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. ven 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?
"he role of customer service is to provide time and place utility# in the transfer of goods and
services between buyer and seller. $ut another way, there is no value in the product or service until it is
in the hands of the customer or consumer.
%efinition&
Customer service as an activity& "his level treats customer service as a particular task that a firm
must accomplish to satisfy the customers needs. 'rder processing, billing and invoicing, product
return, and claims handling are all typical e(amples 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 er!ormance measures& "he focus upon performance measures for customer
service is very important because it provides a method for evaluating how well the logistics system is
functioning. 'ver time such measures provide benchmarks to gauge improvement which is especially
important when a firm is trying to implement a continuous improvement program. )ut this level of
involvement is not sufficient.
Customer Service as "i#oso"y& In this level the view of customer service is entirely consistent with
many firms* contemporary emphasis on quality and quality management.
+ather 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 $ E%&ECTATION 'THE ( R)S*
"he /seven R)s rule0 offers a simple description of how integrated logistics creates customer
service. "he seven +*s mean having the +ight product, in the +ight quantity, in the +ight condition, at
the +ight place, at the +ight time, for the +ight consumer and at the +ight cost.
1ny breakdown in the seven +*s disrupts the flow of product and leads to poor customer
service. 2irms that routinely deliver the seven +*s add value for customers and create a competitive
advantage for themselves.
CUSTOMER SERVICE $ IM&ORTANCE
Customer service defines the effectiveness of integrated logistics in the channel of distribution.
1 34 percent in stock level means that the desired product is available to the customer when required
34 percent of the time. "his also means that the firm accepts a 5 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 ma6or factors in customer service cost. "o,
increase availability of the product from 37 percent to 34 percent and improve customer service levels,
a manufacturer may choose air transportation over trucks. 2or distances over 788 miles, air is usually
faster than roads in getting the product on the shelves. 9horter transit time means lower inventory
levels.
"he question must be asked, though& do lower inventories, improved customer service, and
lower warehousing costs offset the increased transportation cost: 1ir 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. )y analyzing
the cost trade;offs, the manufacturer can determine. 2or e(ample, that a < percent increase in product
availability costs too much in additional transportation, inventory or other integrated logistics
e(penses. =eep in kind that improvements in customer service can often be made while also lowering
other costs. 'ther factors besides transportation and inventory costs should be considered in setting the
customer service mi(.
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CUSTOMER SERVICE + E,EMENTS
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.
'-* Time & "he time factor is usually order cycle time, particularly from the perspective of the seller
looking at customer service. 'n the other hand, the buyer usually refers to the time dimension as the
lead;time, or the replenishment time. +egardless of the perspective or the terminology, several basic
components or variables affect the time factor.
'.* Deen/a0i#ity: "o some customers, dependability can be more important than lead;time. "he
customer can minimize its inventory level if lead;time is fi(ed. "hat is, a customer that knows with
.88 percent assurance that lead time is ten days could ad6ust 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.
Cyc#e time: ,ead;time dependability then directly affects the customer#s inventory and stock out costs.
$roviding a dependable, lead;time reduces some of the uncertainty a customer faces. 1 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. "he seller that provides a dependable lead;time permits the buyer
to minimize the total cost of inventory, stock outs, order processing, and production scheduling.
Sa!e /e#ivery: 1n order#s safe delivery is the ultimate goal of any logistics system. 1s 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. 1 shipment containing damaged goods aggravates
several customer cost centers; inventory, production, and marketing.
Correct Or/ers: 2inally, dependability embraces the correct filling of orders. 1 customer who has
been an(iously awaiting the arrival of an urgently needed shipment may discover upon receiving the
shipment that the seller made an error in filling the order. "he customer who has not received what
was requested may face potential lost sales or production.
'1* Communications: "he 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 %I or Internet;enabled communications
can reduce errors in transferring order information from the order to the warehouse receipt. "he seller
should simplify product identification such as product codes in order to reduce order picker errors.
