customer service transportation/logistic strategy customer service definitions elements of customer...

Customer ServiceTransportation/Logistic Strategy

Customer Service Definitions

Elements of Customer Service

Estimating the Benefits of Service

Estimating the Costs of Service

Determining Optimal Service Levels


Elapsed Time Between the Receipt of an Order at the Warehouse and the Shipment of the Order from the Warehouse.

Minimum Size of Order, or Limits on the Assortment of Items in an Order Which a Supplier Will Accept from Customers.

Percentage of Items in a Supplier's Warehouse Which Might be Found to be Out-of-Stock at Any Given Point in Time.

Proportion of Customer Orders Filled Accurately.

Percentage of Orders Filled Within a Certain Time Period from Receipt of the Order at the Supplier's Warehouse.

Percentage of Customer Orders Filled Completely Upon Receipt at a Supplier's Warehouse.

Proportion of Goods Which Arrive at a Customers Place of Business in a Saleable Condition.

Elapsed Time Between the Placement of an Order by a Customer and the Delivery of the Goods to the Customer.

Ease and Flexibility with Which a Customer Can Place Orders.

Definitions of Customer Service


Cycle Time

Dependability

Convenience

Communication



Approval Time

Transmittal Time

Processing Time

Assembly Time

Shipment Time

Re-Stock Time

Cycle Time



Ord

er R

eque

sted

App

rova

l Tim

eTr

ansm

ittal

Tim

eP

roce

ssin

g Ti

me

Ass

embl

y Ti

me

Del

iver

y Ti

me

Order Received

In Office

Order Sent to

Warehouse

Order Sent to Supplier

Order Shipped

Order Delivered

{ { { {{ { Nee

d Fu

lfille

d

Need Recognized

Replenishment

CompletedEvents

Activities

Unl

oad/

Re-

Sto

ck T

ime

The Order Cycle(Need Recognition to Need Fulfillment)


Consistency

Completeness

Correctness

Condition

Dependability



Ease of Placing Orders

Constraints on Order Sizes

Constraints on Placement Times

Who Arranges Transportation

Convenience



Easy Access to Empowered People

No Surprises

Communication



Effects of Service Levels on Revenue

Service Level

$ Revenue



Logistics Service as a Sales/Promotion Tool

Methods of Estimation

Questionnaires

Historical Data

Multiple Regression Analysis

Example

Important Issues



P = PriceAdv = AdvertisingSF = Sales ForcePro = Other PromotionsOCT = Order Cycle TimeVCT = Variability in OCTBO = Back OrdersBOT= Back Order TimeFR = Fill RateIC = Incorrect ShipmentsLD = Loss & Damage

Sales = f (P, Adv, SF, Pro, OCT, VCT, BO, BOT, FR, IC, LD)

Where:

An Example



Logistics Service as a Sales/Promotion Tool

Methods of Estimation

Questionnaires

Historical Data

Multiple Regression Analysis

Example

Important Issues

Non Linear Relationships

Lagged Relationships

Cumulative Effects



Variable Coefficient T-Ratio Constant 3.9580 0.09 Price -1.1024 -2.52 Pro (4mma,t-4) 0.7182 1.88 OCT (5mma,t-5) 0.9593 2.15 BOT (3mma,t-2) 0.5115 2.00 Crd (3mma,t-2) 0.1342 1.98R2 = 71.4%; F=16.951; df = 34

Revenue and Service Variables



The Traditional Economic View of Service Quality

Crosby’s View that Quality is Free

Two Views of the Cost of Service Quality

Estimating the Cost of Service


Traditional Economic View

Service Level

$Cost of Service

Costs Increase at an Increasing Rate



Do it Right the First Time (DIRT FT)

Costs are not Affected by Levels of Quality and

May Perhaps Have a Positive Effect

Crosby’s View that Quality is Free



Service Level

$

Cost of Service

Cost of Service if Quality is Free

No Relationship Between Cost and Service



Cost of Service if Quality has a Positive Effect

$

Cost of Service

Service Level

Costs Fall as Service Improves



Which View is Correct? Traditional View vs Crosby?

