2

Customer Service: A Key Element in Logistics Strategy

After reading the chapter, the students should be able to understand:

• Customer service attributes and phases
• Value-added logistics services
• Role of customer service in logistics strategy
• Customer service perception and service design

“Customer service is everybody’s business” is a marketing truism. Customer service is a measure of the effectiveness of a logistics system in creating time-and-place utilities of the product. Effective marketers view customer service within the larger context of customer relationship marketing. Hence, marketers strive to increase customer satisfaction by delivering superior customer value through customer service, which is a key element in logistics strategy. In logistics, customer service is more than just the transportation of a shipment from point A to point B: It is about providing customers with information, options, and the expertise to help them make the right decisions; it is about helping the supplier to understand the trends and dynamics in the markets that can impact the business; it is about working with the customer to deliver the best possible value for his/her money.

“The goal as a company is to have customer service that is not just the best but legendary.”

—Sam Walton

2.1 CUSTOMER SERVICE FOR COMPETITIVENESS

Customer service is a set of activities and programs designed and implemented by a business firm to make the buying experience more rewarding. These activities enhance the value of a product or service the customer gets from the seller. Customer service is the most important dimension of product/service offerings to the customer. Value-added customer service is leveraged to gain competitive advantage. Good customer service builds customer loyalty among the existing customers and generates positive word-of-mouth communication, which attracts new customers. In other words, customer service is the base for all customer relationship management (CRM) programs that many leading firms are implementing.

Customers base their evaluation of a service on their perceptions. These perceptions are affected by the actual service provided by the firm and the high degree of intangibility, which is sometimes very hard to accurately evaluate. Firms that are able to map these gaps accurately and try to bridge them with value-added service can succeed in enhancing the customer satisfaction level and remain competitive. The following are a few cues affecting customer perception of service quality:

Competence: The information provided by the firm through product brochures, manuals, websites, sales talk about the product, and the service offerings of the firm.

Reliability: Delivery of the product or services as promised in terms of place, time, and quality.

Responsiveness: Returning customer calls, e-mails, faxes, letters, and so forth on time and resolving customer problems or complaints with speed during all three phases of transactions.

Transaction security: The confidentiality of customer information and transactions.

Trustworthiness: Built through evolving policies on product return, warranty and guarantee, and honouring commitments.

Access: This refers to the ease with which the customer will have access to information on products and services before placing an order, status of the order placed, and status of the product complaints, claims and damages in the post-sales phase.

These cues on customer perception of service quality stimulate satisfactory or unsatisfactory evaluations of the firm’s services. Hence, the firm needs to bridge service gaps (between perception and reality) to improve customer satisfaction with their services. These gaps may arise due to the following:

• Communication—The actual service provided may be different from what is communicated through a promotional or advertising campaign.
• Standards adopted—The service standards adopted may differ from the customer’s expectations.
• Service delivery—The services provided may be different from the service standards of the firm.
• Customer knowledge—The firm may fail to understand the customer’s perception of the service standard.

The firm’s aim should be to bridge these gaps to create a wider base of satisfied customers and to stimulate them for repeat purchases.

Logistics is a service function and has a large share in an organization’s success by delivering the product at the right place and at the right time. In logistics the customer is a place where the goods or services are delivered. For physical products, it may be a manufacturing plant, wholesaler, retailer, or end-user. For the service products it may be the point of sale of a service such as a hotel, bank or hospital. However, the focus here is customer service, irrespective of the ways, means, and methods being used to satisfy the customer. This approach requires marketing orientation to all the functional areas of the organization. Marketing is the central point of all business process. The objective of the marketing function is to identify the need of the customers and fulfil it at a price by generating profitable transactions. Logistics helps in creating time and place utility of the product that satisfies the customer’s need, which has both time and place as dimensions. In today’s competitive markets, the competitiveness of a firm is judged by how efficiently and effectively it manages the time and place dimensions of customer service to avail of the opportunity and create new opportunities for repeat sales to the same customers by delivering superior service. Hence, logistics competency is critical to customer service planning and needs to be developed as a core competency for sustainable competitive advantage not only for growth but also for survival.

