings
Pre-transaction, transaction, and post-transaction

8. What is customer service?
Pre-transaction elements
Relate to corporate policies or programs
Examples
Written customer service policy (Is it communicated internally and externally? Is it understood? Is it specific and quantified where possible?)
Accessibility (Are we easy to contact/do business with? Is there a single point of contact?)
Organization structure (Is there a customer service management structure in place? What level of control do they have over their service process?)
System flexibility (Can we adapt our service delivery systems to meet particular customer needs?)

9. What is customer service?
Transaction elements
Those customer service variables directly involved in performing the physical distribution function
Examples
Order cycle time (What is the elapsed time from order to delivery? What is the reliability/variation?)
Inventory availability (What percentage of demand for each item can be met from stock?)
Order fill rate (What proportion of orders are completely filled within the stated lead time?)
Order status information (How long does it take us to respond to a query with the required information? Do we inform the customer of problems or do they contact us?)

10. What is customer service?
Post-transaction elements
Supportive of the product while in use
Examples
Availability of spares (What are the in-stock levels of service parts?)
Call-out time (How long does it take for the engineer to arrive and what is the ‘first call fix rate’?)
Product tracing/warranty (Can we identify the location of individual products once purchased? Can we maintain/extend the warranty to customers’ expected levels?)
Customer complaints, claims, etc. (How promptly do we deal with complaints and returns? Do we measure customer satisfaction with our response?)
In any particular product/market situation, some of these elements will be more important than others and there may be factors other than those listed above which have a significance in a specific market
A considerable body of evidence exists that supports the view that if the product or service is not available at the time the customer requires it and a close substitute is available then the sale will be lost to the competition. Even in markets where brand loyalty is strong a stock-out might be sufficient to trigger brand switching.

11. The impact of out-of-stock
Pressures on purchasing source loyalty seem to be at work
Ever shorter delivery lead times and reliable delivery
Delivering superior customer service

12. The impact of out-of-stock
Traditionally
Focus on the ultimate end user or consumer
Promote brand values
Generate a ‘demand pull’ in the marketplace
Recently
Not only end user but also intermediate customers
Develop the strongest possible relations with such intermediaries
The impact of both a strong consumer franchise and a customer franchise can be enhanced or diminished by the efficiency of the supplier’s logistics system
To stress the interdependence of these three components of competitive performance it is suggested that the relationship is multiplicative

13. Customer service People don’t buy products, they buy benefits
A finished product in a warehouse V.S a finished product in the hands of the customer
Servitization
Converting a product into a service
Clearly it is not only customer service and logistics activity that add value; in many cases advertising, branding and the packaging can all enhance the perceived value of the product to the customer

14. Customer retention Not just getting customers, but also keeping
Importance of customer retention
Life-time value of a customer
The longer the customer stays with an organization the more profitable they become
A retained customer typically costs less to sell to and to service
Share of wallet
Satisfied customers tell others and thus the chance increases that further business from new customers
Share of wallet: there is an increased likelihood that they will give a greater part of their business to a supplier whom they are prepared to treat as a partner

15. Customer service and retention
Customer service strategy
Winning and keeping customers
A new focus of marketing and logistics
Creation of relationship with customers
Relationship marketing and logistics
Create such a level of satisfaction with customers that they do not feel it necessary even to consider alternative offers or suppliers
Develop marketing/logistics strategies to maintain and strengthen customer loyalty

16. Marketing-driven supply chain
Traditional supply chain
Optimize the internal operations of the supplying company
Low cost: entail manufacturing in large batches, shipping in large quantities and buffering the factory, both upstream and downstream, with inventory
Customer-centric
Designing the supply chain around the customer needs
From factory outwards to customer backwards
From supply chain to demand chain management
Turning the supply chain on its head, and taking the end user as the organization’s point of departure and not its final destination

17. Marketing-driven supply chain
Identify value segments
Define the value proposition
Identify the market winners
Develop the supply chain strategy
What do our customers value?
How do we translate these requirements into an offer?
What does it take to succeed in this market?
How do we deliver against this proposition

18. Identify customers service needs
Service segment
Customers will fall into groups or ‘segments’ that are characterized by a broad similarity of service needs
What the service issues are that differentiate customers
Understanding service segmentation
Customer service is perceptual
Develop a set of service criteria that are meaningful to customers
A three-step process
no two customers will ever be exactly the same in terms of their service requirements.

