How would you define customer service?
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In a retail store:
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How long must I wait in line?
If I cannot find an item, can I find a clerk who is willing to help?
If an item is not in stock, how long must I wait to receive it?
If an item is not in stock, will I receive a call, or must I continually check back?
Is the store clean, well lighted, and laid out reasonably?
Do personnel treat customers with respect?
On a telephone order:
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Am I treated courteously?
Must I wait on hold for 10 minutes?
Do I get to speak to a human?
Do I key in my customer number and then need to repeat it later?
If it’s an automated system, are the instructions clear?
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Customer Service Elements
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Pretransaction elements:
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Written policies
System flexibility
Clarity of procedures
Technical help
Transaction elements
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Backorder policies
Order cycle time (lead time)
Product substitution
Complexity of transaction (convenience)
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Customer Service Elements
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Post-transaction elements
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Installation, warranty, repairs
Claims, complaints
Packaging
Temporary replacement during repair
Courtesy
Reliability and integrity
Willingness to bend over backwards for the customer
Willingness to respond to customer wants and needs (with new or better
products)
Clarity of communications to customer
Integrated information systems
A monopolistic company must also adhere to these guidelines in case
competition strikes in the future (e.g. AT&T, cable, utility companies)
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Steps to Follows in Determining the
Service Standards
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1) Understanding the customer’s business
2) Understanding who represents the customer
3) Asking the representatives to express their requirements
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What is important to you?
 Which service dimensions make a difference in your buying decision?
 How do you prioritize those service dimensions?
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What constitutes discernibly superior and inferior performance?
 What level of performance on what dimensions will prompt increased
purchases?
 What levels of service problems reduce your purchases or cause you to
disqualify a supplier?
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What is current performance? How do you measure it?
 How well does our company meet the requirements?
 How well do competitors meet the requirements?
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Continues...
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How can we be easier to do business with?
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What things are we doing that we should not be doing?
What things aren’t we doing that we should be doing?
How can we create value?
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What are we doing today that you like or value?
What are competitors doing that you like or value?
How can we do a better job of meeting you needs?
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Methods of Identifying Requirements
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Interview approach
Outside research firms or consultants
Telephone and mail surveys
Focus groups
Using current performance and “noise levels”
Benchmarking
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Frequency of Contact
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Pulse Surveys
Vision Surveys
Continuous customer-specific communication
with key accounts
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Understanding Requirements of the Order
Fulfillment Process
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Ordering Process
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Ease of order placement and timely information
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Direct order transmission
Product availability information
Product technical information
Pricing information
Credit check information
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Understanding Requirements of the Order
Fulfillment Process..
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Delivery Cycle
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Timely reliable delivery with good communications
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Order acknowledgement(including quantities to be shipped)
Total order cycle time
Order cycle consistency
Delivery on day requested
On site training
Handling of emergencies
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Understanding Requirements of the Order
Fulfillment Process..
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Order Receipt and Follow-up
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Accurate, complete,undamaged orders with prompt claims handling
and accurate invoices
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Order completeness
Accurate invoices
Accurate shipping documents
Damage free delivery
Prompt handling of claims
Consistent return policies
Good working relationship with supplier
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Steps to Follows in Determining the
Service Standards(continues)
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4. Interpreting what the customer wants and
is willing to pay for
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Specification of Customer Service
Level
Cost
Lost sale cost
Improved customer service(%)
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Cost vs. Service Models
Revenue (sales)
Profit
Logistics costs
Customer Service Level
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Since we can imagine that the objective of the logistics
organization is to maximize profit, we can then attempt to establish
an equation for profit, which is a function of customer service level,
SL. We can approximate the above curves by simple functional
equations. If we let R denote revenue, suppose that an
approximate equation for revenue as a function of service level is
given by the equation:
 R = K
SL , where K is a constant between 0 and 1.
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Customer Service Aspects of Logistics:
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Order cycle time: time between placing order and receiving product
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Order transmittal
Order processing and assembly
Additional stock acquisition time (if out of stock)
Delivery time
p. 91:
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“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.”
-P.S. Bender, Design and Operation of Customer Service Systems,
1976.
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Cost vs. Service Models
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Suppose now that since the equation for cost appears parabolic,
we relate logistics costs C to service level through the equation:
C = k*SL2, where k is also a constant. Our objective is then to
maximize P = R – C. To find the maximum point we can
differentiate P with respect to SL and set the result equal to zero:
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Taguchi Loss Function
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Genichi Taguchi developed modeling techniques in the area of
statistical quality control, one of which can be used to analyze costs of
customer service. The idea is that we have some known and
quantifiable target level of customer service, m and that we can
measure our service level. If we let y denote the measured level of
customer service and let L denote the loss (or cost) due to not meeting
our desired level, we can use a model of the form:
L = k(y – m)2.
(2)
(k is a constant that is a function of the financial importance of the
service level measure.) Loss is a quadratic function that penalizes us
equally whether we miss m by x units on the high or low side. That is,
if we provide too high a level of customer service it requires our costs
to increase as significantly as if we provide too low a level. One might
argue that loss due to deviating from the target level is not symmetric
about the target level.
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Framework For Developing A Service
Strategy
1. Understand
Customer
Requirements
2. Analyze Current
Capabilities
4.
Identify
Gaps
5. Identify
Options To
Gain
Strategic
Advantage
6.
Analyse
Tradeoffs
7.Select
Service
Dimensio
ns to
Compete
On
8.Structure
Service
Offerings
and Set
Goals
3. Assess
Competitiors’
Capabilities
Monitor and Update
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Taguchi Loss Function
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Practitioners often find these constants, such as k and K,
difficult to quantify, since we don’t know exactly how customers
will react to poor service. For this reason we often find
constraints on service levels implemented in practice, e.g., the
firm targets a level of no more than 2% stockouts per period or
specifies 99% of orders are received within 1 week of order
placement. This gives alternatives when creating an
optimization model with respect to system costs or profits:
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Either we create a term in our objective function that captures cost
as a function of service level, or
We create constraints that require our decision variables to satisfy
a certain minimum level of service.
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