Chapter-4

Value Creation
Through Supply Chain
Customer Value and Customer Service
Customer Service Attributes and Its Types
Customer value:
Customer value is defined as the benefits derived by the customer from the product or service at the lowest
cost.
In other words, customer value is understanding of customers’ desire and aligning internal resources to
respond to those needs effectively and efficiently.
To deliver customer value, organizations need to focus on innovation, quality in product and service,
maximum utilization of available resources, skill sets of the employees and infrastructure to create the
value.
In general, value is a combination of a company’s image, quality of product or service, and the price at which it is
available.
From the customer perspective value is based on two main dimensions: (1) solution to his problem and (2) his
experience of solving the problem.
The customer value if managed properly will maximize the business prospective through customer satisfaction by
catering to the needs of the customers.
Customer service:
Customer service is a set of activities and programmes initiated by the firm to make the buying
experience more rewarding.
These activities increase the value of the product and services offered to the customer from the seller.
Customer service is the most important dimension of the product or service offered to the customer.
Customer service is a value producing activity in supply chain process which makes significant
contribution towards the total value attributed to a product.
Good customer service builds customer loyalty amongst the existing customers and generates positive
world-to-mouth communication, which will attract new set of customers.
Customer Service Attributes:
The customer service attributes can be classified into two types
i – distribution
ii- trading
The distribution aspects cover: order processing time, delivery consistency, delivery frequency and
stock availability.
The trading aspect covers credit facility, stock financing, service support and handling convenience.
i- Distribution Aspect:
(a) Order Process Time:
It is the time between the placement of an order by the buyer and the supply of the material by the seller
against order.
This involves the supply of all the materials against the order placed in the agreed time frame without any
error either in documentation or physical supply.
This attribute helps in building a long-term buyer–seller relationship.
The order processing time consists of the time required for registration of order in supplier’s system after
thorough technical and commercial scrutiny, material allocation and pickup from the work-in progress
inventory, warehouse, or distribution centers, packing of material, documentation and dispatch of material.
A well integrated activities based on information flow will shorten the order process time and help in speedy
delivery to the market.
(b) Delivery Consistency:
Customers do not want any deviation in delivery period irrespective of the number of trips or
transactions.
Delivery consistency means maintaining the same delivery period for delivering materials to
the buyer over a period of time.
For example, against the 100 repeat orders over the year, the supplier dispatches the material as
per the agreed delivery time for 96 orders, in this case, the delivery consistency is 96 per cent.
The delivery consistency speaks about efficiency and effectiveness of the seller’s supply chain. In
fact, to cover up inconsistency in deliveries, the buyer may carry excess inventory of raw materials
and components and block more funds resulting into costs.
(c) Delivery Frequency:
The customer does not want to carry excess inventory but wants his operations to run without
interruptions.
As a result, the customer prefers frequent deliveries in small lots.
This may increase the transportation cost, but reduces the inventory-related cost drastically, with a
net effect of overall reduction in overall supply chain cost.
The additional transportation cost may be borne by the supplier to compensate for the buyer’s
inconvenience.
This practice of frequent deliveries of small lots is quite common in retail chains.
(d) Stock Availability:
With the excess stocks, the supplier may extend excellent service to the customer, but inventory
related cost reduces the profit margin of the business operations.
Hence, the firm needs to strike a balance between the inventory level and the desired customer
service level through the integrated logistics operations.
The reduction in stock holdings may be exercised through a centralized inventory control from a
single mother warehouse, by reducing the field distribution warehouses at multiple locations.
ii. Trading aspect:
(a) Credit Facility:
Offering credit facility to the buyer for payment against material dispatched is one of the value-added
services.
This is done for building long-term relations with the customer and to get repeat bulk business from the
buyer.
(b) Stock Financing
In competitive logistics industry, the warehouse service supplier finances to the goods depositors by way
of loan to an extent of 30–50 per cent of the stocks deposited.
The loan is made available at lower than the bank interest rates.
(c) Service Support
This may be in terms of the technical support for product installation, commissioning, process
stabilizing, spare parts supply, routine equipment check-up as part of the annual service contract.
Service support is required to keep the downtime of the equipment very low, as it ultimately has a
significant effect on the productivity at customer’s end.
(d) Handling Convenience:
The supplier, for convenience of material handling and storage at customer end, may develop novel
methods for product unitizing such as pallets, boxes, or cartons.
These methods are customized to suit the existing product handling arrangement at the customer
end.