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CUSTOMER ACCOMODATION Learning outcomes At the end of this lecture, students should be able to Define who customer is Understand the four genetic service outputs theories developed by Bucklin Understand the role of a customer service Understand the fundamental attributes of customer service Understand element of customer service Who is the Customer? From perspective of the total supply chain End user of product in consumer market Company is customer in business market From perspective of specific firm within a supply chain. Intermediate customer organizations exist between the firm and end users From perspective of a logistics manager Any delivery location • For example, consumer home’s, retail / wholesale businesses, receiving docks of manufacturing plants and warehouses CUSTOMER-FOCUSED MARKETING Marketing Concept This concept is build on four fundamental ideas: Customer needs and requirements are more basic than products or services Different customers have different needs and requirements Products and services become meaningful only when available and positioned from the customer’s perspective Volume is secondary to profit Supply Chain Service Outputs Four generic service outputs necessary to accommodate customer requirements: Spatial Convenience Lot Size Waiting Time Product Variety and Assortment These four genetic service outputs are theories developed by Bucklin, 1966, to eliminate discrepancies in space, time and quantity and assortments. Spatial Convenience Refers to the amount of shopping time and effort that will be required on the part of the customer. Higher levels of spatial convenience are achieved in a supply chain by providing customers with access to its products in a larger number of places, thus reducing shopping effort. Spatial Convenience Lot Size Refers to the number of units to be purchased in each transaction. When customers are required to purchase in large quantities, they must incur costs of product storage and maintenance. When the supply chain allows them to purchase in small lot sizes, they can more easily match their consumption requirements with their purchasing. Waiting Time Refers to the amount of time the customer must wait between ordering and receiving products: the lower the waiting time, the higher the level of supply chain service. Alternative supply chains offer consumers and end users choices in terms of the amount of waiting time required. Product Variety and Assortment Different supply chains offer differing levels of variety and assortment to consumers and end users. CUSTOMER SERVICE Customer Service In more and more markets, the power of the brand has declined and customers are willing to accept substitutes. It is therefore more difficult to maintain a competitive edge through the product itself. In situations like this, it is customer service that can provide the distinction between one company’s offer and that of its competitors. Competitive Advantage One way to define “competitive advantage” is simply that the successful companies will generally be those that deliver more customer value than their competitors. Role of Customer Service It has been suggested that the role of customer service is to provide “time and place utility” in the transfer of goods and services between buyer and seller. Put another way, there is no value in the product or service until it is in the hands of the customer or consumer. Customer Value Ratio Logistics management is almost unique in its ability to impact both the numerator and the denominator of the customer value ratio which is: Customer Value... Quality: the functionality, performance and technical specification of the offer Service: the availability, support and commitment provided to the customer Cost: the customer’s transaction costs including price and life cycle costs Time: the time taken to respond to customer requirements, e.g. delivery lead times Example ... One company that has built a global leadership position in its markets is Caterpillar, marketing machines and diesel engines for the construction and mining industries. Caterpillar has for many years focused on developing not just its manufacturing capabilities and innovative products but also its customer support and responsiveness. Example cont’d Underpinning these initiatives has been a continuing emphasis on creating superior logistics and supply chain capabilities. Caterpillar has developed a world class reputation for customer support, in particular its guarantee to provide a 48 hour availability on parts no matter how remote the location. Example cont’d In the industries where caterpillar equipment is used, the cost of down-time can be significant, hence the importance of responsive service. Through close partnership with its worldwide network of dealers and distributors, and through advanced inventory and information management systems, Caterpillar offers levels of customer support – and thus customer value – that few companies in any industry can match. Customer Service Focus In basic customer service programs, the focus is typically on the operational aspect of logistics and ensuring that the organisation is capable of providing the seven rights to its customer: “the right amount of the right product at the right time at the right place in the right condition at the right price with the right information”. Fundamental attributes of customer service Availability – stockout frequency, fill rate, orders shipped complete Operational Performance – speed, consistency, flexibility, malfunction recovery, Service Reliability Availability The capacity to have inventory when desired by a customer. Factors considered: Stockout Frequency Fill Rate Orders Shipped Complete Stockout Frequency A stockout occurs when a firm has no product available to fulfil customer demand. Stockout frequency refers to the probability that a firm will not have inventory available to meet a customer order. It is important to note that stockout does not actually occur until a customer desire a product Fill rate Fill rate measures the magnitude or impact of stockouts over time. Being out of stock does not affect service performance until a customer demands a product. While there are several approaches to measuring fill rates, item fill rate is a common approach. It is often presented as the percentage of units available when requested by the customer. For example, if a customer wants 100 units of an item and only 97 are available, the fill rate is 97 percent. Fill rate – example (try) If a customer wants 150 chairs and only 75 are available then the fill rate is.............? If a customer wants 110 tables and only 90 are available then the fill rate is.............? Orders Shipped Complete The most exacting measure of performance in product availability is orders shipped complete. It views having everything that a customer orders as the standard of acceptable performance. Failure to provide even one item on a customer’s order results in that order being recorded as zero in terms of complete shipment. Operational Performance Deals with the time required to deliver a customer’s order. Specified in terms of: Speed Consistency Flexibility Malfunction Recovery Speed Performance cycle speed is the elapsed time from when a customer establishes a need to order until the product is delivered and is ready for customer use. High level of communication and transportation technology can reduce order cycles significantly! Consistency Order cycle consistency is measured by the number of times that actual cycles meet the time planned for completion. Most logistical managers place greater value on consistency because it directly impacts a customers’ ability to plan and perform its own activities. For example, if order cycles vary, then the customer must carry safety stock to protect against potential late delivery Flexibility Flexibility involves a firm’s ability to accommodate special situations and unusual or unexpected customer requests. A firm’s logistical competency is directly related to how well it is able to accommodate such unexpected circumstances. For example - Flexibility The standard pattern for servicing a customer may be to ship full trailer quantities to a customer’s warehouse. However, from time to time, the customer may desire to have shipments of smaller quantities made direct to individual retail locations. Malfunction recovery Regardless of how fine-tuned a firm’s logistical operations, malfunctions will occur. Ideally, adjustments can be implemented to prevent or accommodate special situations, thereby preventing malfunctions. For example – malfunction if a stockout of an essential item occurs at a warehouse that normally services a customer, the item may be obtained from an alternative facility by utilising some form of expedited transportation. Service Reliability Involves the combined attributes of logistics and concerns a firm’s ability to perform all order-related activities, as well as provide customers with critical information regarding logistical operations and status. Service Reliability examples shipments arrive damage-free invoices are correct and error-free shipments are made to the correct locations and the exact amount of product ordered is included in the shipment Elements of customer service Customer service can be examined under three headings: Pre-transaction elements Transaction elements Post-transaction elements Elements of customer service The pre-transaction elements of customer service relate to corporate policies or programmes, e.g. written statements of service policy, adequacy of organisational structure and system flexibility. The transaction elements are those customer service variables directly involved in forming the physical distribution function, e.g. product and delivery reliability. The post-transaction elements of customer service are generally supportive of the product while in use, for instance, product warranty, parts and repair service, procedures for customer complaints and product replacement. Pre-transaction Transaction Post-Transaction 43