2.2 CUSTOMER SERVICE PHASES

Customer service is the measure of how logistics is creating the time and place utility for a product. The meaning of customer service varies with the organization, the product it is marketing, and the transaction phase it is undergoing. The buyer looks for value for the money he is spending, while the seller, in delivering superior customer service, looks for trade-off between cost and customer satisfaction. Hence, customer service depends on the phase of the transaction it is passing through. There are three phases associated with the exchange process. The degree of importance of each phase varies with the organization and depends on the product and customer requirements (see Figure 2.1).

Pre-Transaction Phase

This phase is more related to policy enunciation for defining the service level and related activities in qualitative and quantitative terms. It is a non-routine activity. It gives the guidelines to the operating people regarding the dimensions and limitations on customer service activities of the firm. The pre-transaction phase is a creation of the service platform to serve the customer, so as to build credibility in the market and create a good image among the existing and prospective customers. This is an important phase of the exchange process, which will help to mould the organization toward customer orientation and in turn influence the perception of the firm in the mind of the customer. Typically, the following are important elements of the pre-transaction phase.

Customer Service Policy Statement in Written Form. This will indicate the service standards of the firm. For example, Caterpillar, one of the world’s leading construction equipment manufacturing companies, makes a policy commitment to deliver spare parts to their customer within 24 hours of the placement of order. Further, they commit to offer free supply, in case the parts reach their destination after the stipulated delivery period. In this phase, the firm will have to evolve a policy framework for performance measures, evaluation methods, reporting structure, and the reward structure.

Organization Building. For implementing the policy directives on customer service, the firm should formalize the porting structure, delegate authority, and allocate responsibility. The contact person’s name and contact number needs to be communicated to the customers for information on order status, dispatch details, warranty claims, and so forth. The contact person is to be delegated with full authority to make decisions on customer services within his/her domain and is made accountable for the action he is taking. A proper reward system will motivate the employees involved in customer service to effectively and efficiently interface with the customer.

Structuring the Service. The basic structure of the service depends on customer expectations, industry standard, and the service standard the firm would like to keep. The firm marketing capital goods may evolve a service structure to extend lifetime product service commitments for the supply of spares, irrespective of continuous product and technology upgrades at its end. The supplier may extend a free periodic product check-up service to clients to gain a competitive edge. In such a case, he/she may absorb all service-related costs as a value-added free service to the client. In the maturity stage of the product life cycle, when competition is fierce, the firm needs to customize the service to strategic clients or to a section of clients in the niche segments. For sustainable competitive advantage, innovation in service is a must. Innovation adds value to the offerings to customers. These services may be offered as a complete system package along with the product, which is rather difficult for the competition to meet or emulate. The important feature of the service structure is its delivery. This may vary with the product and the client’s need. Delivery has two dimensions, viz. time and place. The firm may have to allocate and coordinate its resources to deliver services at the time and place desired by the customer. Exide Industry Ltd., a leading automotive battery manufacturer in India, introduced Bat-Mobile Service to gain a competitive advantage. They are offering a free van service for battery-related problems (irrespective of the battery brand) of vehicles stranded on highways within the major metro city limits. Monitoring, coordinating, and controlling the movements and work of the mobile service vans is a tedious logistical task. The company has its own fleet of vans with equipment installed in them, accompanied by their technicians carrying an inventory of new batteries dedicated to the service. Communication is conducted through a centralized wireless network. The investment in this value-added service has already brought in results by way of customer loyalty and the customer shift from the competition to Exide.

Customer Education. This is required for minimizing customer complaints on product deliveries, product operations and maintenance, spare parts inventory requirements and maintenance, freight charges, transit damages, and more. Customer education is done through manuals, training, seminars, and workshops.

