CUSTOMER SERVICE IN SUPPLY CHAIN MANAGEMENT

TOPIC FOURTOPIC 4
 LESSON OBJECTIVES

1. Terms used in customer service

2. Ways of managing key customers

3. Customer lifetime value

4. Elements of delivering against customer needs and core promises

 4.1 Terms used in customer services
Customer
A customer is a person or organization that a marketer believes will benefit from the goods and services offered by the marketer’s organization.
APICS dictionary defines a customers as a person or organization receiving a good , service or information.
 Service
Service refers to an activity or series of activities of more or less intangible nature that normally, but not necessarily, take place in interactions between customers and service
employees and/or physical resources or goods and/or systems of the service provider, which are provided as solutions to customer problems.
Customer service
Customer service can be defined as a process which takes place between buyer, seller and the third party. The process results in a value added to the product or service exchanged.
 Cont’
 Customer service
Customer service can be defined as a process which takes place between buyer, seller and the third party. The process results in a value added to the product or service exchanged.
APICS Dictionary defines customer service as the ability of a company to address the needs, inquiries, and requests from customers.
 Customer Service Management (CSM)
Customer service management is understood from three perspective; as an activity consisting of order processing, proof of delivery, invoicing accuracy, timeliness of delivery
e.t.c.;
As a set of performance related criteria focused on service and satisfaction metrics; Finally as a corporate philosophy concerned with imbedding CSM within the long-term
strategies of the enterprise.
 4.1.1 Importance of Customer Service

Provides value – Great customer service programs should focus on treating customers well, answering questions, and exceeding their expectations.
Retains customers – Keeping loyal customers is way less expensive than getting new ones. Research shows that it costs about six to seven times more to
attract new customers than to retain existing business.
Creates endorsements – Loyal customers provide positive endorsements and online reviews that can help businesses strengthen their brand. A loyal customer on
average is 10 times more valuable than their first purchase.
Cont’
Prevents business failure – About 96 percent of businesses close their doors within 10 years. One of the contributing problems is poor customer service.
Reduces employee turnover – Employees want to work for businesses that appreciate worker contributions, encourage new ideas and treat customers fairly
 4.2 Customers

Although in general terms, a customer is a person or organization that a marketer believes will benefit from the goods and services offered by the
marketer’s organization, it is possible to distinguish them as internal and external customers.
Internal customers are people who work and develop activities within any organization.
On the contrary, external customers are people or entities outside the organization and conduct business with it.
 The are various types of customers in a supply chain including, suppliers, distributors, retailers, internal user departments, end-customers, agents or
brokers, manufacturers.
 4.3 Ways of Managing Key Customers in the Supply Chain

 It is one thing to attract customers to your service, but retaining them is another ball game altogether.
There is need to show the right amount of availability and flexibility, while making sure to keep them interested in your product or service, by offering them a
variety of exciting incentives.
The following are some of the ways to manage key customers in the supply chain:

1. Deliver beyond expectations

The concept of ‘under-promising and over-delivering’ is examined which, in nine out of ten cases, will end up working towards the company’s advantage. If
you tell your customer to expect a call-back from you within the next 24 hours and you get back to them within six hours instead, it will reflect positively on
your company.
 2. Be Proactive in Addressing Issues and Complaints

One of the best customer service practices is being proactive in addressing client issues and complaints.
 If you want to enhance client satisfaction levels, be quick in solving service issues.

Always empathize with angry and frustrated clients, apologize to them and offer solutions without making them wait.
After an issue or a complaint has been fixed, take feedback from the client to ask if he/she is happy with the solution offered.
 3. Be Open to Criticism and Client Feedback

Being open to criticism and all sorts of feedback is one of the most effective ways to enhance client satisfaction levels.
 If you receive a negative product/service review, take it as an opportunity to rectify your mistakes and improve your client relationships.
Your customers would always give you preference if they know you give importance to their feedback.
Make your feedback processes easy for your clients and implement their suggestions in minimum time to show that you value their ideas.
 4. Constantly Improve and Innovate the Service Experience

 In order to satisfy your clients and to keep them coming back to you, improve and innovate your service experience.
See which areas of your service can be improved and bring in fresh ideas to make the experience more delightful.
Keep offering your customers something new.

