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 it’s an automated system, are the instructions clear?

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. 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. Steps to Follows in Determining the Service Standards
1) Understanding the customer’s 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. Continues... 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?

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

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

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

13. Cost vs. Service Models
Customer Service Level
Revenue (sales)
Profit
Logistics costs
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.

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. 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*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:

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. 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. Taguchi Loss Function
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:
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.