Customer Service Transportation/Logistic Strategy Customer Service Definitions Elements of Customer Service Estimating the Benefits of Service Estimating the Costs of Service Determining Optimal Service Levels

Customer Service Transportation/Logistic Strategy Elapsed Time Between the Receipt of an Order at the Warehouse and the Shipment of the Order from the Warehouse. Minimum Size of Order, or Limits on the Assortment of Items in an Order Which a Supplier Will Accept from Customers. Percentage of Items in a Supplier's Warehouse Which Might be Found to be Out-of-Stock at Any Given Point in Time. Proportion of Customer Orders Filled Accurately. Percentage of Orders Filled Within a Certain Time Period from Receipt of the Order at the Supplier's Warehouse. Percentage of Customer Orders Filled Completely Upon Receipt at a Supplier's Warehouse. Proportion of Goods Which Arrive at a Customers Place of Business in a Saleable Condition. Elapsed Time Between the Placement of an Order by a Customer and the Delivery of the Goods to the Customer. Ease and Flexibility with Which a Customer Can Place Orders. Definitions of Customer Service

Customer Service Transportation/Logistic Strategy Customer Service Definitions Elements of Customer Service Estimating the Benefits of Service Estimating the Costs of Service Determining Optimal Service Levels

Customer Service Transportation/Logistic Strategy Cycle Time Dependability Convenience Communication Elements of Customer Service

Customer Service Transportation/Logistic Strategy Approval Time Transmittal Time Processing Time Assembly Time Shipment Time Re-Stock Time Cycle Time Elements of Customer Service

Customer Service Transportation/Logistic Strategy Order Requested Approval Time Transmittal Time Processing Time Assembly Time Delivery Time Order Received In Office Order Sent to Warehouse Order Sent to Supplier Order Shipped Order Delivered    Need Fulfilled Need Recognized Replenishment Completed Events Activities Unload/Re-Stock Time The Order Cycle (Need Recognition to Need Fulfillment)

Customer Service Transportation/Logistic Strategy Consistency Completeness Correctness Condition Dependability Elements of Customer Service

Customer Service Transportation/Logistic Strategy Ease of Placing Orders Constraints on Order Sizes Constraints on Placement Times Who Arranges Transportation Convenience Elements of Customer Service

Customer Service Transportation/Logistic Strategy Easy Access to Empowered People No Surprises Communication Elements of Customer Service

Customer Service Transportation/Logistic Strategy Customer Service Definitions Elements of Customer Service Estimating the Benefits of Service Estimating the Costs of Service Determining Optimal Service Levels

Customer Service Transportation/Logistic Strategy Effects of Service Levels on Revenue Service Level $ Revenue Estimating the Benefits of Service

Customer Service Transportation/Logistic Strategy Logistics Service as a Sales/Promotion Tool Methods of Estimation Questionnaires Historical Data Multiple Regression Analysis Example Important Issues Estimating the Benefits of Service

Customer Service Transportation/Logistic Strategy P = Price Adv = Advertising SF = Sales Force Pro = Other Promotions OCT = Order Cycle Time VCT = Variability in OCT BO = Back Orders BOT= Back Order Time FR = Fill Rate IC = Incorrect Shipments LD = Loss & Damage Sales = f (P, Adv, SF, Pro, OCT, VCT, BO, BOT, FR, IC, LD) Where: An Example Estimating the Benefits of Service

Customer Service Transportation/Logistic Strategy Logistics Service as a Sales/Promotion Tool Methods of Estimation Questionnaires Historical Data Multiple Regression Analysis Example Important Issues Non Linear Relationships Lagged Relationships Cumulative Effects Estimating the Benefits of Service

Customer Service Transportation/Logistic Strategy Variable Coefficient T-Ratio Constant Price Pro (4mma,t-4) OCT (5mma,t-5) BOT (3mma,t-2) Crd (3mma,t-2) R 2 = 71.4%; F=16.951; df = 34 Revenue and Service Variables Estimating the Benefits of Service

Customer Service Transportation/Logistic Strategy Customer Service Definitions Elements of Customer Service Estimating the Benefits of Service Estimating the Costs of Service Determining Optimal Service Levels

Customer Service Transportation/Logistic Strategy The Traditional Economic View of Service Quality Crosby’s View that Quality is Free Two Views of the Cost of Service Quality Estimating the Cost of Service

Customer Service Transportation/Logistic Strategy Traditional Economic View Service Level $ Cost of Service Costs Increase at an Increasing Rate Estimating the Cost of Service

Customer Service Transportation/Logistic Strategy Do it Right the First Time (DIRT FT) Costs are not Affected by Levels of Quality and May Perhaps Have a Positive Effect Crosby’s View that Quality is Free Estimating the Cost of Service