For instance, if you are running a restaurant and you feel that customers have to wait for the takeaway service, introduce an app through which they can
place the order and get the food delivered at their doorstep.
 5. Incentives

The customer is not obliged to be loyal to your company.

Not only can they tie themselves with as many companies and services they see fit, it is natural they will end up sticking with the ones they trust most.

To this end, it is necessary to make sure that you can offer your customer enough of an incentive to stick by your company for the long-run.
This could range from something like offering them a discount on their next purchase to sending them free products.
 4.4 Customer Lifetime Value (CLV)

 Ultimately the success or failure of any business will be determined by the level of customer value that it delivers in its chosen markets and it derives
from its customers.
Customer value can be defined quite simply as the difference between the perceived benefits that flow from a purchase or a relationship and the total
costs incurred.
LCV is defined as a prediction o of the net present value of the future profits attributed to the entire future relationship with a customer.
Customer Lifetime Value can also be defined as a prediction of all the value a business will derive from their entire relationship with a customer
The Pareto Principle states that, for many events, roughly 80% of the effects come from 20% of the causes.
Customers in the top 10 % provide 90 % of the profits
Customers in the top 20 % provide 130 % of the profits
Customers in the top 40 % provide 140 % of the profits
Customers in the bottom 60 % provide <– 40 %> of the profits
 This analysis suggests that the top 40 % of the customer base generates 140 % of the profits, whereas the bottom 40 % actually results in a loss of 40 %.
Supply chain management is almost unique in its ability to impact both the numerator and the denominator of the customer value ratio. This point becomes clearer if we expand the
ratio as follows.
Customer value= Quality X Service

Cost X Time
DIMENSIONS OF CUSTOMER VALUE

Value Relationship

dimension

Peace of
Mind
Buying
Experience Smart
Technologi
es
 Elements of Customer Value
 Value Dimension
This helps the supplier to understand what the customer considers as value. Basically, what customers want from their suppliers depends on the value of perceived solutions and
benefits attained from their suppliers and the cost to acquire them. In general, the contents of what provides value to the customer is decomposed into three regions
 Economic value
Customers receive economic value when they leverage a product or service to generate additional value beyond the initial cost. Value is also acquired when the customer
applies the product or service to reduce associated production, carrying, or other costs which exceed the original cost of the purchase.
 Solution value
The acquisition of a product or service provides benefits to the customer by providing access to certain functions, features, or attributes that provide a level of desired
performance or capability.
 Psychological Value
Normally focused around the concept of brand, customers feel that they receive increased benefits and reduced risk when they buy from a trusted supplier.
 Relationship
Today’s customer is searching more than ever to build close relationships with their supply chains. Relationships affirm customers’ feelings that the dialogue with their
suppliers provides them with an unmistakable sense of empowerment as well as partnership that will be replicated over and over again.
 Peace of Mind
“Peace of mind” is broken down into two interconnected components: conformance and assurance. Conformance is concerned with how effectively the product or service
consistently matches expected specifications without the customer continuously verifying the contents of the goods or measuring the results once applied to the want or
need. Possible dimensions of conformance extend to such attributes as, reliability, durability and aesthetics.
Assurance is focused more on the confidence or trust, often subliminal, that dealing with a tried-and-true product or supplier brings to a transaction.
Possible dimensions of assurance are responsiveness, courtesy, competence e.t.c.
 Buying Experience
In today’s global marketplace, customers have come to measure value based, not only on the products and services, but equally on the experiences they
receive when they interact with a supplier. In turn, today’s best companies are succeeding by unearthing and nurturing a special intimacy with their
customers aimed at capturing unmistakable competitive advantage and new levels of profitability.
Factors Influencing Customer Service Quality

