Presentation on theme: "How would you define customer service?"— Presentation transcript:
1How 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 it’s an automated system, are the instructions clear?
2Customer Service Elements Pretransaction elements:Written policiesSystem flexibilityClarity of proceduresTechnical helpTransaction elementsBackorder policiesOrder cycle time (lead time)Product substitutionComplexity of transaction (convenience)
3Customer Service Elements Post-transaction elementsInstallation, warranty, repairsClaims, complaintsPackagingTemporary replacement during repairCourtesyReliability and integrityWillingness to bend over backwards for the customerWillingness to respond to customer wants and needs (with new or better products)Clarity of communications to customerIntegrated information systemsA monopolistic company must also adhere to these guidelines in case competition strikes in the future (e.g. AT&T, cable, utility companies)
4Steps to Follows in Determining the Service Standards 1) Understanding the customer’s business2) Understanding who represents the customer3) Asking the representatives to express their requirementsWhat 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?
5Continues... How can we be easier to do business with? 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?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?
6Methods of Identifying Requirements Interview approachOutside research firms or consultantsTelephone and mail surveysFocus groupsUsing current performance and “noise levels”Benchmarking
7Frequency of Contact Pulse Surveys Vision Surveys Continuous customer-specific communication with key accounts
8Understanding Requirements of the Order Fulfillment Process Ordering ProcessEase of order placement and timely informationDirect order transmissionProduct availability informationProduct technical informationPricing informationCredit check information
9Understanding Requirements of the Order Fulfillment Process.. Delivery CycleTimely reliable delivery with good communicationsOrder acknowledgement(including quantities to be shipped)Total order cycle timeOrder cycle consistencyDelivery on day requestedOn site trainingHandling of emergencies
10Understanding Requirements of the Order Fulfillment Process.. Order Receipt and Follow-upAccurate, complete,undamaged orders with prompt claims handling and accurate invoicesOrder completenessAccurate invoicesAccurate shipping documentsDamage free deliveryPrompt handling of claimsConsistent return policiesGood working relationship with supplier
11Steps to Follows in Determining the Service Standards(continues) 4. Interpreting what the customer wants and is willing to pay for
12Specification of Customer Service Level CostTotal cost curveTransportation, order processing, inventory carrying costsLost sale costImproved customer service(%)
13Cost vs. Service ModelsCustomer Service LevelRevenue (sales)ProfitLogistics costsSince 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.
14Customer Service Aspects of Logistics: Order cycle time: time between placing order and receiving productOrder transmittalOrder processing and assemblyAdditional stock acquisition time (if out of stock)Delivery timep. 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.
15Cost vs. Service ModelsSuppose 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:
16Taguchi Loss FunctionGenichi 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.
17Framework For Developing A Service Strategy 1. Understand Customer Requirements2. Analyze Current Capabilities3. Assess Competitiors’ Capabilities4. Identify Gaps5. Identify Options To Gain Strategic Advantage6. Analyse Trade-offs7.Select Service Dimensio ns to Compete On8.Structure Service Offerings and Set GoalsMonitor and Update
18Taguchi Loss FunctionPractitioners 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:Either we create a term in our objective function that captures cost as a function of service level, orWe create constraints that require our decision variables to satisfy a certain minimum level of service.