Chapter Four: Customer

Accommodation

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Overview of customer accommodation
• Customer-focused marketing
• Customer service
• Customer satisfaction
• Customer success
• Developing customer relationship
management strategy

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Who is the customer?
• From perspective of the total supply chain
• End user of product in consumer market
• Company is customer in business market

• From perspective of specific firm within a supply

chain
• Intermediate customer organizations exist between the
firm and end users

• From perspective of a logistics manager

• Any delivery location
• For example, consumer home’s, retail / wholesale
businesses, receiving docks of manufacturing plants and
warehouses

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Basic principles of the marketing concept
• Customer needs and requirements are more basic than products and
services
• Different customers have different needs and requirements
• Products and services become meaningful only when available and
positioned from the customer’s perspective
• Profit is more important than sales volume

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Transactional vs. Relationship Marketing
Transactional marketing is a traditional
strategy with a focus on creating
successful individual transactions
between the company and its
customers
Relationship marketing is a new
strategy with a focus on the
development of long-term relations
with key supply chain participants in an
effort to develop and retain long-term
preference and loyalty

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Relationship marketing to a segment of one
• Micromarketing or one-to-one marketing recognizes that
each individual customer may indeed have unique
requirements
• For example, Wal*Mart and Target are both mass merchandisers
• However, their requirements to interact logistically with suppliers
differs significantly
• One-to-one relationships can
– Significantly reduce transaction
costs
– Better accommodate customer
requirements
– Move individual customer
transactions into a matter of
routine

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3 discrepancies must be overcome to enable exchange of
goods and services
• Discrepancy in space refers to the fact that the location of production
activities and location of consumption are seldom the same
• Discrepancy in time refers to the difference in timing between
production and consumption
• Discrepancy in quantity and assortment refers to the mismatch
between customer demand and manufacturing supply
• Customers seek small quantities and wide assortment
• Firms specialize in large quantities of a limited assortment

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 Four generic supply chain service
outputs eliminate discrepancies
• Spatial convenience is the amount of shopping time and effort will be
required on the part of the customer
• Lot size is the number of units to be purchased in each transaction
• Waiting time is the amount of time the customer must wait between ordering
and receiving products
• Product variety and assortment differs by supply chain
• Supermarkets may have over 35,000 items on the shelves
• Warehouse stores generally stock 8,000 to 10,000 items with only one brand and size of
an item
• Convenience stores may stock only a few hundred items

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Omni-channel marketing
• Describes an approach by which firms market to customers through a
variety of channels (online, bricks and mortar facilities, telephone,
etc.)
• Different channels offer different mixes of the generic supply chain
service outputs

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Three levels of customer accommodation
• Supply chains provide a mix of services, both generic and custom, in
order to accommodate a range of customer requirements
• Each service mix can be configured to achieve one of the following
levels of customer accommodation
• Customer service
• Customer satisfaction
• Customer success

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Customer service provides customers
• With the right amount
• Of the right product
• At the right time
• And the right place
• In the right condition
• At the right price
• With the right information

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Fundamental elements of customer service
• Service Reliability
• Availability
• Damage free
• Fill rates
• Error-free invoices
• Stockout frequency
• Shipment matches order
• Orders shipped complete
• Shipped to correct
• Operational Performance location
• Speed • Etc.
• Consistency
• Flexibility
• Malfunction recovery

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 Availability is the capacity to have
inventory when desired by a customer
• Fill rate measures the
magnitude or impact of
stockouts over time
• Stockout occurs when a
firm has no product
available to fulfill
customer demand
• Orders shipped complete
requires shipping
everything that a
customer orders to count
as a complete shipment

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Operational performance deals with the time required to
deliver a customer’s order
• Speed of the performance cycle is the
elapsed time from when a customer
established a need to order until the
product is delivered
• Consistency of the order cycle is measured
by the number of times that actual cycles
meet the time planned for completion
• Flexibility is a firm’s ability to accommodate
special situations and unusual or
unexpected customer requests
• Malfunction recovery is a firm’s ability to
quickly implement contingency plans when
a failure occurs in the supply chain

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Service reliability is a firm’s ability to perform all order-related activities
and provide critical info

• Service reliability involves a combination of logistics attributes beyond

simply availability and operational performance. For example:
• Damage free measures how many shipments arrive without damaged
products
• Error-free invoices measures what percentage of invoices contain no errors
• Shipment matches order measures how many shipments contain the exact
amount of product ordered
• Shipped to correct location measures how many shipments are made to the
customer’s selected location
• Plus a capability and willingness to provide customers with accurate
information regarding operations and order status

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The perfect order is the ultimate in logistics
service levels
• The perfect order is an order that is
• Delivered complete
• Delivered on time
• Delivered at the right location
• Delivered in perfect condition
• Delivered with complete and accurate documentation
• This requires the total order cycle performance to be
executed with zero defects

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Example of zero-defect performance measurement

• Consider an order cycle that achieves the

following performance levels for shipments
• 97% delivered complete
• 97% delivered on time
• 97% delivered in perfect condition Therefore, the
• 97% delivered with correct documentation probability that any
• Probability that any order will be delivered order has a problem is
with no defects is only 88.5% 11.5%
• P (zero defects) = .97 x .97 x .97 x .97 = .885