 Reliability - Once a company publishes their commitment to a specific level of customer service, their ability to live up to that standard is the measurement
of their reliability. Reliability of service permits supply chains to “lock-in” their customers who will gladly pay premium prices for delivered quality.
 Tangibles - This element refers to the appearance a firm’s service functions project to the customer. Often the image a company wishes to communicate
includes such tangibles as new facilities, state-of-the-art technology, highly qualified personnel, and the latest equipment. Tangibles are designed to give
customers a sense of confidence and assurance that the products and services they are receiving are truly “world class.”
Cont’
Responsiveness - The ability of a supply chain to respond to customer needs quickly and concisely lets customers know that their time and costs are important.
Whether rendering prompt presales service or a willingness to assist with product quality issues, a helpful attitude and timely service will always leave the
customer with the sense of dealing with a winner.
 Credibility. Service leaders base their success on high standards of honesty, trustworthiness, and believability. Customers purchase products from firms that
live up to claims of the best quality possible at the lowest price.
Assurance - Customers need to feel assured that the supplier possesses the required skills and knowledge to assist them when product or support issues arise.
Firms that support their products with superior services will always be leaders in their marketplaces.
Cont’
 Security. The delivery of products and services must be accompanied by a sense of Security. The delivery of products and services must be accompanied by a sense
of security on the part of the purchaser. Issues range from Internet transaction security to confidence about shared proprietary information. Security frees
customers from doubts and provides “peace of mind” for the products and accompanying services they purchase.
 Access. This service element has several facets. Foremost, access is the degree of ease by which customers can purchase products or contact sales and service
staffs. Access also refers to the availability of goods and services within a time limit generally accepted by the industry. Finally, access means the speed by which
after-sales replacement parts and services are delivered to the customer.
 Communication. The availability of sales and services staff to respond quickly and intelligently to customer questions concerning products, services, account status,
and the status of open orders is the primary tier of a firm’s customer communication function. Effective customer communication stands as a fundamental
cornerstone for service leadership.
Cont’
 Courtesy. Many a future sale is won or lost based on the way the customer is treated in the presales and post-sales cycles. Companies who do not
respond to their customers with politeness, respect, consideration, and professionalism are destined to lose them to competitors who do.
 IMPROVING CUSTOMER LIFETIME VALUE

1. Customer Satisfaction

Making your customers happier will usually result in them spending more money at your company.

Companies that are actively geared towards their customer's success are experiencing more revenue because of increased customer satisfaction.
2. Customer Retention

 Acquiring a new customer can be a costly affair. Gaining a customer can cost anywhere between five and 25 times more than retaining an
existing one.
 A 5% increase in retention rate can lead to an increase in profit between 25% to 95%.
 4.5 Elements of delivering against customer needs and core promises

LaLonde and Zinszer in a major study of customer service practices suggested that customer service could be examined under three headings:
Pre-transaction elements

 Transaction elements

 Post-transaction elements
Pre-transaction elements:

These are customer service factors that arise prior to the actual transaction taking place. They include:
◦ Written customer service policy;
◦ Accessibility of order personnel;
◦ Single order contact point;
◦ Organizational structure;
◦ Method of ordering;
◦ Order size constraints;
◦ System flexibility;
Transaction elements

these are the elements directly related to the physical transaction and are those that are most commonly concerned with distribution and logistics. Under
this heading would be included:
◦ Order cycle time;
◦ Order preparation;
◦ Inventory availability;
◦ Delivery alternatives;
◦ Delivery time;
◦ Delivery reliability;
◦ Delivery of complete order;
◦ Condition of goods;
◦ Order status information
Post-transaction elements

these involve those elements that occur after the delivery has taken place, such as:
◦ Availability of spares;
◦ Call-out time;
◦ Invoicing procedures;
◦ Invoicing accuracy;
◦ Product tracing/warranty;
◦ Returns policy;
◦ Customer complaints and procedures;
◦ Claims procedures.
Principles of Good Customer Service

1. Speed

Speed or responsiveness shows up in almost all studies as a main determinant for service quality. Responsiveness has the highest impact on both
customer satisfaction (fast response) and dissatisfaction (slow response).
2. Accuracy

Besides being fast, your service answers should, obviously, be correct. Customers regard accuracy as the minimum. It won't raise customer satisfaction, but
inaccuracy definitely causes dissatisfaction.
3. Accessibility
If your customer has a problem, how easy is it for him or her to get in touch? For a long time, the entire customer service theory focused on delighting the
customer on exceeding expectations. It pays off more to focus on reducing customer effort instead.
4. Friendliness
All service is based on human-to-human communication, even the self-help kind.

5. Efficiency
You can have the world's best service, but what is the use when it is eating up all of your profits? Efficiency will always be a crucial factor in customer
service.
SELF TEST QUESTIONS

Q1. Discuss the importance of customer service in supply chain organizations.

Q2. Explain five strategies of managing customers in supply chain management.

Q3. Discuss the pre, transactional and post transaction elements of customer service in the supply chain management.
Q4. Explain five principles of Good Customer Service in supply chain.