System Design. System configuration should take care to answer all possible queries in the customer’s mind before placing an order. The system may be manual or fully automatic as in e-commerce. However, a prerequisite of the system in a competitive environment is responsiveness to customer requirements and the flexibility to take care of unplanned events.

Transaction Phase

Customer service during the transaction phase is associated with routine tasks performed in the logistics supply chain. These tasks need coordination for the entire system to be efficient and effective in delivering service to the customer per the desired standard. The following are the various service elements associated with the transaction phase:

Order Fulfilment Reliability. In the transaction phase, the most important factor is the reliability to fulfil the order within the agreed time frame and also with respect to the quantity and quality of the material ordered. This depends on the close coordination and management of the various components of the order cycle such as order processing, material planning, allocation, picking, packing, and transportation. The customer’s production schedule is very much dependent on the reliability factor of order fulfilment by the supplier.

Delivery Consistency. The other important factor in the transaction phase is the consistency of delivery in repeat orders. Let’s say out of 100 deliveries only 60 are on time while 40 deviate from the agreed schedule. Now, this is likely to cause production interruptions at the customer’s end, and the customer will surely be dissatisfied with such inconsistencies. Inconsistency of delivery may be because of problems with the various elements of order fulfilment that need system improvement.

Order Convenience. Order convenience is the ease with which the customer can place an order. The barriers to convenience are the paperwork required by the supplier, compliance to various procedures, complex payment terms, poor communication network at the supplier’s end, and poor coordination in the marketing network of the supplier. In competitive markets these barriers may lead to opportunity loss and waning of the customer base.

Order Postponement. The customer, for some reason, may require an entire order or a part thereof to be postponed or executed in parts, in a phased manner. This may be due to rescheduling of requirements at the customer’s end. In another case, due to availability of a certain product category in the future, the seller may ask the buyer to place the order now and ship the product when it is available on future dates.

Product Substitute. A situation may arise that the product ordered can’t be shipped due to certain manufacturing or quality problems. The seller may extend the service by offering a substitute product of similar or better quality, in different sizes or from the available brands in the market (on the same terms and conditions), in order to keep the relationship and retain the customer. For obtaining the customer’s consent for a product substitute, the seller needs closer interaction and clear communication with the customer.

Post-Transaction Phase

This phase relates primarily to customer satisfaction and building a long-term relationship with the customer. It involves the commitment of resources to offer the desired level of service. For service-based products, this is an important phase dependent, on the service quality, which may make or mar the image of a company in the minds of their customers.

Order Status Information. In e-commerce or business-to-business transactions, the customer, after payment of part value (sometimes full value) of the product as an advance, requires continuous feedback on the status of the shipment. His production schedules or usage plans start only after the ordered product has reached the site. Many leading firms have a consignment tracking and tracing system installed on their websites for their clients to have online access to such information.

Customer Complaints, Claims, and Returns. The seller’s responsibility is not over after a product is dispatched to the client. The customer may have received products that were damaged during transit, or the product may not perform as per the functional requirement, or the client may have gotten the wrong consignment. For resolving these issues, the manufacturer normally evolves a product return policy and implements it through the reverse logistics system.

Product Installation, Commissioning, and Technical Snags. Technically complex products need installation, commissioning and stabilization services from suppliers, or else the product might develop technical snags during the warranty period. To handle these issues, firms normally have a separate set-up for after-sales service. The after-sales department takes care of all documentation, customer technical complaints, product installation, commissioning, stabilization, and handing over.

Customer Education and Training. Customer education and training is an important service element in the post-transaction phase. In the case of technically complex products, it is necessary for the seller to train or educate the user in their operation to get the desired functional output. This may be done through product manuals, training workshops, or demonstrations.

2.3 SERVICE ATTRIBUTES

The most important and critical aspect of customer service is physical distribution of the product; that is, making the right product available at the right place and at the right time, followed by the motivation of service success facilitators such as channel members to complete the physical distribution. For FMCG or mass-consumed products wherein product distribution is dependent on the length and breadth of the channel needs the logistics programs customized to the requirements of the channel partners. For these programs to be successful, the channel members need to be serviced and motivated by the manufacturers. The services extended to this trading community require different attributes from those required for satisfying the end customers (see Figure 2.2).

