Customer Service & Relationships

What is Customer Service?• No easy way to define• May view Customer Service in 3 ways– As an activity• A task that is performed to satisfy customer needs• Order processing, billing & invoicing, product returns, claims

handling– As a performance measure• Success in achieving goals• % of orders delivered on time, time to complete orders

– As a philosophy• Firm-wide commitment to customer satisfaction• A focus on quality

Customer Service

• The ability of logistics management to satisfy users in terms of–Time–Dependability–Communication–Convenience

Aspects of Customer Service

• Time–Reduced order cycle time

• Dependability– The reliability of the service encounter• Consistent order cycles• Safe delivery• Complete delivery

Aspects of Customer Service

• Communication– Two-way exchange of information–Complete information exchange

• Convenience– The ease of doing business with the other party–Must assess extent to which the customer(s) is

(are) willing to pay for this ease

Customer Service Objectives• Should be – Specific–Measurable– Achievable– Cost-effective

• MUST take the customer’s viewpoint into account

• Benchmarking– Comparing performance to the competition’s

performance

Performance Measures

• ALWAYS stated from the view point of the customer

• 2 key components– Measures used before shipping to customer– Measures used after shipping to customer

Pre-Shipment Performance Measures

• Product Availability– % availability in base units (order, product, dollars)

• Order Cycle Time– Time from order placement to order receipt– Speed and consistency

• Distribution System Flexibility– Response time to special requests

Pre-Shipment Performance Measures• Distribution System Information– Speed, accuracy, & message detail of response

• Distribution System Malfunction– Response and recovery time requirements

• Post-sale Product Support– Technical information, spare parts, equipment

modification– Response time, quality of response

Post-Shipment Measures

• Orders received on time• Orders received complete• Orders received damage free• Orders filled accurately• Orders billed accurately

Implementing Customer Service Standards

• Set standards– Must be realistic but high enough for competitive

advantage• Focus on quality• Communicate with customers– Set standards with customer input– Communicate standards with customers

• Control procedures– For measuring, monitoring, and controlling– Amend or discontinue standards as appropriate

Types of Buyer/Seller Relationships

• Arm’s Length Relationships• Type I Partnerships• Type II Partnerships• Type III Partnerships• Joint Ventures• Vertical Integration

Arm’s Length Relationships• Last for single transaction• No commitments made for future

transactions• Price is the most typical deciding factor• Can minimize risk to both carrier & shipper• May not result in lowest price for shipper• Appropriate when carrier’s service offerings

are considered commodities or standard

Type I Partnership• Short-term contractual relationship (typical, 1 yr)• Requires little investment on part of either party• Limited scope of activities• Similar to arm’s length relationship except– Longer-termed– May include guarantees by both parties• I.e., shipper may guarantee minimum volume• I.e., carrier may guarantee delivery times, or minimum

portion of fleet dedicated to shipper

Type II Partnership

• Contractual relationship• Generally longer-termed than Type I’s

(typical, 2 – 5 years)• May require investment by either party• Scope of activities generally larger

Type III Partnership• Not normally governed by contract• No formal endpoint to relationship• Assets used in relationship may be jointly owned• Shared scope of activities is substantial• In essence, carrier performs all transportation

services needed by shipper• Shipper is only client of carrier in most cases

Joint Venture• Similar to Type III• New firm is created with investments from both

parties• Focus is for each party to benefit from the other

party’s expertise• Example– Encompass JV b/n American Airlines and CSX Railroad

• created to develop global booking & tracking system for freight movements

Vertical Integration

• Essentially, the use of private fleets• Firm requiring transportation services

fulfills this need internally

Third-Parties• Company that supplies/coordinates logistics

functions across multiple links in the logistics supply chain.

• Essentially, a third-party acts as the link between the– Seller/shipper–Buyer/receiver

Benefits of Using Third-Parties

• Lower costs• Improved Expertise/Market Knowledge &

Access to Data• Improved Operational Efficiency• Improved Customer Service• Ability to Focus on Core Business• Greater Flexibility

Third-Party Contracts:Suggested Minimum Contents

• Identify the parties• Commit shipper to tender shipments• Commit carrier to transport shipments• Contain contract rate or rates for the

transportation services to be provided• Assign vehicles for continuing time or provide

that the service is designed to meet shipper’s distinct needs

• Retain by carrier while in effect and for minimum of 3 years thereafter

Common Sections Found in Third-Party Contracts

• Disclosure of Goods–Describes nature of the product being shipped– Special handling or temperature requirements,

nature of hazard (if any) and value• Responsibility for Goods• Routing, Mode, and Method of Operation• Term, Termination, & Modification

Common Sections Found in Third-Party Contracts

• Volume Requirements• Scope of Operation• Performance Standards– Transit time, pick-up/delivery, damage rates, billing

accuracy• Operational Standards – Indemnification– Put at end of contract

• Force Majeure– If one of the parties is in breach due to Acts of God, or

force of nature, protects the party so affected

Common Sections Found in Third-Party Contracts

• Billing and Payment– ALWAYS include listing of prices and charges levied

by the third party in the body of the contract– Refer to other documents or tariffs may be

confusing, and in some cases, illegal• Applicable Law• Assignability– Used if third-party unable to meet its vehicle

requirements

Common Sections Found in Third-Party Contracts

• Breach of Contract–Defines what constitutes breach, process to be

used to rectify breach, and process for termination–Consider including “incentives to improve or

comply” rather than just “punish”• Dispute Resolution–Arbitration

• Confidentiality