LOGISTICS CUSTOMER

SERVICES
 Introduction
 An important concept within logistics transportation systems
operations is logistics customer service
 Customer service is a broad term that holds many elements
ranging from product availability to after-sale maintenance
 Logistics perspective, customer service is the outcome of all
logistics activities or supply chain processes
 There are some strategies involving in the process including
inventory strategies such as forecasting, inventory decisions,
purchasing and supply scheduling decisions and storage
decisions, etc. The transport strategies include transport
fundamental and transport decisions., and design of the
logistics system to be offered.
Planning of logistics Customer Service
 Customer Service Defined

 The term fulfillment process has been described as the entire

process of filling the customer’s order.
 The process includes the receipt of the order, managing the
payment, picking and packing the goods, shipping the
package, delivering the package, providing customer service
for the end-user, and handling the possible return of the goods.
 The term “customer service” needs clear explanation in order to
relate with logistics.
 For example, manufacturers’ first concern always is with how
efficiently the cargo reaches its destination without any delay
or any sort of complication
Features of Customer Services
Customer Service Elements
 Pre-transaction elements

 Establish a climate for good customer service.

 This element of services deals with the service level and related
activities in qualitative and quantitative terms.
 Pre-transaction elements provide the roadmap to the operating
personnel regarding the tactical and operational aspects of
customer service activities of the company
 Transaction elements

 Include everything between a order is received and delivered to

the customer.
 During the transaction phase of customer service, a firm focusses
on retrieving, packing, and delivering the order to the customer
in a timely and cost effective manner
 This phase also includes scheduling of shipment, communication
with the customer, delivery tracking, and delivery confirmation
 Post-transaction elements

 This phase represents the array of services needed to support

the product in the field
 to protect consumers from defective products;
 to provide for the return of packages
 to handle claims, complaints, and returns
 Corporate customer service is the sum of all these elements
because customers react to the overall experience.
 Importance of Customer Service Elements

● On-time delivery
● Order fill rate
● Product condition
● Accurate documentation
 Order cycle time

 Order Cycle Time is defined as the elapsed time between

when a customer order, purchase order, or service request is
placed and when the product or service is received by the
customer
 The cycle time of each order must be carefully monitored to
properly judge the efficiency within each cycle
 Total order cycle time includes order transmittal time, order
processing and receiving time, stock acquisition time, and
delivery time
 Order processing and receiving time includes the bill of lading
preparation, credit clearance, and order assembly times
Components of a typical customer order cycle
Common Customer Service
Complaints
 Order cycle time adjustments
 Order cycle time can be adjusted for various reasons
including the changes in customer needs, order priorities,
shipping capacities, promotions, among others
 A customer may choose to change the order delivery time
by paying for an expedited service anytime after placing the
order
 It is normally assumed that the elements of the order cycle
have remain unaffected, but customer service policies and
disruptions may distort the normal order cycle time patterns
Priorities for order processing

 Priorities of order processing are determined by factors

including delivery time and window, premiums paid by
the customers, urgency of on time delivery, consequence
of late delivery, customer reputation, and many others

 When backlogs in the order cycle occur, it is required to

distinguish orders from each other.
 Standards for order condition

 Typical order cycle time may change significantly for the

goods delivered in their destinations as damaged or
unusable
 Depending on the factors for setting standards for the
packaged goods including design, returning and replacing
processes if needed for the in
 There are specific standards established in any business to
monitor the quality of order and check the average order
time and keep it steady correct, damaged goods, the
cycle of order time may vary.
Order constraints

 Order constraints are preset expectations or requirements

that prevent flexibility in order processing and delivery
 Due to the order constraints, the cost of order processing
and delivery can increase
 Order constraints also help with the order planning as the
restrictions are known ahead of time
 Importance of Logistics Customer Service
 Service Effects on Sales:
Poor customer service will drive customers away from the brand.
Customers always inform others regarding product quality. A
negative reputation could be very hard to erase and tends to
degrade the share value of the company.
 Service Effects on Customer retention:
Logistics customer service plays a critical role in maintaining
customer patronage and must be carefully set and consistently
provided if customers are to remain loyal to their supplier. On the
average it is approximately six times more expensive to develop a
new customer than it is to keep a current customer. Thus, from a
financial point of view, resources invested in customer service
activities provide a substantially higher return than resources
invested in promotion and other customer development activities.
CR (2004) Prentice Hall, Inc.
 Modeling a Sales-Service
Relationship

 Efficiency in customer service can result from the combined impact of

improving the elements of customer service, which has a quantitative effect.
 This is referred to as the sales-service relationship
 on sales for a company
 Business sales are related to customer experience and customer satisfaction.
 The exact relationship between sales and customer service varies by industry
and specific business
 Generally, when customer service is poor, sales decline
 Sales-Service Relationship by the
Two-Points Method
The two-point method involves establishing two points
on the diminishing return portion of the sales-service
relationship through straight lines
First, set logistics customer service at a high level for a
particular product and observing the sales that can
be achieved.
Then the level is reduced to a low level and sales are
again noted.
These limitations suggest that a careful selection of the
situation to which it is to be applied must be made if
reasonable results are to be obtained.
Sales-Service Relationship by the
Two-Points Method
Sales-Service Relationship by the
Two-Points Method
 Game Playing

 One problem in measuring the sales response to service

changes is controlling the business environment so that only the
effect of the logistics customer service level is measured.
 One approach is to set up a laboratory simulation, or gaming
situation, where the participants make their decisions within a
controlled environment
 Game involves decisions about logistics activity levels and
hence service levels.
 By monitoring the overall time period of game playing, extensive
data is obtained to generate a sales-service curve
 Buyer Surveys

