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
Customer ServiceTransportation/Logistic Strategy
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
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
Customer ServiceTransportation/Logistic Strategy
Cycle Time
Dependability
Convenience
Communication
Elements of Customer Service
Customer ServiceTransportation/Logistic Strategy
Approval Time
Transmittal Time
Processing Time
Assembly Time
Shipment Time
Re-Stock Time
Cycle Time
Customer ServiceTransportation/Logistic Strategy
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
Customer ServiceTransportation/Logistic Strategy
Consistency
Completeness
Correctness
Condition
Dependability
Customer ServiceTransportation/Logistic Strategy
Ease of Placing Orders
Constraints on Order Sizes
Constraints on Placement Times
Who Arranges Transportation
Convenience
Customer ServiceTransportation/Logistic Strategy
Easy Access to Empowered People
No Surprises
Communication
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
Customer ServiceTransportation/Logistic Strategy
Effects of Service Levels on Revenue
Service Level
$ Revenue
Customer ServiceTransportation/Logistic Strategy
Estimating the Benefits of Service Quality
Logistics Service as a Sales/Promotion ToolMethods of Estimation
Questionnaires Historical Data Multiple Regression Analysis
ExampleImportant Issues
Customer ServiceTransportation/Logistic Strategy
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
Customer ServiceTransportation/Logistic Strategy
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
Customer ServiceTransportation/Logistic Strategy
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
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
Customer ServiceTransportation/Logistic Strategy
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
Customer ServiceTransportation/Logistic Strategy
Traditional Economic View of Service QualityCosts Increase at an Increasing Rate
Service Level
$Cost of Service
Estimating the Cost of Service Quality
Customer ServiceTransportation/Logistic Strategy
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
Estimating the Cost of Service Quality
Customer ServiceTransportation/Logistic Strategy
Cost of Service if Quality is Free
Service Level
$
Cost of Service
Estimating the Cost of Service Quality
Customer ServiceTransportation/Logistic Strategy
Estimating the Cost of Service Quality
Cost of Service if Quality has a Positive Effect
Service Level
$
Cost of Service
Customer ServiceTransportation/Logistic Strategy
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
Estimating the Cost of Service Quality
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
Customer ServiceTransportation/Logistic Strategy
Determining Optimal Service Levels
Service Level
$Cost
Revenue
,
Profit = Revenue - Cost
Customer ServiceTransportation/Logistic Strategy
Maximize Profit Where the Slope of the Profit Curve = Zero
Service Level
Profit
Slope Positive Slope Negative
Slope = Zero
,
Determining Optimal Service Levels
Customer ServiceTransportation/Logistic Strategy
Profit = p = Revenue - Cost
p = Revenue - Cost
Revenue = -250 + 20X .5
Cost = 500 + 4.76X 2.5
(Fill-Rate Example)Determining Optimal Service Levels
Customer ServiceTransportation/Logistic Strategy
(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
Determining Optimal Service Levels
Customer ServiceTransportation/Logistic Strategy
Previous Efforts:
Ozment and Chard (3M Company)
Aditi Sen and Ozment (Holiday Inn)
Ahren Johnston and Ozment (JB Hunt)
Customer ServiceTransportation/Logistic Strategy
• 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)
Customer ServiceTransportation/Logistic Strategy
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)
Customer ServiceTransportation/Logistic Strategy
The general model estimated was:
Where:
Customer ServiceTransportation/Logistic Strategy
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
Customer ServiceTransportation/Logistic Strategy
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
Customer ServiceTransportation/Logistic Strategy
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