Order Process Time

Order process time is the most important measure of customer service in physical distribution. It is the time between the placement of an order by the buyer and the supply of the material by the seller against an order. This involves the supply of all the material against the order placed within the agreed time frame, without any error either in documentation or physical supply. This customer service attribute helps in building a long-term buyer—seller relationship. The order processing time consists of the time required for registration of the order in the supplier’s system after thorough technical and commercial scrutiny; material allocation and pickup from the work-in-progress inventory, warehouse, or distribution centres; packing of material; documentation; and dispatch of material. The time consumed in each of these activities will depend on how well coordinated the various departments are and the speed of the information flow across the logistics supply chain.

Delivery Consistency

This refers to the consistency in maintaining the same delivery period for delivering the material to the buyer over a period of time. For example, if the supplier dispatches the material per the agreed delivery time for 97 orders against 100 repeat orders received during the year, it may be said that the supplier’s delivery consistency is 97 per cent, and per the present industry norms it is an excellent delivery performance. Delivery consistency speaks of the degree of coordination in the various logistics arms of the seller’s firm and the efficiency and effectiveness of the logistical supply chain. The delivery consistency of suppliers has a direct effect on the inventory level at the buyer’s end. Inconsistency in deliveries may force the buyer to carry an excess inventory of raw materials and components as a precautionary measure and thereby block more funds. Subsequently, the buyer may look for an efficient source of supply to get rid of the inventory problem.

Delivery Frequency

The frequency of delivery is the key element in customer service. The customer does not want to carry an excess inventory but wants his operations to run without interruptions. As a result, the customer prefers frequent deliveries in small lots. This may increase transportation cost, but it reduces the inventory-related cost drastically, with the net result being a reduction in the overall supply chain cost. Another case is of the firm that may not have all the ordered items available in its stocks. In such a situation the supplier, with the consent of buyer, may supply the critical items first, followed by a consignment of the remaining items after they are made and are available for dispatch. The additional transportation cost may be borne by the supplier to compensate for the buyer’s inconvenience. The practice of frequent deliveries in small lots is quite common in retail chains.

Stock Availability

Stock availability is an important measure of customer service. With excess stocks, the supplier may extend an excellent service to the customer, but inventory-related cost reduces the profit margin of business operations. Hence the firm needs to strike a balance between the inventory level and the desired customer service level through integrated logistics operations. The reduction in stock holdings may be exercised through centralized inventory control from a single-mother warehouse by reducing field distribution warehouses at multiple locations. Centralization may help reduce administrative cost, operating cost, and manpower cost while simultaneously reducing inventory carrying costs at the various locations. Although transportation cost may go up, the net saving would be more than such an increase in costs.

Credit Facility

As a value added service, the supplier may offer credit facility to the buyer against the material dispatched. This is done for building long-term relations with the customer and to get repeat bulk business from the buyer. In case credit facility is industry trends and customer extending the payment beyond the agreed time frame, then the supplier may think about the scope for recovering the cost of blocked funds from the customer.

Stock Financing

Against bulk orders, as in the case of seasonal products, suppliers sometimes hold the inventory for the buyer for a longer time. Depending on the competition in the industry and the assurance of repeat orders from the buyer, a supplier may hold the inventory for a longer time, bearing the carrying cost as a value added service. This ultimately means indirectly financing the operations of the buyer, by shifting the cost element from buyer to seller.

In the competitive logistics industry, the warehouse service supplier finances the goods depositors by way of loans up to 30-50 per cent of the stocks deposited. This loan is made available at interest rates lower than that of banks. In the Indian context, warehouses attached to the cooperative sector industry extend loans to farmers up to 70 per cent of the value of the food grains deposited in the warehouse.