A Better Question is When is each View Correct?

Physical Capacity vs Human Performance

Measure Each Dimension of Service Quality Separately



Service Level

$Cost

Revenue

*

Profit = Revenue - Cost



Maximize Profit Where the Slope of the Profit Curve = Zero

Service Level

Profit

Slope Positive Slope Negative

Slope = Zero

*



Profit = p = Revenue - Cost

p = Revenue - Cost

Revenue = -250 + 20X .5

Cost = 500 + 4.76X 2.5

(Fill-Rate Example)



and solve for X

p = -250 + 20X

.5 - [500 + 4.76X2.5

]

p = -250 + 20X

.5 - 500 - 4.76X2.5

To maximize profit, set 1st derivative = zero

X = 10/11.9 = .92

(Fill-Rate Example)



Ozment and Chard (3M Company)

Aditi Sen (Holiday Inn)

Ahren Johnston (JB Hunt Transport)


Previous Efforts


• Longitudinal data obtained directly from a national truckload motor carrier

• Data set contained cost and service quality data on every order for nine months

• Research focused on truckload, but data also was available for intermodal shipments

• Data aggregated into daily observations for use in the analysis

Ahren Johnston (JB Hunt)



H9: Total operating costs will be positively related to increases in the physical dimension of service quality.

H10: Total operating costs will be negatively related to increases in the human performance dimension of service quality.




The general model estimated was:

C = f (X, W, Z, Q)

Where:

C = Cost of Operations

X = Output

W = Vector of Input Prices

Z = Vector of Operating Characteristics

Q = Vector of Quality Characteristics




Reasons for Service Failures

Reason Code Description

Physical/Capacity or Human Performance

36 Poor Trip Planning – Left Late, Route, Fuelling Error Human

56 Tractor (Mechanical) Capacity

57 Trailer/Equipment (Mechanical) Capacity

BE Billing Error Human

15 No Power – Missed Delivery Capacity

42 Communication Errors (ETAs, Hours, Time Off) Human

94 Receiver on Previous Load Human

89 Booked Excess Loads for Capacity Human

16 No Power – Missed Pickup Capacity

13 Late Preplan on Pickup Human

91 Driver Refused Delivery Human

29 Incorrect Customer Directions – Missed Delivery Human

37 Sick/Injury Human



C = f (X, W1, W2, W3, W4, Z1, Z2, Z3, Q1, Q2)Where:

C = Total Cost of Operations X = Revenue Ton Miles W1 = Price of Fuel W2 = Price of Labor W3 = Price of Capital W4 = Price of Purchased Transportation Z1 = Average Length of Haul Z2 = Average Load per Vehicle Z3 = Empty Mileage Q1 = Physical Dimension of Quality Q2 = Human Performance Dimension of Quality

Motor Carrier Costs and Service


Order Level Stop LevelVariable Parameter Coefficient Significance Coefficient Significance Constant α -0.003 .000 -0.0034 .000X αX 0.499 .000 0.4995 .000W1 β1 0.3697 .000 0.3697 .000W2 β2 0.368 .000 0.368 .000W3 β3 0.2561 .000 0.2561 .000W4 β4 0.0063 .000 0.0063 .000Z1 τ1 0.4933 .000 0.4932 .000Z2 τ2 -0.517 .000 -0.5167 .000Z3 τ3 -0.077 .000 -0.0776 .000Q1 φ1 0.0646 0.083 0.1386

0.008Q2 φ2 -0.068 .000 -0.0919

.000Q1Q2 ψ12 5.5902 0.198 -1.6002 0.828




(multiply both sides by X

.5)

10 = 11.9X1.5 X

.5 = 11.9X2

10/11.9 = .84 = X2

-.510X = 11.9X1.5

p’= 10X -.5

- 11.9X1.5 = 0

customer service transportation/logistic strategy customer service definitions elements of customer...

Documents

percentage of customer

proportion of customer

benefits of serviceestimating

order sizesconstraints

order tim

order cycle timevct

minimum size of order

suppliers warehouse