What resources are

needed to achieve a zero-
defect level?
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The basic service platform is a commitment to perform each basic
element at a given level
Service platform for customer A Service platform for customer B
• Availability level = Medium • Availability level = Low
• Operational performance = High • Operational performance =
• Service reliability = Above average Medium
Operational
• Service reliability = Average
Performance
Level

Basic
Service
Platform Service
Availability
Reliability
Level
Level

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How much basic service should the supply chain provide?
• Many firms establish their basic service platforms using two
factors
• Competitor or industry acceptable practice
• Minimum and average service performance levels have emerged in
most industries
• The firm’s overall marketing strategy
• High service levels needed to compete on basis of logistics competency
• Low service levels are more common when competing on the basis of
price
• Zero-defect approach is not taken across the board for all
customers
• Establish internal performance standards for each service
component to reflect industry practice, cost and resource
requirements

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What is customer satisfaction?
• Expectancy disconfirmation states if a customer’s expectations of a
supplier’s performance are met or exceeded, the customer will be satisfied
• If Perceived Performance > = Expectations, then Satisfaction
• If Perceived Performance < Expectations, then Dissatisfaction

“Customers will be satisfied if a supplier meets or exceeds

the customer’s expectations”

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Customer expectations related to logistical performance from
Table 4.2
• Reliability • Security
• Responsiveness • Courtesy
• Access • Competency
• Communication • Tangibles
• Credibility • Knowing the customer

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How are customer expectations created?

Figure 4.1 Satisfaction and Quality Model

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The model identifies gaps managers must fill to help satisfy
their customers
• Gap 1: Knowledge • Gap 4: Communications
• Reflects management’s lack of • Overcommitment or promising higher
knowledge or understanding of levels of performance than can actually
customers be provided
• Gap 2: Standards • Gap 5: Perception
• Exists when internal performance • Customers sometimes perceive
standards do not adequately reflect performance to be higher or lower than
customer expectations actually achieved
• Gap 3: Performance • Gap 6: Satisfaction/Quality
• The difference between standard and • When one or more gap exists customer
actual performance perception is that performance does not
meet expectations

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 Increasing customer
expectations
• Performance that meets customer
expectations one year may result in
extreme dissatisfaction next year
• Competition in an industry will often
raise the minimum standards that
customer expect
• For example, Federal Express introduced
real-time tracking of shipment status
• In response UPS and other parcel delivery
firms added this service to their platform

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 Why customer satisfaction is not
sufficient
• Satisfied customers may not be happy
with the supplier’s performance • What satisfies one customer
• Customer satisfaction focuses on may not satisfy other, much
expectations - not customer’s real less all, customers
requirements
– There is a tendency by
• Considerable research suggests that companies to treat all
“satisfied” customers still are likely to customers as being equal and
defect identical

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Low expectations always result in satisfied
customers
But what if
customer
requirements are
not met?

Figure 4.2 Satisfaction Is Not the Same as Happiness

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3 levels of customer focus
Level 3 Focus
• Assess customer requirements
• Extend supply chain to include our customer’s
customer
• Provide value-added services for select customers
• Manage performance cycles and levels to address
Customer needs of each customer segment in the extended
supply chain
Success
Level 2 Focus
• Assess customer perceptions of satisfaction
• Manage performance cycle levels to keep
customers satisfied

Customer
Satisfaction
Level 1 Focus
• Assess industry and competitor practices
• Achieve internal standards for performance
cycles

Customer
Service
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 Achieving customer success requires knowledge of
individual customer requirements

• Not all customers have the same requirements

• Know your customers’ processes
• Determine how your capabilities can enhance your customers’ performance
• Extend the supply chain boundaries to include next-destination customer requirements
• Introduce new performance metrics
• Develop value-added services for select customers

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Customer success requires a comprehensive supply chain
perspective

Figure 4.3 Moving Towards Customer Success

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Value-added services are a first step in
achieving customer success
• Value-added services refer to unique or specific activities that firms
can jointly develop to enhance their efficiency, effectiveness and
relevancy
• Transportation carriers, warehouse firms and other specialists may
become intimately involved to make value-adding activities a reality
• For example, a retail customer may desire a unique palletization
alternative to support its cross-dock activities for its individual stores
• Each store requires different quantities of specific product to maintain in-
stock performance with minimum inventory

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 Developing a customer accommodation
strategy
• Basic principle of supply chain logistics
is that customers should be segmented
based on their service needs
• Supply chain must adapt to serve those
segments
• Companies need
• A framework for choosing the appropriate
customer specific strategies
• Programs for customer relationship
management

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Framework for choosing a customer accommodation strategy using
profit categories
Table 4.4 Choosing Customer Accommodation Strategy

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Customer relationship management has grown rapidly in
recent years
• Customer relationship management (CRM) is a process for improving
the overall performance of a business by better understanding and
anticipating the wants and needs of customers
• In practice companies and vendors use the term CRM to mean different
things
• One CRM example – Procter & Gamble has employees who live and
work in the city of its largest customer Wal*Mart
• Logistics has primary responsibility for many of the processes that
drive value and customer success

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