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1 How would you define customer service? In a retail store: How long must I wait in line? If I cannot find an item, can I find a clerk who is willing to.

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Presentation on theme: "1 How would you define customer service? In a retail store: How long must I wait in line? If I cannot find an item, can I find a clerk who is willing to."— Presentation transcript:

1 1 How would you define customer service? In a retail store: 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: 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 its an automated system, are the instructions clear?

2 2 Customer Service Elements Pretransaction elements: Written policies System flexibility Clarity of procedures Technical help Transaction elements Backorder policies Order cycle time (lead time) Product substitution Complexity of transaction (convenience)

3 3 Customer Service Elements Post-transaction elements 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)

4 4 Steps to Follows in Determining the Service Standards 1) Understanding the customers business 2) Understanding who represents the customer 3) Asking the representatives to express their requirements What is important to you? Which service dimensions make a difference in your buying decision? How do you prioritize those service dimensions? 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? What is current performance? How do you measure it? How well does our company meet the requirements? How well do competitors meet the requirements?

5 5 Continues... How can we be easier to do business with? What things are we doing that we should not be doing? What things arent we doing that we should be doing? How can we create value? 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?

6 6 Methods of Identifying Requirements Interview approach Outside research firms or consultants Telephone and mail surveys Focus groups Using current performance and noise levels Benchmarking

7 7 Frequency of Contact Pulse Surveys Vision Surveys Continuous customer-specific communication with key accounts

8 8 Understanding Requirements of the Order Fulfillment Process Ordering Process Ease of order placement and timely information Direct order transmission Product availability information Product technical information Pricing information Credit check information

9 9 Understanding Requirements of the Order Fulfillment Process.. Delivery Cycle Timely reliable delivery with good communications Order acknowledgement(including quantities to be shipped) Total order cycle time Order cycle consistency Delivery on day requested On site training Handling of emergencies

10 10 Understanding Requirements of the Order Fulfillment Process.. Order Receipt and Follow-up Accurate, complete,undamaged orders with prompt claims handling and accurate invoices Order completeness Accurate invoices Accurate shipping documents Damage free delivery Prompt handling of claims Consistent return policies Good working relationship with supplier

11 11 Steps to Follows in Determining the Service Standards(continues) 4. Interpreting what the customer wants and is willing to pay for

12 12 Improved customer service(%) Cost Transportation, order processing, inventory carrying costs Total cost curve Lost sale cost Specification of Customer Service Level

13 13 Cost vs. Service Models 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, where K is a constant between 0 and 1. Customer Service Level Revenue (sales) Profit Logistics costs

14 14 Customer Service Aspects of Logistics: Order cycle time: time between placing order and receiving product Order transmittal Order processing and assembly Additional stock acquisition time (if out of stock) Delivery time p. 91: 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.

15 15 Cost vs. Service Models Suppose now that since the equation for cost appears parabolic, we relate logistics costs C to service level through the equation: C = k*SL 2, 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:

16 16 Taguchi Loss Function 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.

17 17 Framework For Developing A Service Strategy 1. Understand Customer Requirements 2. Analyze Current Capabilities 3. Assess Competitiors Capabilities 4. Identify Gaps 5. Identify Options To Gain Strategic Advantage 6. Analyse Trade- offs 7.Select Service Dimensio ns to Compete On 8.Structure Service Offerings and Set Goals Monitor and Update

18 18 Taguchi Loss Function Practitioners often find these constants, such as k and K, difficult to quantify, since we dont 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: 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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