Chapter # 4

CUSTOMER SERVICES & VAS

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Learning Objectives
 Customer Service
◦ Cost versus customer service
◦ Availability / Perfect order
◦ Operational Performance / Service reliability

 Customer Satisfaction
◦ Customer expectation

 Customer Success
◦ Achieving customer success
◦ Value-added services
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Customer Services
 Customer services (CS) represents logistics’ role in
fulfilling marketing objectives

 Strategies must be identified & prioritized which can

fulfill customer logistical requirements better than the
competitors
Comprehensive evaluation
must be done before adopting
any strategy, whether it
represents sound investment or
not!

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 Cost Versus
Customer Service
 Reducing inventories, manufacturing cost and
transportation cost typically comes at the expense of
customer services

 Direct shipping from company to customer’s home may

also improve customer services

 Sears ensure customer service by delivering appliances

directly to the customer, while keeping inventory levels
low

Centralized
Warehouse
Cost / Inventory Customer
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Service
 Attributes of Basic Customer
Services
1. Availability
◦ Capacity to have inventory when it is required by customer
◦ To ensure availability, organizations have stocked products
◦ Goal is to achieve high availability levels while keeping low investments
◦ Performance measures of availability are:
 Stockout Frequency
 Fill Rate
 Orders Shipped Complete

a) Stockout Frequency
 Term usually refers when firm has no product available to fulfill demand
 Approx 8% of items at super markets are out of stocks when they are
planned to be on shelves
 Products wise inventory availability must be critically reviewed

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 Attributes of Basic Customer
Services
1. Availability
b) Fill Rate
 Fill rate measures the magnitude or impact of stockouts over time

 It is not necessary that being stockout will affect service

performance every time

 If a customer wants 100 units of an item and only 97 are

available, the fill rate is 97%. Fill rate performance can be
evaluated for a specific customer, product, or for any combination
of customers, products, or business segments

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 Attributes of Basic Customer
Services
1. Availability
b) Fill Rate (Example)
100 products order by customer  Critical for customer  97% of fill rate
results in a situation of stockout…

Assembly line scheduled to produce 100 automobiles that receives only

97 of its required brake assemblies. In situations where some of the items are
not critical to performance, a fill rate of 97 percent may be acceptable. The
customer may accept a back order or be willing to reorder the short items at a
later time. Fill rate strategies need to consider customer requirements for
products.

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 Attributes of Basic Customer
Services
1. Availability
c) Orders Shipped Complete
The most precise measure of performance in product availability
is Order Shipped Complete

It views having everything that a customer orders as the standard

of acceptable performance.

Failure to provide even one item on a

customer's order results in that order
being recorded as zero in terms of
complete shipment.

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 Attributes of Basic Customer
Services
1. Availability
The 3 measures of availability combine to establish the extent to
which a firm's inventory strategy is accommodating customer demand

High levels of inventory have typically been viewed as the means to

increasing availability

New strategies that use information technology to identify customer

demand in advance of actual customer orders have allowed some
organizations to reach very high levels of basic service performance
without corresponding increases in inventory

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 Attributes of Basic Customer
Services
2. Operational Performance
 Operational performance deals with the time required to deliver a
customer's order.

 Whether the performance cycle in question is market distribution,

manufacturing support, or procurement.

 Operational performance is specified in terms of speed of

performance, consistency, flexibility, and malfunction recovery.

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 Attributes of Basic Customer
Services
2. Operational Performance
a) Speed
 Time elapsed from customer order placement until the product is
delivered & is ready to use

 Logistical system design determines the elapsed time for completion of

the process

 Faster speeds, results in higher costs to the consumer but it may be

justified by the consumer when faster delivery has perceived benefits

 In JIT & QR logistical strategies, speed plays a vital role in order to

reduce customer inventory requirements.

 Speed of service is typically costly: Not all customers need or want

maximum speed if it means increased total cost.

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 Attributes of Basic Customer
Services
2. Operational Performance
b) Consistency
 Order cycle consistency is measured by the number of times
that actual cycles meet the time planned for completion

 Logistical managers place greater value on consistency as it

directly impacts a customer's ability to plan and perform its
own activities.

 If delivery cycle vary, customer needs to maintain safety

stock.

 The degree of variability in deliveries impact safety stock

requirements and increase inventory carrying cost

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 Attributes of Basic Customer
Services
2. Operational Performance
c) Flexibility
 A firm's ability to accommodate special situations and unusual or unexpected
customer requests.

 For example, full-trailer quantities is a standard to service customer but

customer demands time to time some small shipments directly to retail locations

 Typical events requiring flexible operations are:

(1) Modification to basic service agreements such as a change in ship-to location
(2) Support of unique sales or marketing programs
(3) New-product introduction
(4) Product recall
(5) Disruption in supply
(6) One-time customization of basic service for specific customers or segments
(7) Product modification or customization performed while in the logistics
system, such as price marking, mixing, or packaging.

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 Attributes of Basic Customer
Services
2. Operational Performance
d) Malfunction Recovery
 Malfunction occurs in any firm’s fin-tuned logistical system, as continuous
performance on a day-in, day-out basis is a difficult task.

For example,
 If a stockout of an essential item occurs at a distribution facility that normally
services a customer, the item may be obtained from an alternative facility
utilizing some form of expedited transportation.

 Effective logistical operations anticipates that there will be service breakdowns

which requires contingency plan to ensure customer service

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 Customer Satisfaction
If customer expectations are met or exceeded by the
supplier, the customer will be Satisfied. When building a
customer service platform in logistics, the following
must be considered:

1. Customer Expectations
2. Customer Success

Voice of Customer “Sunay Aap Ki Awaz”.

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 Customer Satisfaction
1. Customer Expectations

Customer always holds some expectations from their Suppliers

Customers are very much concerned about supplier’s ability to meet

customers need, performance of logistical operations according to
their agreement and ensure effective & timely communication

In a pioneering study of service expectations and service quality with

respect to logistics there are 10 categories:

(i) Reliability (ii) Responsiveness (iii) Access (iv) Communication (v)

Credibility (vi) Security (vii) Courtesy (viii) Competency (ix)
Tangibles (x) Knowing the customer

Refer provided handout 16

 Customer Satisfaction
2. Customer Success
Firms must recognize that whether they have the ability to grow
and expand market share at the same time its ability to attract and
hold the industry's most successful customers.

3. Achieving Customer Success

To ensure that a customer is successful may require a firm to reinvent
the way a product is produced, market distributed, or offered for sale.

One important way that many firms have responded to the challenge
of customer success is through the development of value-added
services.

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 Customer Satisfaction
Customer Success

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 Value-added Services
 Value-added services refer to unique or specific activities that
firms can jointly develop to enhance their efficiency and/or
effectiveness.
 IBM's ability to produce and deliver customized personal computers
and networks to individual customers is one example of adding
value to a rather standard product.
 Unique product packages, Customized unit loads, Unique
information services, VMI, Special shipping arrangements, etc.

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Sources: Supply Chain Logistics Management – Cooper et al
APICS – CSCP 13th Edition
Supply Chain Council
Logistics & Distribution Management – 3rd Edition (CILT)
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