Service Support

Service support may be in terms of technical support for product installation, commissioning, process stabilizing, spare parts supply, and routine equipment check-up as part of the annual service contact. Service support is required to keep the downtime of the equipment very low, as it ultimately has a significant effect on productivity at the customer’s end. As a value addition, the supplier may extend technical support not only in the area related to his products, but in resolving the technical problems in the client’s manufacturing shop or by actively supporting a new product development process. If the supplier has a strong technical arm, he may extend technical support to the buyers in areas unrelated to his product line.

Handling Convenience

For the convenience of material handling and storage at the customer’s end, the supplier, may develop novel methods for product unitizing such as pallets, boxes, or cartons. These methods are customized to suit the existing product handling arrangement at the customer’s end. Alternatively, the supplier may help the customer in installation or development of a material handling system. This may help to reduce the material handling hassles and product damages at the buyer’s end.

2.4 VALUE ADDED LOGISTICAL SERVICES

The purpose of providing services is to deliver value to the customer for the money he is spending in acquiring a product. To add value to tangible products, the intangibles, such as after-sales service, are provided to the customer. Similarly, for adding value to intangible products, the help of tangibles is taken. For example, the ambience in a star hotel is supported by the presence of tangibles that speak of the quality of service being delivered. For the business to get going, minimum basic customer service is necessary. Basic customer service means treating all customers equally and extending the service to build fundamental business relationships. It is the bare minimum service activity for survival of the business. The supply of spare parts for trouble-free operation of machinery is the basic service capability the machinery supplier should exhibit if his product is to be considered for purchase and building further relationship with the buyer.

A step ahead of the basic services is the zero-defect services. This involves gearing up of business processes for perfect operational performance. In zero-defect service, the systems have a significant role to play. The repetitive operations are performed without errors by automated systems. The activities wherein speed, accuracy, and reliability are essential can be well coordinated, monitored, and controlled through the systems approach. The scope for errors is eliminated as involvement of the human element in performing these activities is minimized.

The third category and the next in evolution are value-added services that are unique and add efficiency and effectiveness to the basic service capabilities of the firm. With value-added services, the firm can deliver superior customer value, which can be leveraged for competitiveness. These are basically tailor-made or customized service packages for strategic customers. These services are in addition to the basic services provided to the customer by the seller.

As an example, a supplier may manage a high-value inventory requirement at the customer’s end by owning the inventory-carrying responsibility for the customer’s manufacturing operation. He may open a small shop in the buyer’s premises and keep a minimum inventory to meet the customer’s daily requirement. The supplier gets paid on a daily basis for the inventory consumed. Thus the supplier gets business on a continuous basis because of the value-added logistics services he is providing the customer. The customer is satisfied because his inventory-related cost for items is zero, while the supplier is happy because he gets repeat business and immediate payment for the material supplied.

Another case could be that of a transporter who may extend the services of product mixing and labelling of packs in his transshipment warehouse before delivery of the final product to the customer. He may also collect money from the customer on behalf of the seller against delivery of the consignment. Typical value-added logistical services extended by logistics service providers are:

• Customized transportation (vehicles, perishables)
• Payment collection on delivery
• Price marking and labelling
• Product mixing and packaging (for co-promotional scheme of two products from two different companies)
• Cross-docking (product storage not more than 48 hours in warehouse)
• Inventory management
• Web-based consignment tracking and tracing
• Frequent deliveries in small lots
• Reverse logistics
• Load cobbling

Value-added services may be categorized into customer-focused services; that is, customized services for the customer’s specific requirement of the product or shipments.

 

The other value-added services are the timed-focused ones, such as inventory on demand for the manufacturing assembly line, which may involve implementation of just-in-time (JIT) system to lower inventory-related costs. The evolution of value-added services are an outcome of forced innovation for differentiated offerings for survival and growth in competitive markets.

