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Customer
Accommodation
CHAPTER 3
3-2
Overview of customer accommodationCustomer-focused marketingCustomer serviceCustomer satisfactionCustomer successDeveloping customer
accommodation strategy
3-3
Who is the customer?From perspective of the total supply chainEnd user of product in consumer marketCompany 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 managerAny delivery location
For example, consumer home’s, retail / wholesale businesses, receiving docks of manufacturing plants and warehouses
3-4
Basic principles of the marketing conceptCustomer needs and requirements are more
basic than products and servicesDifferent customers have different needs and
requirementsProducts and services become meaningful
only when available and positioned from the customer’s perspective
Profit is more important than sales volume
3-5
Transactional vs. Relationship MarketingTransactional 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
3-6
Relationship marketing to a segment of oneMicromarketing or one-to-one marketing
recognizes that each individual customer may indeed have unique requirementsFor 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
3-7
3 discrepancies must be overcome to enable exchange of goods and servicesDiscrepancy 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 supplyCustomers seek small quantities and wide
assortmentFirms specialize in large quantities of a limited
assortment
3-8
4 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
3-9
3 levels of customer accommodationSupply 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 accommodationCustomer serviceCustomer satisfactionCustomer success
3-10
Basic customer service provides customersWith the right amountOf the right productAt the right timeAnd the right placeIn the right conditionAt the right priceWith the right information
3-11
Basic elements of customer serviceAvailability
Fill ratesStockout frequencyOrders shipped
completeOperational
PerformanceSpeedConsistency FlexibilityMalfunction recovery
Service ReliabilityDamage freeError-free invoicesShipment matches
orderShipped to correct
locationEtc.
3-12
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
3-13
Operational performance deals with the time required to deliver a customer’s orderSpeed 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
3-14
Service reliability is a firm’s ability to perform all order-related activities and provide critical infoService reliability involves a combination of
logistics attributes beyond simply availability and operational performance. For example:Damage free measures how many shipments arrive
without damaged productsError-free invoices measures what percentage of
invoices contain no errorsShipment 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
3-15
The perfect order is the ultimate in logistics service levelsThe perfect order is an order that is
Delivered completeDelivered on timeDelivered at the right locationDelivered in perfect conditionDelivered with complete and accurate
documentationThis requires the total order cycle
performance to be executed with zero defects
+ + +
3-16
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 97% delivered with correct
documentation Probability that any order
will be delivered with no defects is only 88.5% P (zero defects) = .97 x .97 x
.97 x .97 = .885
Therefore, the probability that any order has a problem is 11.5%
Therefore, the probability that any order has a problem is 11.5%
What resources are needed to achieve a zero-defect level?
What resources are needed to achieve a zero-defect level?
3-17
The basic service platform is a commitment to perform each basic element at a given levelAvailability level = MediumOperational performance =
HighService reliability = Above
average
Availability level = LowOperational performance =
MediumService reliability =
Average
Service platform for customer A Service platform for customer B
Basic Service Platform
Availability Level
Operational Performance
Level
Service Reliability Level
3-18
How much basic service should the supply chain provide?Many firms establish their basic
service platforms using two factorsCompetitor 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 priceZero-defect approach is not taken
across the board for all customersEstablish internal performance
standards for each service component to reflect industry practice, cost and resource requirements
3-19
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”
3-20
Customer expectations related to logistical performance from Table 3.2ReliabilityResponsivenessAccessCommunicationCredibility
SecurityCourtesyCompetencyTangiblesKnowing the
customer
3-21
How are customer expectations created?
Figure 3.1 Satisfaction and Quality Model
3-22
The model identifies gaps managers must fill to help satisfy their customersGap 1: Knowledge
Reflects management’s lack of knowledge or understanding of customers
Gap 2: StandardsExists when internal
performance standards do not adequately reflect customer expectations
Gap 3: PerformanceThe difference between
standard and actual performance
Gap 4: CommunicationsOvercommitment or
promising higher levels of performance than can actually be provided
Gap 5: PerceptionCustomers sometimes
perceive performance to be higher or lower than actually achieved
Gap 6: Satisfaction/QualityWhen one or more gap
exists customer perception is that performance does not meet expectations
3-23
Increasing customer expectationsPerformance 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 expectFor example, Federal
Express introduced real-time tracking of shipment status In response UPS and other
parcel delivery firms added this service to their platform
3-24
Why customer satisfaction is not sufficientSatisfied customers
may not be happy with the supplier’s performanceCustomer satisfaction
focuses on expectations - not customer’s real requirements
Considerable research suggests that “satisfied” customers still are likely to defect
• What satisfies one customer may not satisfy other, much less all, customers– There is a tendency by
companies to treat all customers as being equal and identical
3-25
Low expectations always result in satisfied customers
Figure 3.2 Satisfaction Is Not the Same as Happiness
But what if customer requirements are not met?
3-26
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 needs of
each customer segment in the extended supply chain
Level 2 Focus • Assess customer perceptions of satisfaction• Manage performance cycle levels to keep customers
satisfied
Level 1 Focus• Assess industry and competitor practices• Achieve internal standards for performance cycles
Customer Satisfaction
Customer Service
Customer Success
3-27
Achieving customer success requires knowledge of individual customer requirementsNot all customers have the
same requirementsKnow your customers’
processesDetermine 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
3-28
Customer success requires a comprehensive supply chain perspective
Figure 3.3 Moving Towards Customer Success
3-29
Value-added services are a first step in achieving customer successValue-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 storesEach store requires different quantities of specific
product to maintain in-stock performance with minimum inventory
3-30
Developing a customer accommodation strategyBasic 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
3-31
Framework for choosing a customer accommodation strategy using profit categories
Table 3.4 Choosing Customer Accommodation Strategy
3-32
Customer relationship management has grown rapidly in recent yearsCustomer relationship management
(CRM) is a process for improving the overall performance of a business by better understanding and anticipating the wants and needs of customersIn practice companies and vendors use the term
CRM to mean different thingsOne 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