Customer Service Definitions Elements of Customer Service Estimating the Benefits of Service

Customer ServiceTransportation/Logistic Strategy

Customer Service Definitions

Elements of Customer Service

Estimating the Benefits of Service

Estimating the Costs of Service

Determining Optimal Service Levels


Elapsed Time Between the Receipt of an Order at the Warehouse and the Shipment of the Order from the Warehouse.Minimum Size of Order, or Limits on the Assortment of Items in an Order Which a Supplier Will Accept from Customers.Percentage of Items in a Supplier's Warehouse Which Might be Found to be Out-of-Stock at Any Given Point in Time.Proportion of Customer Orders Filled Accurately.Percentage of Orders Filled Within a Certain Time Period from Receipt of the Order at the Supplier's Warehouse.Percentage of Customer Orders Filled Completely Upon Receipt at a Supplier's Warehouse.Proportion of Goods Which Arrive at a Customers Place of Business in a Saleable Condition.Elapsed Time Between the Placement of an Order by a Customer and the Delivery of the Goods to the Customer.Ease and Flexibility with Which a Customer Can Place Orders.

Definitions of Customer Service








Cycle Time

Dependability

Convenience

Communication



Approval Time

Transmittal Time

Processing Time

Assembly Time

Shipment Time

Re-Stock Time

Cycle Time


Order Cycle(Need Recognition to Need Fulfillment)

Orde

r Req

uest

edAp

prov

al T

ime

Tran

smitt

al T

ime

Proc

essi

ng T

ime

Asse

mbl

y Ti

me

Deliv

ery

Tim

e

Order Received

In Office

Order Sent to

Warehouse

Order Sent to Supplier

Order Shipped

Order Delivered{ { { {{ { Ne

ed F

ulfil

led

Need Recognized

Replenishment

CompletedEvents

Activities

Unlo

ad/R

e-St

ock

Tim

e


Consistency

Completeness

Correctness

Condition

Dependability


Ease of Placing Orders

Constraints on Order Sizes

Constraints on Placement Times

Who Arranges Transportation

Convenience


Easy Access to Empowered People

No Surprises

Communication








Effects of Service Levels on Revenue

Service Level

$ Revenue


Estimating the Benefits of Service Quality

Logistics Service as a Sales/Promotion ToolMethods of Estimation

Questionnaires Historical Data Multiple Regression Analysis

ExampleImportant Issues


P = PriceAdv = AdvertisingSF = Sales ForcePro = Other PromotionsOCT = Order Cycle TimeVCT = Variability in OCTBO = Back OrdersBOT= Back Order TimeFR = Fill RateIC = Incorrect ShipmentsLD = Loss & Damage

Sales = f (P, Adv, SF, Pro, OCT, VCT, BO, BOT, FR, IC, LD)Where:

An ExampleEstimating the Benefits of Service Quality


Logistics Service as a Sales/Promotion ToolMethods of Estimation

Questionnaires Historical Data Multiple Regression Analysis

ExampleImportant Issues

Non Linear RelationshipsLagged RelationshipsCumulative Effects

Estimating the Benefits of Service Quality


Variable Coefficient T-Ratio Constant 3.9580 0.09 Price -1.1024 -2.52 Pro (4mma,t-4) 0.7182 1.88 OCT (5mma,t-5) 0.9593 2.15 BOT (3mma,t-2) 0.5115 2.00 Crd (3mma,t-2) 0.1342 1.98R2 = 71.4%; F=16.951; df = 34

Revenue and Service Variables








Two Views as to the Cost of Service Quality:

The Traditional Economic View of Service Quality

Crosby’s View that Quality is Free

Estimating the Cost of Service Quality


Traditional Economic View of Service QualityCosts Increase at an Increasing Rate

Service Level

$Cost of Service



Crosby’s View that Quality is Free:

Do it Right the First Time

Costs are not Affected by Levels of Quality

and May Perhaps Have a Positive Effect



Cost of Service if Quality is Free

Service Level

$

Cost of Service




Cost of Service if Quality has a Positive Effect

Service Level

$

Cost of Service


Which View is Correct? Traditional View vs Crosby?

A Better Question is When is each View Correct?

Physical Capacity vs Human Performance

Measure Each Dimension of Service Quality Separately










Service Level

$Cost

Revenue

,

Profit = Revenue - Cost


Maximize Profit Where the Slope of the Profit Curve = Zero

Service Level

Profit

Slope Positive Slope Negative

Slope = Zero

,



Profit = p = Revenue - Cost

p = Revenue - Cost

Revenue = -250 + 20X .5

Cost = 500 + 4.76X 2.5

(Fill-Rate Example)Determining Optimal Service Levels


(Fill-Rate Example)

and solve for X

p = -250 + 20X .5 - [500 + 4.76X2.5]

p = -250 + 20X .5 - 500 - 4.76X2.5

To maximize profit, set 1st derivative = zero

X = 10/11.9 = .92



Previous Efforts:

Ozment and Chard (3M Company)

Aditi Sen and Ozment (Holiday Inn)

Ahren Johnston and Ozment (JB Hunt)


• Longitudinal data obtained directly from a national truckload motor carrier

• Data set contained cost and service quality data on every order for nine months

• Research focused on truckload, but data also was available for intermodal shipments

• Was aggregated into daily observations for use in the analysis

Ahren Johnston (JB Hunt)


H9: Total operating costs will be positively related to the physical dimension of service quality.

H10: Total operating costs will be negatively related to the human performance dimension of service quality.

Ahren Johnston (JB Hunt)


The general model estimated was:

Where:


C = f(X,W1,W2,W3,W4,Z1,Z2,Z3,Q1,Q2)Where:

C = Total Cost of Operations X = Revenue Ton Miles W1 = Price of Fuel W2 = Price of Labor W3 = Price of Capital W4 = Price of Purchased Transportation Z1 = Average Length of Haul Z2 = Average Load per Vehicle Z3 = Empty Mileage Q1 = Physical Dimension of Quality Q2 = Human Performance Dimension of Quality

Motor Carrier Costs and Service


Reasons for Service Failures

Reason Code Description

Physical/Capacity or Human Performance

36 Poor Trip Planning – Left Late, Route, Fuelling Error Human56 Tractor (Mechanical) Capacity57 Trailer/Equipment (Mechanical) CapacityBE Billing Error Human15 No Power – Missed Delivery Human42 Communication Errors (ETAs, Hours, Time Off) Human94 Receiver on Previous Load Human89 Booked Excess Loads for Capacity Human16 No Power – Missed Pickup Human13 Late Preplan on Pickup Human91 Driver Refused Delivery Human29 Incorrect Customer Directions – Missed Delivery Human37 Sick/Injury Human


Order Level Stop LevelVariable Parameter Coefficient Significance Coefficient Significance Constant α -0.003 .000 -0.0034 .000Y αY 0.499 .000 0.4995 .000W1 β1 0.3697 .000 0.3697 .000W2 β2 0.368 .000 0.368 .000W3 β3 0.2561 .000 0.2561 .000W4 β4 0.0063 .000 0.0063 .000Z1 τ1 0.4933 .000 0.4932 .000Z2 τ2 -0.517 .000 -0.5167 .000Z3 τ3 -0.077 .000 -0.0776 .000Q1 φ1 0.0646 0.083 0.1386 0.008Q2 φ2 -0.068 .000 -0.0919 .000Q1Q2 ψ12 5.5902 0.198 -1.6002 0.828

Documents

Customer Service Definitions Elements of Customer Service Estimating the Benefits of Service