SUMMARY

Customer service is an important element in marketing irrespective of the product being tangible or intangible. In fact, effective customer service is leveraged for competitiveness. For an organization to be customer oriented or customer focused, it must believe in the philosophy that customer service is everybody's business. In logistical strategy, customer service is a key element. Customer service requirements differ in the different phases of transaction. In the pre-transaction phase, the stress is on policy enunciation for defining the service level and related activities in qualitative and quantitative terms. In the transaction phase, customer service is associated with the efficiency of routine tasks performed in the logistics supply chain, while in the post-transaction phase, it relates more to customer satisfaction and building up a long-term relationship with the customer. It involves the commitment of resources to offer the desired level of service. Customer service attributes have two aspects to look into: the first is the distribution aspect and the second the trading aspect. The physical distribution aspect focuses on place and time utility of the product, while the trading aspect focuses on motivation of channel members and customer. For competitiveness, the manufacturers adopt the innovative approach in service offerings through the customization of services to cater to the needs of strategic customers. Unique or specific service activities are designed to increase the efficiency and effectiveness of the logistic operations.

REVIEW QUESTIONS

1. Explain the role of customer service in delivering value to the customer.
2. Customer service measures help in enhancing the effectiveness of the logistical system in creating time and space utility of the product. Explain.
3. Discuss the various customer service attributes of the logistical system.
4. “Value added service is an innovative approach adopted for gaining a competitive edge.” Cite a few examples to support this statement.
5. Explain how customer service requirements differ in different phases of the transaction process?

INTERNET EXERCISES

1. Visit http://www.gati.com and find out how Gati Ltd. is excelling in providing value-added customer service to their clients in the area of logistics and supply chain management.
2. Visit the following Internet websites and find out more about customer service and how it can be used as a tool for competitive advantage:

   http://www.sbinfocanada.about.com

   http://www.customerservicemanager.com

BIBLIOGRAPHY

Bell, Arthur H. 2000. ‘Measuring Customer Satisfaction.’ Journal of Property Management, 65 (4): 66.

Bowersox, D. J., and D. J. Closs. 2000. Logistical Management. New Delhi: Tata McGraw-Hill.

Chase, Richard B. 1978. ‘Where Does the Customer Fit in a Service Organisation.’ Harvard Business Review, 56.

Christopher, Martin. 1983. ‘Creating Effective Policies for Customer Service.’ International Journal of Physical Distribution and Material Management, 13 (2): 3–24.

Christopher, Martin. 1994. ‘Assessing the Cost of Customer Service.’ In James Cooper, ed. Logistics and Distribution Planning. London: Kogan Page, pp. 24–35.

Goulter, Robin A., and Mark Ligas. 2004. ‘Typology of Customer Service Provider Relationship: The Role of Relational Factors in Classifying Customers.’ Journal of Services Marketing, 18 (6).

Kannan, Nari. 2005, July. ‘Business Process Improvement Using Cause-and-Effect Analysis and Design of Experiments.’ DM Direct. Retrieved from http://www.dmreview.com/dmdirect/20050708/1031665-1.html

Sasser, W. Earl, Richard Paul Olsen, and D. Daryl Wyckoff. 1978. Management of Service Operations Text Cases and Readings. Boston: Allyn & Bacon.

Saxena, Rajan. 1992. ‘Customer Service for Global Market Economy.’ NMIMS Management Review, 4 (1).

Sureshchander, G. S., Charndrashekharan Rajendran, and T. J. Kamalnabhan. 2001. ‘Customer Perceptions of Service Quality: A Critique.’ Total Quality Management, 12 (1).

Tompkins, James A., and Dale A. Harmelink. 1994. The Distribution Management Handbook. New York: McGraw-Hill, pp. 3.1–3.39.

Zeithml, Valarie A., A. Parasuraman, and Leonard L. Berry. 1990. Delivering Quality Service. New York: The Free Press.

Zikmund, W. G., and M. d'Ameco. 2001. Services Marketing. Singapore: Thomson Asia, pp. 331–332.