Section 1 – Introduction: concepts and demarcation
Learning unit 6
Customer service: a supply chain focus
Chapter 6: Customer service: a supply chain focus
Introduction
Main focus of Assessment criteria of learning Specific
concepts and
learning unit unit outcome 1
demarcation
Learning unit 6: Customer Demonstrate how supply chain Analyse the
Customer service: a complexities
management can create value
service: a supply chain of the
supply chain focus for customers. building
focus blocks of
supply chain
management.
Study pages 97 to 116 of your prescribed book.
When you study chapter 6 of your prescribed book you should identify the following
seven topics:
Creating value for customers through supply chain management
Customer relationship management and marketing
Characteristics of customer service
Cost–service relationship in customer service
Designing a customer service strategy for supply chain management
Elements of customer service
Performance evaluation of customer service
In chapter one it was stated that supply chain management has two main objectives,
namely, optimising shareholder value and optimising customer value. The focus of this
learning unit is on the latter. The authors state that “the most important interface
between marketing and SCM and, typical of all supply chain processes, delivering
customer service is an example of the integrated supply chain process, which crosses
traditional functional borders in order to create value. Customer relationship
management (CRM) is currently one of the areas in marketing that is receiving most
attention and it is in this area that SCM, in promoting customer service, can play a
major role.” (Badenhorst-Weiss et al 2017:97)
Creating customer value through customer service has presented supply chain
management with certain challenges because greater emphasis has been placed on
customising products and delivering low-cost, high-quality products. “The ability to
offer and deliver a highly customised product quickly and efficiently to a customer has
become a competitive differentiator in many industries” (Badenhorst-Weiss et al
2017:97). Hence, organisations are compelled to understand the different needs of
their customers. Organisations can meet the different customer needs through market
segmentation and product differentiation. “Therefore, from a very basic approach,
customer service can be described as a group of activities and processes in the supply
chain that ensures customer satisfaction with the supplier’s product or service offering.
SCM provides a competitive advantage by differentiating products through improved
customer service” (Badenhorst-Weiss et al 2017:98). Supply chain management is
tasked with finding a balance between supply chain efficiency and the creation of
customer value.
The remainder of this learning unit is based on Heikkila’s three-step approach to
finding this balance between supply chain efficiency and the creation of customer
value. The steps are
understanding the market and customer requirements
developing a manageable number of alternative service offerings adapted to
customers' individual needs
taking the relationship characteristics of the various market segments into
consideration
6.1 Creating value for customers through supply chain management
Section 6.1 starts by recapping the concepts of value and value creation through
supply chain management as already discussed in chapter 1. By now you should be
familiar with these concepts. The section stresses that customer value is all about the
perception of the customer – what the customer views as valuable (e.g. cost, product
differentiation or outstanding service). “The value proposition of the business is
therefore a statement indicating how the business would meet these needs, that is,
how, where and when value is to be created for specific customers or market
segments” (Badenhorst-Weiss et al 2017:99). Important to remember: customer value
not only consists of the value that the customer obtains when using a product or
service, but also includes the value that the customer obtains through the interaction
and the relationship that the customer has with the supplier. The section concludes by
summarising De Rose's basic principles of value creation and the general areas of
value creation in supply chain management.
6.2 Customer relationship management and marketing
This section focuses on placing the concept of customer value within the broader
context of customer relationship management. This is done to clearly show the role of
supply chain management in creating customer value (generally through customer
service). Numerous definitions of customer relationship management can be found in
literature, but the authors clearly indicate that for the purpose of this learning unit and
chapter 6 of your prescribed book, the following definition should be used: “Customer
relationship management (CRM) can be described as the strategy used by the
business to obtain and manage detailed information about its customers so as to
improve and maximise its customer loyalty to the business” (Badenhorst-Weiss et al
2017:101). In other words, customer relationship management positions the customer,
and what the customer values, as the main driving force of the organisation – which
directly influences all organisational functions.
Activity 6.1: Ultimate value proposition
Using figure 6.2 as an example, identify the core product and the total
package of advantages that a customer receives when purchasing a
product or service from the organisation that you work for. Share your answers with
your fellow students on the discussion forum under Activity 6.1.
6.3 Characteristics of customer service
The different characteristics of customer service are discussed in this section.
“Customer service is a value-adding and value-ensuring supply chain strategy and
philosophy consisting of activities and processes that are aimed at enhancing internal
and external customer benefits and customer satisfaction throughout the whole supply
chain, in such a manner that value is added in a cost-effective way” (Badenhorst-
Weiss et al 2017:103). Make use of figures 6.3 and 6.4 when working through this
section.
6.4 Cost–service relationship in customer service
The focus of this section is on the trade-off between the level of customer service
required by customers and the cost of providing a specific level of customer service.
Remember that customers differ – not all customers require the same level of
customer service or are willing to pay the same amount for a product or service.
Therefore, supply chain management should be able to distinguish between what
customers value more – the level of service or the price of the product or service –
and design tailored supply chains to serve the needs of the specific customer segment.
When studying figure 6.5 regarding the cost-of-service curve, it is important to note
how the cost exponentially increases when the service level provided to customers is
increased. In figure 6.6, the cost-of-service curve is combined with two revenue
curves. You can clearly see in figure 6.6 that the higher the service level offered by
the organisation, the less revenue the organisation will generate due to the increase
in cost. Therefore, organisations should strive to operate (in terms of offering a specific
level of service to customers) where revenue is at its highest point. It is important that
you understand there is an optimum point beyond which additional increases in the
level of customer service do not add value.
6.5 Designing a customer service strategy for supply chain management
When designing a customer service strategy, organisations should use the customer
and what the customer values as the point of departure. In this section the steps in
designing a customer service strategy are discussed in detail. When you work through
this section, keep figure 6.7 close by – the figure is an excellent summary of the entire
process of developing a customer service strategy. Make notes on this figure as you
work through section 6.5 of your prescribed book.
6.6 Elements of customer service
The three generally accepted categories of customer service elements are pre-
transactional elements, transactional elements and post-transactional elements. Make
sure that you can differentiate between these three elements. It is important to note
that these elements should only be regarded as examples and not as an exhaustive
list of all possible elements.
6.7 Performance evaluation of customer service
In section 6.5 you were introduced to the performance evaluation component of
designing a customer service strategy (step 6). Section 6.7 elaborates on the different
performance evaluation processes that organisations can use when evaluating
customer satisfaction.
Did you include (or update) the following terms in your glossary?
customer relationship customer satisfaction
management cost–service relationship
customer value performance evaluation
value proposition customer service strategy
marketing function
customer service
