LOGISTICS

CUSTOMER RELATIONS
MANAGEMENT
BUT BEFORE THAT …
What is Logistics?
Lately, a more scientific definition was used :
Logistics = Supply + Materials management +
Distribution
▪ Logistics is the . . .
“process of planning, implementing, and
controlling the efficient, effective flow and storage
of goods, services, and related information from
point of origin to point of consumption for the
purpose of conforming to customer
requirements.“
Council of Logistics Management
What is Logistics Management?

Is that part of supply chain management that

plans, implements and control the efficient,
effective forward and reverse flow and storage of
goods, services and related information between
the point of origin and the point of consumption in
order to meet customers requirements.

Council of Supply Chain Management Professionals (CSCMP)

Logistics vs Supply Chain Management?

Logistics Defined

Logistics is the process of planning, implementing

and controlling the efficient, cost-effective flow and
storage of raw materials, in-process inventory,
finished goods and related information from the
point of origin to point of consumption for the
purpose of conforming to customer requirements.

Council of Logistics Management

Logistics vs Supply Chain Management?

Supply Chain Management Defined

SCM is the integration of all activities associated

with the flow and transformation of goods from raw
materials through to end user, as well as information
flows, through improved supply chain relationships,
to achieve a sustainable competitive advantage.

Handfield and Nichols

Evolution of Logistics
➢ The concept of “Logistics” started many
years before Christ and was used by
Greek generals (Leon the Wise, Alexander
the Great) in order to describe all the
procedures for the army’s procurement on
food, clothing, ammunition, etc.
➢ Alexander the Great was a big fan of the
mobility of his troops and he didn’t want his
troops to stay in one place waiting for
supplies from Macedonia. Thus, he tried to
resolve the issues of supplies by using
supplies from the local resources of his
defeated enemies.
Evolution of Logistics
➢ For many years, logistics were always an issue in
war affairs. Kingdoms and generals with strategic
planning on logistics were those who won the
war.
➢ World War II was the major motivation of logistics
to increase recognition and emphasis, following
the clear importance of their contribution toward
the Allied victory.
➢ Starting from the early ‘60s, many factors, such
as deregulation, competitive pressures,
information technology, globalization, profit
leverage, etc., contributed to the increase of
logistics science in the form we now it today.
 Traditional Scope Supply Chain
Business logistics

Physical supply Physical distribution

(Materials management)

Sources of Plants/
Customers
supply operations
• Transportation • Transportation
• Inventory maintenance • Inventory maintenance
• Order processing • Order processing
• Acquisition • Product scheduling
• Protective packaging • Protective packaging
• Warehousing • Warehousing
• Materials handling • Materials handling
• Information maintenance • Information maintenance

Internal supply chain

Supply Chain Components
SUPPLIERS
Source of raw materials, component parts, semi-manufactured products and unfinished
or non-consumable products that occurs early in the supply chain.

MANUFACTURERS
Makers of final products. Manufacturers perform the task of final assembly or product
integration.

DISTRIBUTORS
Responsible for managing, storing and handling of products for organizations that
don’t want to carry entire variety of products in their own facilities.

LOGISTICS SERVICE PROVIDERS

Commercial provider of individual or multiple integrated service for other entities in
the supply chain e.g. transportation management, value-added warehousing and
distribution and information technology based services

RETAILERS
The entity that buys from the manufacturer and sell to the final customer.

CONSUMERS
People who go into the stores and buy and consume the product
Supply Chain Management Activities
PURCHASING
Activities relating to the procurement
of all necessary goods and services
required to operate. Involves all
components of SC.
ORDER PROCESSING
The function needed to fill customers’
orders, such as order receipt, order
picking and order shipment. Involves
manufacturers, distributors and
retailers
FORECASTING
The process of predicting customer
demand based on expected future
sales and actual past sales.
PRODUCTION PLANNING
The process of scheduling
manufacturing lines to meet the needs
determined by forecasting. It also
includes ensuring that needed raw
materials and supplies are on hand
for production.
INVENTORY MGMT.
The process entails monitoring of
stock levels, proper positioning of
stock and active tracking of product
age and availability.
WAREHOUSING
The holding of goods with focus on
moving product into, through and out
of warehouses in a timely manner.
TRANSPORTATION
The movement of products from one
destination to another using single
(motor, rail, water, air, pipeline) or
combined modes of transport
(intermodal).
CUSTOMER SERVICE
All sales or after sales activities that
occur between the buyer and seller
such as order status and post sales
support.
 DEFINE: CUSTOMER SERVICE