 One of the popular methods for gathering customer service

information is surveying buyers or other people who influence
purchases
 Survey methods must be used with caution because biases
can occur
 The questions must be carefully designed so as not to lead the
respondents or to bias their answers and yet capture the
essence of service that the buyers find important.
 The finding of survey can be used to model the relationship
between the cost and the customer service level.
 Costs versus service

 There is a cost associated with providing the logistics

customer services
 As the level of customer service goes up, the cost associated
with providing that service also goes up
 As activity levels are increased to meet higher customer
service levels, costs increase at an increasing rate
 The diminishing returns in the sales-service relationship and
the increasing cost-service curve results in a profit curve
 Determining Optimum Service Levels

 Optimum service level is a target service level where net profit

is maximum while providing acceptable customer service
 To maximize the net profit, it is imperative to maximize the
revenue while minimize the cost at that particular service level
 Identifying the revenue and cost for each service level will
provide the logistics professionals a starting point to make this
critical decision
 Generalized Cost-Revenue Tradeoffs

Revenue

Profit
Costs or sales

maximization

Logistics
costs

0
0 Improved logistics customer service
 Customer service variability
 Service variability is a characteristic that differentiates
services from goods, and it can be defined as changes in
performance from one service encounter to another with
the same service provider
 Variability in any service implies additional risks and
uncertainty
 The larger the uncertainty in a supply chain the larger the
costs for safety inventories, time in transit, or cost of
expedited deliveries
 In the case of customer service, variability is generally
considered negative to overall customer experience.
 Taguchi’s Loss Function
 Genichi Taguchi developed a loss function that is critical to
managing the supply chain processes that determine customer
service levels
 Taguchi proposed that inconsistent quality in product and services
results in expense, waste, loss of goodwill, and lost opportunity
whenever the quality target value is not met exactly
 Service levels are viewed to be satisfactory and without any penalty
cost as long as variations in service levels remain within the upper and
lower limits of the accepted range
 Taguchi’s loss function allows a value to be placed on not meeting
the expected customer service levels within supply chains
 Additionally, this loss function formula can be utilized to optimize
service levels by determining the appropriate amount on variability
for service levels
Taguchi’s Loss Function

A loss function of the form

L = loss in $
k = a constant to be determined
y = value of the service variable
m = the target value of the service variable
Taguchi’s Loss Function
 Example

Target delivery time for an auto parts supplier is 2 hours.

Parts delivered more than 15 minutes late incur a
penalty of $5 off the total bill. Delivery costs are
estimated at $3 but decline at the rate of $0.25 for
each minute of deviation from target. How much
variation should be allowed in the delivery service?
TC = service penalty cost + service delivery cost

- service penalty cost = k(y-m)^2

- service delivery cost = A – B (y-m)

If m is set to 0, y is the optimal deviation allowed from target

 Example
Target delivery time for an auto parts supplier is 2 hours. Parts delivered more
than 15 minutes late incur a penalty of $5 off the total bill. Delivery costs are
estimated at $3 but decline at the rate of $0.25 for each minute of deviation
from target. How much variation should be allowed in the delivery service?

No more than 5.68 minutes late should be allowed from the 2-hour delivery
target to minimize cost.
Service as a constraint

 Customer service can be a constraint to a logistics system

 Service levels set by competitors and often traditional
service levels can affect the customer service and cost
relationship.
 Sensitivity analysis can help aid a logistics operation to
determine the factors that constrain the operation.
 The ideal solution is still the optimum balance between
quality and cost; this should be weighed heavily in all
analysis of the constraints.
 Service contingencies
 There are times when disruptions cause havoc to logistics
operations
 The aftermath of any disaster could be enormous and
annihilating for any logistics operations, especially for
healthcare industry
 The most difficult situation that authorities face is the
complexity of operating conditions where they had to work
in order to supply medical items to the affected region from
a central position.
 In this scenario it may be required to share medical items
from contiguous health care organizations
 Product recall or system breakdowns also demand
contingency plans
 System breakdown
 A global economy has inherently a very complex logistical system.
 Getting a raw material from China to a US manufacturer and then
the final product back to Japan can have many factors that can
cause a system breakdown
 Weather, a natural disaster, an economic upheaval, or even political
changes can affect the supply chain in many drastic ways
 For instance, COVID-19 and its associated impacts paralyzed the
health system deliveries in many places including in the U.S. Many
hospitals were out of ventilators and other personal protective
equipment during this pandemic
 Product recall and return

 Product recalls are becoming more and more the norm

of businesses today
 The tremendous growth in returns has enthused new
interest in Reverse Logistics (RL) as firms attempt to meet
various challenges
 Typically, the higher the level of challenge greater is the
opportunity for improvement
 Engineering a RL network is fraught with daunting
challenges due to the sheer uncertainty that surrounds
returns quality, quantity and time
 Conclusion
 Customer service is a very important measure of the
efficiency of a logistical system.
 Many measures and processes allow the logistics professional
an opportunity to receive feedback from the customer on
their efficiency.
 The adage that the customer is always right may not always
be true but certainly reigns supreme in most companies.
 The complexity added by a global economy has increased
the visibility of customer service in logistics and emphasizes
the importance of measuring and examining the process.
 Customer service will influence many decisions in logistics
and require much analysis for optimum performance.
1. Pizzas are to be delivered in 30
minutes (target.) Pizzas delivered
more than 10 minutes late incur
a penalty of $3 off the pizza bill.
Delivery costs are estimated at
$2, but decline at the rate of
$0.15 for each minute deviation
from target.
How much variation
should be allowed in the delivery
service?

2. Explain the relationship

between Sales - Service
movement on the left figure