LOGISTICS MANAGEMENT

Chapter 2: Logistics Customer Service

Management
 Reference

▪ Prescribed textbook:
Coyle, J. J., Langley, C. J. & Bardi, E. J. 2003, The Management of Business Logistics: A Supply
Chain Perspective, 7th edn, Thomson Learning, Canada.
▪ Reference textbook:

Bloomberg, D.J., Murray, A. and Hanna, J.B. 1998, The Management of Integrated Logistics: A
Pacific Rim Perspective, 2nd edn, Sprint Print, Prentice-Hall.
Bowersox, D.J. Closs, D.J. and Cooper, M.B. 2002, Supply Chain Logistics Management,
McGraw-Hill/Irwin, New York.
Christopher, M. 1998, Logistics & Supply Chain Management, 2nd edn, Pearson Education. Essex.
Cooper, J. 1994, Logistics & Distribution Planning, Kogan Page, London.
Coyle, J.J., Bardi, E.J. and Langley, C.J. 2003, The Management of Business Logistics, West
Publishing Company, New York.
Greasley, A. 2006, Operations Management, John Wiley & Sons Ltd, Chichester, England.
Johnson, J.C. 1999, Contemporary Logistics, Prentice Hall, Upper Saddle River, N.J.
Stock, J.R. and Lambert D.M. 2001, Strategic Logistics Management, 4th Edn, Irwin/McGraw-Hill,
Boston.
Rushton, A., Croucher, P. and Baker, P. 2006, The Handbook of Logistics and distribution
Management, 3rd edn, Kogan Page, UK.
Lambert, D. M., Stock, J. R. and Ellram, L. M. 1998, Fundamentals of Logistics Management,
McGraw Hill, USA.
▪ List of additional readings:
Thai, V. V. 2013, ‘Logistics Service Quality: Conceptual Model and Empirical Evidence’,
International Journal of Logistics: Research and Applications, Vol. 16, No. 2, pp. 114 – 131.
 Content

2.1 The concept of customer service

2.2 Customer service overview & questions
2.3 Defining customer service quality
2.4 Barriers to good customer service
2.5 The logistics ‘product’
2.6 Customer service in logistics
2.7 Importance of logistics customer service
2.8 Elements of customer service in logistics
2.9 Costs of stockouts
2.10 Identifying and fulfilling customers’ needs and
expectations
2.11 Delivering customer service
 Food for Though

“A customer is the most important

visitor on our premises … we are not
doing him a favor by serving him: he
is doing us a favor by giving us the
opportunity to do so.”

Mahatma Gandhi
 2.1 The Concept of Customer Service

• It takes very little effort to lose a customer…

• Consider these situations:

– You are visiting a shipping line’s office where you find you
are one of several people to get the “first” 8.30 am
appointment for B/L delivery

– You contact a freight forwarder that passes you from

department to department and nobody seems to know how
to help you

• “Meeting the needs and expectations of the customer

as defined by the customer”
 The Concept of Customer Service (C)

• Costs of loosing a customer:

– current dollars
– jobs
– loss of reputation
– loss of future business

• So, what is the link between exceptional customer

service (making customer satisfied) and your
company’s bottom line?
 The Concept of Customer Service (C)

• Loyalty

• Word of Mouth

• Price premiums

• Reduced operating costs

 2.2 Customer Service Overview

• If the basics of customer service are not in place,

nothing else matters
• Customers may define service differently
• All customer accounts are not the same
• Relationships are not one dimensional
• Partnerships and added value can “lock up”
customers
Customer Service Questions

Source: Coyle et al. (2003)

 2.3 Defining Customer Service Quality

• Quality is therefore customer’s perceived value

– Customers believe value for money is a deciding
factor for the attractiveness of the transaction

• Value, in customer’s perception, is “overall

perceptions of what is received and what is
expected”

• Satisfaction results from the match between the

perception and experience/expectation
 Defining Customer Service Quality (C)

• So, customer service quality is the ‘discrepancy

between customers’ expectations and
perceptions’

• Factors that shape customer expectations are :

– word of mouth communications
– personal needs
– past experience
– external communications (advertising, etc.)
Defining Customer Service Quality (C)
Word of Mouth Personal Needs Past Experience
Communications

Expected Service

GAP5

CONSUMER Perceived Service

GAP1
What the Customer Gets External
MARKETER Communications to
GAP4 Consumers
GAP3

The Specification of the

Service

GAP2

The Intended
Service
Source: Zeithaml, Parasuraman and Berry (1990, p. 46)
 2.4 Barriers to Good Customer Service

• Some causes of poor customer service:

– Inadequate trained personnel
– Goals and objectives not made known to
employees
– Poor communication, horizontally and
vertically
– No/poor system of customer feedback
– Not understanding customer needs
– Poor leadership
– Dissatisfied employees, etc.
 2.5 Logistics Product

• What is the product of logistics?