Customer service is generally presumed

to be a means by which companies
attempt to differentiate their product, keep
customers loyal, increase sales, and
improve profits.
DEFINE: CUSTOMER SERVICE
Its Elements Are:
➢ Price
➢ Product Quality
➢ Service
 DEFINE: CUSTOMER SERVICE
It Is An Integral Part of the Marketing Mix of:
➢ Price
➢ Product
➢ Promotion
➢ Physical Distribution
 DEFINE: CUSTOMER SERVICE
Relative Importance of Service Elements
➢ Physical distribution variables dominate
price, product, and promotional
considerations as customer service
considerations
➢ Product availability and order cycle time are
dominant physical distribution variables
 What is
Customer Service
in
LOGISTICS?
 Customer service is a
process for providing
significant value added
benefit to the supply chain
in a cost-effective way.
The Importance Of Customer Service
The Components Of Customer Service

• Pre-transaction Elements

• Transaction Elements

• Post-transaction Elements
THE COMPONENTS OF CUSTOMER SERVICE

Pre-transaction Elements

Customer service factors that arise

prior to the actual transaction taking
place.
THE COMPONENTS OF CUSTOMER SERVICE
Pre-transaction Elements
• Written Customer Service Policy
• Organizational Structure
• Method Of Ordering
• Single Order Contact Point
• Accessibility Of Order Personnel
• Order Size Constraints
• System Flexibility
THE COMPONENTS OF CUSTOMER SERVICE

Transaction Elements

The elements directly related to the

physical transaction and are those
that are most commonly concerned
with logistics.
THE COMPONENTS OF CUSTOMER SERVICE
Transaction Elements
• Condition Of Goods
• Inventory Availability
• Order Preparation
• Service/Order Cycle Time
• Delivery Alternatives
• Delivery Time;
• Delivery Reliability
• Delivery Of Complete Order
• Order Status Information.
THE COMPONENTS OF CUSTOMER SERVICE

Post-transaction Elements

These involve those elements that

occur after the delivery has taken
place.
THE COMPONENTS OF CUSTOMER SERVICE
Post-transaction Elements
• Invoicing Procedures
• Invoicing Accuracy
• Product Tracing/Warranty
• Returns Policy
• Availability Of Spares
• Call-out Time
• Customer Complaints And Procedures
 MULTIFUNCTIONAL DIMENSION
OF CUSTOMER SERVICE

1. Time – usually order fulfilment cycle time

2. Dependability – guaranteed fixed
delivery times of accurate, undamaged
orders
3. Communications – ease of order taking,
and queries response
4. Flexibility – the ability to recognize
and respond to a customer ’s
changing needs.
 CUSTOMER SERVICE ELEMENTS

Customer
Service

Pre-transaction Transaction Post-transaction

elements elements elements
• Written statement Stockout level • Installation, warranty
of policy • Ability to back alterations, repairs,
• Statement in hands order parts
of customer • Elements of order • Product tracking
• Organizational cycle • Customer claims,
structure • Time complaints
• System flexibility • Transship • Product packaging
• Technical services • System accuracy • Temporary
• Order conveniences replacement of
• Product substitution product during repairs
CONCEPTUAL MODELS OF SERVICE QUALITY
• Service quality is a measure of the extent to
which the customer is experiencing the level
of service that he/she is expecting

• Service quality is the match between what

the customer expects and what the customer
experiences

• Services Quality = Perceived Performance x 100

Desired Expectations
CUSTOMER & SERVICE
IN LOGISTICS?
Common Customer Service Complaints
31%
Product or quality
mistakes

12% Damaged
goods

7%
Other

6%
Frequently cut
items

44%
Late delivery
 Most Important
Customer Service Elements

➢ On-time delivery
➢ Order fill rate
➢ Product condition
➢ Accurate
documentation
 Order Cycle Time

➢ Contains the basic elements of customer

service where logistics customer service is
defined as:
➢ the time elapsed between when a
customer order, purchase order, or
➢ service request is placed by a customer
and when it is received by that
customer.
 Order Cycle Time

Order cycle elements

➢ Transport time
➢ Order transmittal time
➢ Order processing and assembly time
➢ Production time
➢ Stock availability
 Order Cycle Time

Constraints on order cycle time

➢ Order processing priorities
➢ Order condition standards (e.g. damage
and filling accuracy)
➢ Order constraints (e.g. size minimum and
placement schedule)
 Order Cycle Time vs Frequency

Filled from stock

Back orders
Frequency

0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Order cycle time

➢ Order cycle time is expressed as a bimodal frequency

distribution
 Components of a Customer Order Cycle

WAREHOUSE
Order processing
Customer and assembly
order
transmittal Transmittal of
backorder
CUSTOMER items
Retail outlet Order
delivery

FACTORY
Express Order processing,
order assembly from stock,
delivery or production if no
stock
Importance of Logistics Customer Service
Service Affects Sales

From a GTE/Sylvania study:

➢ ... distribution, when it provides the proper levels

of service to meet customer needs, can lead
directly to increased sales, increased market
share, and ultimately to increased profit
contribution and growth.