Customer Service Transportation/Logistic Strategy Service Level $ Cost of Service Cost of Service if Quality is Free No Relationship Between Cost and Service Estimating the Cost of Service

Customer Service Transportation/Logistic Strategy Cost of Service if Quality has a Positive Effect $ Cost of Service Service Level Costs Fall as Service Improves Estimating the Cost of Service

Customer Service Transportation/Logistic Strategy Which View is Correct? Traditional View vs Crosby? A Better Question is When is each View Correct? Physical Capacity vs Human Performance Measure Each Dimension of Service Quality Separately Estimating the Cost of Service

Customer Service Transportation/Logistic Strategy Customer Service Definitions Elements of Customer Service Estimating the Benefits of Service Estimating the Costs of Service Determining Optimal Service Levels

Customer Service Transportation/Logistic Strategy Service Level $ Cost Revenue * Profit = Revenue - Cost Determining Optimal Service Levels

Customer Service Transportation/Logistic Strategy Maximize Profit Where the Slope of the Profit Curve = Zero Service Level Profit Slope Positive Slope Negative Slope = Zero * Determining Optimal Service Levels

Customer Service Transportation/Logistic Strategy Profit  =  = Revenue - Cost  Revenue = X.5.5 Cost = X (Fill-Rate Example) Determining Optimal Service Levels

Customer Service Transportation/Logistic Strategy and solve for X  = X. 5 - [ X 2. 5 ]  = X X 2. 5 To maximize profit, set 1st derivative = zero X = 10/11.9  =.92 (Fill-Rate Example) Determining Optimal Service Levels

Customer Service Transportation/Logistic Strategy Ozment and Chard (3M Company) Aditi Sen (Holiday Inn) Ahren Johnston (JB Hunt Transport) Estimating the Cost of Service Previous Efforts

Customer Service Transportation/Logistic Strategy Longitudinal data obtained directly from a national truckload motor carrier Data set contained cost and service quality data on every order for nine months Research focused on truckload, but data also was available for intermodal shipments Data aggregated into daily observations for use in the analysis Ahren Johnston (JB Hunt) Estimating the Cost of Service

Customer Service Transportation/Logistic Strategy H9: Total operating costs will be positively related to increases in the physical dimension of service quality. H10: Total operating costs will be negatively related to increases in the human performance dimension of service quality. Ahren Johnston (JB Hunt) Estimating the Cost of Service

Customer Service Transportation/Logistic Strategy The general model estimated was: C = f (X, W, Z, Q) Where: C = Cost of Operations X = Output W = Vector of Input Prices Z = Vector of Operating Characteristics Q = Vector of Quality Characteristics Ahren Johnston (JB Hunt) Estimating the Cost of Service

Customer Service Transportation/Logistic Strategy Reasons for Service Failures Reason CodeDescription Physical/Capacity or Human Performance 36Poor Trip Planning – Left Late, Route, Fuelling ErrorHuman 56 Tractor (Mechanical) Capacity 57 Trailer/Equipment (Mechanical) Capacity BEBilling ErrorHuman 15 No Power – Missed Delivery Capacity 42 Communication Errors (ETAs, Hours, Time Off) Human 94Receiver on Previous LoadHuman 89Booked Excess Loads for CapacityHuman 16No Power – Missed PickupCapacity 13Late Preplan on PickupHuman 91Driver Refused DeliveryHuman 29Incorrect Customer Directions – Missed DeliveryHuman 37Sick/InjuryHuman Estimating the Cost of Service

Customer Service Transportation/Logistic Strategy C = f (X, W1, W2, W3, W4, Z1, Z2, Z3, Q1, Q2) Where: C = Total Cost of Operations X = Revenue Ton Miles W1 = Price of Fuel W2 = Price of Labor W3 = Price of Capital W4 = Price of Purchased Transportation Z1 = Average Length of Haul Z2 = Average Load per Vehicle Z3 = Empty Mileage Q1 = Physical Dimension of Quality Q2 = Human Performance Dimension of Quality Motor Carrier Costs and Service

Customer Service Transportation/Logistic Strategy Order Level Stop Level Variable Parameter Coefficient Significance Coefficient Significance Constant α X αX W1 β W2 β W3 β W4 β Z1 τ Z2 τ Z3 τ Q1 φ Q2 φ Q1Q2 ψ Ahren Johnston (JB Hunt) Estimating the Cost of Service

Customer Service Transportation/Logistic Strategy (multiply both sides by X. 5 ) 10 = 11.9 X 1. 5 X. 5 = 11.9 X 2 10/11.9 =.84 = X X = 11.9 X 1. 5  ’ = 10 X X 1. 5 = 0