'2* Convenience: Convenience is another way of saying that the logistics service level must be
fle(ible. 2rom 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. 2or e(ample, 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 others may request special delivery times. )asically, logistics requirements differ
with regard to packaging, the mode and carrier the customer requires, routing, and delivery times.
Convenience recognizes customers# different requirements.
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Martin Christopher proposes the following
Ideally organizations should establish standards and monitor performance across a range of customer
service measures. 2or e(ample, using the pre;transaction, transaction and post;transaction framework,
the following measures provide valuable indicators of performance&
&re+transaction:
9tock availability
"arget delivery dates
+esponse time to queries
Transaction:
'rder fill rate
'n;time delivery
)ack;orders by age.
9hipment delays
$roduct substitutions
&ost+transaction:
2irst call fi( rate
Customer complaints
+eturn@claims
Invoice rrors
9ervice 1vailability

&ER3ORMANCE MEASURES 3OR CUSTOMER SERVICE
"here are four TRADITIONA, dimensions of customer service from a logistics perspective. "hey
are&
"ime
%ependability
Convenience
Communication
"hese are essential considerations in developing a sound and effective customer service
program. "hey 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. "hey have
become customer oriented as compared the previous >traditional? seller oriented standards. "he NEW
4ASIS of customer service performance measures are&
'rders received on time
'rders received complete
'rders received damage free
'rders filled accurately
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'rders billed accurately
"here was a problem with the traditional form of customer service performance measures
because they looked after the performance of only pre;shipment. 9o any problems that took place
during the delivery of the good that could cause problems and dissatisfaction to the customer were not
catered to. 1nd thus the seller using the traditional method of measurement would not have any basis
upon which to evaluate the magnitude and e(tent of the problem.
"he 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.
3or e5am#e& if the standard delivery for on time delivery is 34B and it slips during a given month to
37B 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. "his 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. "his is because companies are now focusing on new
methods of inventory control such as 6ust in time. In this method of inventory management, the goods
have to be supplied C1C",D when they are needed or said they are going to be supplied. 9uppliers
today book their warehouses and other store deliveries on the outbound side of logistics based on the
time that the companies give them. "heir 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.
(tremely good companies today are not using only one measure of performance, but they are
using several standards to measure their performance simultaneously. Esing 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?.
3or e5am#e: if a company is only using one of the following&
37B of orders delivered on time
3<B of the orders filled completely
3FB 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. 2or e(ample, if the company sets out to achieve 37B of the orders delivered
on time, then they would have to focus on all the activities on achieving that required performance.
)ut for a company to try and achieve all the three performance levels simultaneously for every order
and to attain a perfect order level like 37B would be difficult.
"hus 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. Ghereas 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. 1lso the number of perfect orders, if the company takes up more than one
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performance measure, would be less because the number of parameters that the order could /not be
perfect0 would be higher.
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IM&,EMENTIN6 CUSTOMER SERVICE STANDARDS
Settin7 stan/ar/s& "his highlights the key for successfully developing and implementing customer
service standards.
"he first point is to be careful of adopting easily achievable performance standards! such standards
may be too low to be of practical value. Ghile 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.
,eve#s o! 8ua#ity& 9econdly, 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 .88 B. "his does
not mean that a firm can achieve .88B performance at all times, for the use of .88B represents an attitude
more than a measurement. 2rom a practical viewpoint, however, establishing a desired quality level that is
less than .88 will generally limit, rather than encourage superior performance.
Communication 9it" customers& "hirdly, the firm should develop customer service policies and
standards through customer consultation. 1fter 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 e(act policies and performance targets. "he best approach,
however, is to communicate these policies and standards to customers very openly.
Contro# o! Customer Service& 2ourth, the firm should develop procedures to measure, monitor and
control the customer service quality called for by the firm#s performance measures and standards. Esing
techniques such as statistical process control >9$C?, obtaining feedback and taking corrective action are
essential to success. Ghen customer service standards are ineffective, the firm should not hesitate to amend
or discontinue them as appropriate.
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