➢ Service differences have been shown to

account for 5 to 6% variation in supplier sales
Importance of Logistics Customer Service
Service Affects Customer Patronage

➢ Service plays a critical role in maintaining the

customer base:

➢ On the average it is approximately 6 times

more expensive to develop a new customer
than it is to keep a current one.
 Service Observations
➢ The dominant customer service
elements are logistical in nature
➢ Late delivery is the most common service
complaint and speed of delivery is the most
important service element
➢ The penalty for service failure is primarily
reduced patronage, i.e. lost sales
➢ The logistics customer service effect on
sales is difficult to determine
 Service Level Optimization
➢ Optimal inventory policy assumes a specific
service level target.
➢ What is the appropriate level of service?
➢ May be determined by the downstream
customer
➢ Retailer may require the supplier, to
maintain a specific service level
➢ Supplier will use that target to manage
its own inventory
➢ Facility may have the flexibility to choose
the appropriate level of service
 Service Level Optimization

Service level
inventory versus
inventory level as
a function of lead
time
 Trade-offs
➢ Everything else being equal:
➢ the higher the service level, the higher the
inventory level.
➢ for the same inventory level, the longer
the lead time to the facility, the lower the
level of service provided by the facility.
➢ the lower the inventory level, the higher
the impact of a unit of inventory on service
level and hence on expected profit
 Steps to Follow in Determining
the Service Standards

Step 1) Understanding the customer’s business

Step 2) Understanding who represents the

customer

Step 3) Asking the representatives to express

their requirements
 Methods Of Identifying Requirements

➢ Interview approach
➢ Outside research firms or consultants
➢ Telephone and mail surveys
➢ Focus groups
➢ Using current performance and “noise levels”
➢ Benchmarking
 Understanding Requirements of the
Order Fulfillment Process
Ordering Delivery Order Receipt and
process Cycle Follow-up
Ease of order Timely, reliable delivery Accurate, complete
placement and with good undamaged orders with
timely communication prompt claims handling
information and accurate invoices
◼ Direct order ◼ Order ◼ Order completeness

transmission acknowledgement
(including quantities
to be shipped)

◼ Product ◼ Total order cycle time ◼ Accurate invoicing

availability
information
◼ Product ◼ Order cycle ◼ Accurate
Technical consistency shipping
information documents
◼ Pricing ◼ Delivery on ◼ Damage free delivery

information day requested

◼ Credit ◼ Communication of ◼ Prompt handling of claims

check order status
information
 Framework for Developing a Service Strategy

Understand
Customer
Requirements
Identify Analyse Structure
Gaps Trade- Service
Analyze Current offs Offerings
Capabilities and Set
Goals
Identify Select
Options to Service
Assess Gain Dimensions
Competitiors’ Strategic to Compete
Capabilities Advantage on

Monitor and Update

 Steps to Follow in Determining
the Service Standards

Step 4) Analyse current capabilities

Step 5) Analyse competitors’ capabilities

Step 6) Identify gaps

Step 7) Identify option to gain strategic advantage

Step 8) Interpreting what the customer wants and

is willing to pay for and analyse trade-offs
Sales-service Relationship
Step 8: Interpreting what the customer wants
and is willing to pay for and analyse trade-off

➢ A mathematical expression of the level of service

provided and the revenue generated

➢ It is needed to find the optimal service level

➢ A theoretical basis for the relationship

➢ Methods for determining the curve in practice

➢ Two-points method
➢ Before-after experiments
➢ Game playing
➢ Buyer surveys
 Sales-service Relationship
by the Two-points Method

Approximation by
two-points method
Sales

0
0 Logistics customer service level
 Determining Optimum Service Levels

Cost vs. Service

Theory
➢ Optimum profit is the point where profit
contribution equals marginal cost
 Generalized Cost-revenue Tradeoffs

Revenue

Profit
Costs or sales

maximization

Logistics
costs

0
0 Improved logistics customer service
 Customer Service:
Performance Measures
Traditional New
➢ % Availability in base units ➢ Orders Received On
➢ Speed and consistency Time
➢ Response time to special ➢ Orders Received
requests
Complete
➢ Speed, accuracy, and message
detail of response
➢ Orders Received
Damage Free
➢ Response and recovery time
requirements ➢ Orders Filled Accurately
➢ Response time, quality of ➢ Orders Billed Accurately
response
Elements and Measurement of
Customer Service
 Customer Service:
Implementation Of Standards
• Set standards at realistic levels.
• Quality levels set below 100% can be
problematic.
• Consult customers on policies and standards.
• Communicate standards to customers.
• Measure, monitor, and control
customer service standards.
 Customer Service: Overview
• If the basics of customer service are not in
place, nothing else matters.
• Customers may define service differently.
• All customer accounts are not the same.
• Relationships are not one dimensional.
• Partnerships and added value can “lock up”
customers.
Customer Service Issues
 Stockouts

➢ Four Possible Outcomes From a Stockout

➢ Customers Wait
➢ Back Orders
➢ Lost Sales
➢ Lost Customers
THANK YOU.