SUPPLY CHAIN

DESIGN
WEEK 12
TOPIC 4: MEASURING CUSTOMER SERVICE LEVELS
• Customer service represents the supply chain’s role in fulfilling marketing objectives.
• The fundamental measures of basic customer service are:
– The customer service ratio (fill rate).
– lead time monitoring.
– order status monitoring.
– customer satisfaction.
CUSTOMER SERVICE RATIO (FILL RATE)
• The customer service ratio, also known as the fill rate, and a related measure,
stockout frequency, can be used to measure availability of inventory when it is wanted
by a customer.
• Traditionally, many organizations have stocked product in anticipation of customer
orders based on demand forecasts.
• Customer service ratio. The APICS Dictionary, 16th edition, defines customer service
ratio as follows:
A measure of delivery performance of finished goods or other cargo, usually expressed as
a percentage. In a make-to-stock company, this percentage usually represents the number
of items or dollars (on one or more customer orders) that were shipped on schedule for a
specific time period, compared with the total that were supposed to be shipped in that time
period. 2) In a make-to-order company, it is usually some comparison of the number of
jobs or dollars shipped in a given time period (e.g., a week) compared with the number of
jobs or dollars that were supposed to be shipped in that time period.
CUSTOMER SERVICE RATIO (FILL RATE)
• The customer service ratio measures customer service levels based on the percentage of
product delivered compared to the amount ordered by the customer.

• Stockout frequency. Another method of measuring customer service evaluates the

supplier’s management of stockouts.

• Some examples include:

– Percentage of items that are in stockout
– Monetary value of items ordered that are in stockout
– Average age of stockout
– Average time to recover item from stockout.
LEAD TIME MONITORING
• Lead time monitoring involves measuring the time needed to deliver a customer order.

• Lead time monitoring can be broken down into speed of performance, consistency,
flexibility, and malfunction recovery.

• Speed of performance: Speed in terms of operational performance is the elapsed time

from when a customer places an order until the product is delivered to the customer and
is ready for use.

• Idle time may constitute a large percentage of production time, while work or run time
makes up a small percentage.

• The entire time it takes to make a product is called cycle time, and cycle times that are
too long are a key area for supply chain improvements.
LEAD TIME MONITORING
• In the APICS Dictionary, 16th edition, cycle time is defined as follows:

• In industrial engineering, the time between completion of two discrete units of

production. 2) In materials management, it refers to the length of time from when
material enters a production facility until it exits.

• Speeding up cycle time in production reduces work-in process (WIP) inventory costs
and meets supply chain management goals of reduced cost and improved customer
service.

• Speed of performance can be measured using metrics such as: Order delivery cycle time,
Time to process a customer-requested change, Time to respond to a customer query,
Average wait time to be connected on the 800 number or in a chat function, Percentage
of calls that encounter a busy signal, Percentage of calls to customer service that are
LEAD TIME MONITORING
• Consistency: Consistency considers the number of times that cycles meet the planned
amount of time for completion.

• Greater value is typically placed on consistency than on speed of service, because

consistency has a direct impact on the customers’ ability to conduct their activities.

• For example, if cycles vary, then a customer must carry safety stock to ensure against
possible late delivery, with the overall degree of variability directly impacting safety
stock requirements.

• Consistency metrics could include:

– Variance in lead times

– Percentage delivered in quoted lead time.

LEAD TIME MONITORING
• Flexibility: Flexibility describes an organization’s ability to accommodate unexpected or unusual
customer requests.

• Examples requiring flexibility include support of customized sales or marketing initiatives, new
product introductions or product recalls, or supply disruption.

• Malfunction recovery: Effective customer service programs know that malfunctions and service
breakdowns will inevitably occur and have contingency plans in place.

• For example, if a stockout of a customer item occurs, an alternate facility may provide a
replacement. The average number of days (or hours) from malfunction to recovery can be
measured.
ORDER-STATUS REPORTING
• Order status reporting involves providing methods for customers to check on the status
of their order.

• For example, the status might be listed as received, executed picked, packed, or shipped.
Status could indicate whether the order is on schedule or, if not, it could estimate a new
arrival date.

• Intermediate customers and ultimate customers may need separate reporting systems so
that each type of customer sees just what is relevant to their needs.

• Measurements of success in this area could include the following:

– Functionality supplied versus requested (for service development purposes)

– Order status accuracy

– Percentage downtime of website or reporting system

CUSTOMER SATISFACTION
• Customer satisfaction hinges on how well customer expectations are established and
then fulfilled. If customer expectations are met or exceeded, the customer will be
satisfied.

• One phrase that sums this up is to under promise and over-deliver

• One measurement organizations can use is to benchmark their internal capabilities and
the features, price, and quality of their offerings against competitors’ capabilities and
offerings or against the best-in-class capabilities in any industry.
• The gaps that exist are areas for improvement. They could also use tools such as the voice of the
customer (VOC) with their most valuable customer segments to discover how their expectations
and requirements have been changing and which gaps to focus on first.