19. Identify customers service needs
Identify the key components of customer service
Who makes decisions
Which elements of the vendor’s total marketing offering have what effect upon the purchase decision
Establish the relative importance of customer service components
Discovering the importance a customer attaches to each element of customer service by ranking or rating scale
Qualifiers and order winners
Identify customer segments
See if any similarities of preference emerge
Cluster analysis

20. Marketing-driven supply chain
Identify value segments
Define the value proposition
Identify the market winners
Develop the supply chain strategy
What do our customers value?
How do we translate these requirements into an offer?
What does it take to succeed in this market?
How do we deliver against this proposition

21. Define customer service objectives
The whole purpose of supply chain management and logistics
Provide customers with the level and quality of service that they require at less cost to the total supply chain
Appropriate customer service objective
Perfect order: the customer’s service requirements are met in full
On-time, in-full, and error-free
Cost benefit of customer service
Significant differences in profitability between customers
Cost to service these customers will typically vary considerably
Trade-off between cost and benefit

22. Define customer service objectives
Safety stock…

23. Define customer service objectives
if it is possible to find alternative service strategies for servicing customers, say, for example, by speeding up the flow of information about customer requirements and by using faster modes of transport, then the same level of service can be achieved with less inventory – in effect pushing the curve to the right

24. Marketing-driven supply chain
Identify value segments
Define the value proposition
Identify the market winners
Develop the supply chain strategy
What do our customers value?
How do we translate these requirements into an offer?
What does it take to succeed in this market?
How do we deliver against this proposition

25. Set customer service priorities
Why customer service priorities?
Not all our customers are equally profitable nor are our products equally profitable, should not the highest service be given to key customers and key products?
Money spent on service is a scarce resource then we should look upon the service decision as a resource allocation issue
Different categories, different service levels
How to decide these service levels
How to manage these levels

26. Set customer service priorities
Q1: to re-examine product and logistics costs to see if there is any scope for enhancing profit
Q2: highest level of service on these items by holding them as close to the customer as possible and with high availability
Q3: Unless they play a strategic role in the product portfolio of the firm then there is probably a strong case for dropping them
Q4: they should be kept in some central location, as far back up the supply chain as possible in order to reduce the total inventory investment, and then shipped by express transport direct to customers

27. Set customer service priorities
Figure 2.13 shows that if the 80/20 rule applies both to products and customers then all businesses are actually very dependent upon a very few customers buying a few high profit lines

28. Set customer service priorities

29. Marketing-driven supply chain
Identify value segments
Define the value proposition
Identify the market winners
Develop the supply chain strategy
What do our customers value?
How do we translate these requirements into an offer?
What does it take to succeed in this market?
How do we deliver against this proposition

30. Set service standards Why service standards? Service standards
Service performance is to be controlled then it must be against predetermined standards
A complete match between what the customer expects and what we are willing and able to provide
Service standards
To be effective these standards must be defined by the customers themselves
Requires customer research and competitive benchmarking studies to be conducted
Key areas where standards are essential

31. Set service standards Order cycle time Stock availability
The elapsed time from customer order to delivery. Standards should be defined against the customer’s stated requirements
Stock availability
The percentage of demand for a given line item (stock keeping unit, or SKU) that can be met from available inventory
Order-size constraints
The flexibility to cope with the range of customer demands likely to be placed upon us

32. Set service standards Order convenience Frequency of delivery
Are we accessible and easy to do business with? How are we seen from the customers’ viewpoint?
Frequency of delivery
More frequent deliveries within closely specified time windows
Delivery reliability
What proportion of total orders are delivered on time? It is a reflection not just of delivery performance but also of stock availability and order processing performance

33. Set service standards Documentation quality Claims procedure
What is the error rate on invoices, delivery notes and other customer communications? Is the documentation ‘user friendly’?
Claims procedure
What is the trend in claims? What are their causes? How quickly do we deal with complaints and claims? Do we have procedures for ‘service recovery’?
Order completeness
What proportion of orders do we deliver complete, i.e. no back orders or part shipments?

34. Set service standards Technical support Order status information
What support do we provide customers with after the sale? If appropriate do we have standards for call-out time and first-time fix rate on repairs?
Order status information
Can we inform customers at any time on the status of their order? Do we have ‘hotlines’ or their equivalent? Do we have procedures for informing customers of potential problems on stock availability or delivery?

35. Set service standards Pre-transaction Post-transaction Transaction
Stock availability
Target delivery dates
Response times 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
Returns/claims
Invoice errors
Service parts availability

36. Summary Customer service chain Logistics and delivering customer value
What is customer service?
Customer service and retention
Market-driven supply chain
Four steps