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
Customer ServiceTransportation/Logistic Strategy
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
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
Customer ServiceTransportation/Logistic Strategy
Cycle Time
Dependability
Convenience
Communication
Elements of Customer Service
Customer ServiceTransportation/Logistic Strategy
Approval Time
Transmittal Time
Processing Time
Assembly Time
Shipment Time
Re-Stock Time
Cycle Time
Elements of Customer Service
Customer ServiceTransportation/Logistic Strategy
Ord
er R
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sted
App
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l Tim
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ansm
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Tim
eP
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ssin
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me
Ass
embl
y Ti
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Del
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y Ti
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Order Received
In Office
Order Sent to
Warehouse
Order Sent to Supplier
Order Shipped
Order Delivered
{ { { {{ { Nee
d Fu
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d
Need Recognized
Replenishment
CompletedEvents
Activities
Unl
oad/
Re-
Sto
ck T
ime
The Order Cycle(Need Recognition to Need Fulfillment)
Customer ServiceTransportation/Logistic Strategy
Consistency
Completeness
Correctness
Condition
Dependability
Elements of Customer Service
Customer ServiceTransportation/Logistic Strategy
Ease of Placing Orders
Constraints on Order Sizes
Constraints on Placement Times
Who Arranges Transportation
Convenience
Elements of Customer Service
Customer ServiceTransportation/Logistic Strategy
Easy Access to Empowered People
No Surprises
Communication
Elements of Customer Service
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
Customer ServiceTransportation/Logistic Strategy
Effects of Service Levels on Revenue
Service Level
$ Revenue
Estimating the Benefits of Service
Customer ServiceTransportation/Logistic Strategy
Logistics Service as a Sales/Promotion Tool
Methods of Estimation
Questionnaires
Historical Data
Multiple Regression Analysis
Example
Important Issues
Estimating the Benefits of Service
Customer ServiceTransportation/Logistic Strategy
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
Estimating the Benefits of Service
Customer ServiceTransportation/Logistic Strategy
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
Estimating the Benefits of Service
Customer ServiceTransportation/Logistic Strategy
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
Estimating the Benefits of Service
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
Customer ServiceTransportation/Logistic Strategy
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
Customer ServiceTransportation/Logistic Strategy
Traditional Economic View
Service Level
$Cost of Service
Costs Increase at an Increasing Rate
Estimating the Cost of Service
Customer ServiceTransportation/Logistic Strategy
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
Estimating the Cost of Service
Customer ServiceTransportation/Logistic Strategy
Service Level
$
Cost of Service
Cost of Service if Quality is Free
No Relationship Between Cost and Service
Estimating the Cost of Service
Customer ServiceTransportation/Logistic Strategy
Cost of Service if Quality has a Positive Effect
$
Cost of Service
Service Level
Costs Fall as Service Improves
Estimating the Cost of Service
Customer ServiceTransportation/Logistic Strategy
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
Estimating the Cost of Service
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
Customer ServiceTransportation/Logistic Strategy
Service Level
$Cost
Revenue
*
Profit = Revenue - Cost
Determining Optimal Service Levels
Customer ServiceTransportation/Logistic Strategy
Maximize Profit Where the Slope of the Profit Curve = Zero
Service Level
Profit
Slope Positive Slope Negative
Slope = Zero
*
Determining Optimal Service Levels
Customer ServiceTransportation/Logistic Strategy
Profit = p = Revenue - Cost
p = Revenue - Cost
Revenue = -250 + 20X .5
Cost = 500 + 4.76X 2.5
(Fill-Rate Example)
Determining Optimal Service Levels
Customer ServiceTransportation/Logistic Strategy
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)
Determining Optimal Service Levels
Customer ServiceTransportation/Logistic Strategy
Ozment and Chard (3M Company)
Aditi Sen (Holiday Inn)
Ahren Johnston (JB Hunt Transport)
Estimating the Cost of Service
Previous Efforts
Customer ServiceTransportation/Logistic Strategy
• 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)
Estimating the Cost of Service
Customer ServiceTransportation/Logistic Strategy
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.
Ahren Johnston (JB Hunt)
Estimating the Cost of Service
Customer ServiceTransportation/Logistic Strategy
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
Ahren Johnston (JB Hunt)
Estimating the Cost of Service
Customer ServiceTransportation/Logistic Strategy
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
Estimating the Cost of Service
Customer ServiceTransportation/Logistic Strategy
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
Customer ServiceTransportation/Logistic Strategy
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
Ahren Johnston (JB Hunt)
Estimating the Cost of Service
Customer ServiceTransportation/Logistic Strategy
(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