• Logistics is a part of the fastest growing sector of

world trade—services

• Fundamental differences between goods and

services present challenges and opportunities to
management of organisations that offer these
services
Logistics Product (C)

Source: Parasuraman, Zeithaml & Berry (1985)

 2.6 Customer Service in Logistics

• Many services like restaurants, computing, transport,

retailing and travel, etc. have in common another
essential service—logistics
• Customer service—providing the right good or
commodity to the right person in the right condition and
quantity at the right place, time and cost (7Rs)
• Deviation from this results in a reduction in the value of
the transaction to the customer; good customer service
adds value to product
• Customer service defines the effectiveness of the logistics
chain to the customer
– Ex: goods purchased and delivered
 Customer Service in Logistics (C)

• Customer service is generally presumed to be a means by

which companies attempt to differentiate their product,
keep customers loyal, increase sales, and improve profits
• Over recent decades, two main developments have taken
place in the field of customer service
– Customer expectations have increased: more expecting,
demanding, informed and selective; much higher levels of
service are expected from providers
– The availability of a specialised service: logistics services have
been developed to such a standard that they are more like
individual commodities
Ex: specialised movement of chemicals, in bulk and parcels, seafood,
fruit, flowers, computers, machinery, automobiles, pharmaceuticals, etc.
 Customer Service in Logistics (C)

• Customer Service is key link between logistics &

marketing
• In traditional marketing mix
(Product-Price-Promotion-Place/Physical distribution):
Customer Service is at Place
• In new marketing mix, 3 more elements:
– Physical evidence: equipment (both hardware and software),
assets, premises, symbols such as uniforms, and the
demonstrable ability that the service provider uses to meet the
customers’ needs
– Participation: interaction between the providers and users of
the service
– Processes: procedures used within the organisation to provide
the service
 Customer Service in Logistics (C)

• Three levels of product:

– Core benefit of product or service, which constitutes what buyer
really buys
– Tangible product, or physical product
– Augmented product, including benefits secondary but integrated
to tangible product, i.e. installation, warranty, etc.
• Logistical customer service is a feature of augmented
product adding value for buyer
• Three levels of customer service:
– As an activity: order processing, billing, product return, etc.
– As performance measures: % of orders delivered on-time, etc.
– As a philosophy: company-wide commitment
 2.7 Importance of Logistics Customer Service

• Service affects sales

– From a GTE/Sylvania study:
...distribution, when it provides the proper levels of service to
meet customer needs, can lead directly to increased sales,
increased market share, and ultimately to increased profit
contribution and growth.
– Service differences have been shown to account for 5 to 6%
variation in supplier sales
• Service affects customer patronage
– Service plays a critical role in maintaining the customer base:
On the average it is approximately 6 times more expensive to
develop a new customer than it is to keep a current one.
 2.8 Elements of Customer Service - Time

• Time: order cycle time (seller’s perspective), lead time or

replenishment time (buyer’s perspective)
• Order cycle time contains the basic elements of customer service
where logistics customer service is defined as:
the time elapsed between when a customer order, purchase order,
or service request is placed by a customer and when it is received
by that customer
• Elements of order cycle time: order transmittal time, order
processing & assembly time, production time, transport time
• Constraints on order cycle time: Order processing priorities; Order
constraints (e.g. size minimum and placement schedule)
• Control over these elements has impact on buyer’s inventory cost
& seller’s logistics system and market position
 Elements of Customer Service – Time (C)

WAREHOUSE
Order processing
Customer and assembly
order
transmittal Transmittal of
backorder
CUSTOMER items
Retail outlet Order
delivery

FACTORY
Express Order processing,
order assembly from stock,
delivery or production if no
stock
Elements of Customer Service – Dependability,
Communication & Convenience
• Dependability: delivering a customer’s order with a
regular, consistent lead-time and in good condition and at
the required quality as ordered (reliability)
– It can affect customer’s inventory level and stock out costs, or
even lost sales or lost production for intermediary firms
• Communication: communication channel should be a two
way street, must be constantly open and readily
accessible to all customers, so logistics managers should
be able to provide the most efficient service
• Convenience: logistics service levels should be flexible
and able to recognize customer’s different requirements
 2.9 Expected Costs of Stockout – 4 Scenarios

(1) The customer waits until next time: theoretically this case should
cost nothing, especially where product substitutability is very low. But
what about back-order cost?
(2) The customer cannot wait until next time, so buys from your
competitor today but will come back to you next time: (1) + loss of
direct revenue from the customer today
(3) The customer cannot wait until next time, so buys from your
competitor today and will not come back to you again in the future:
(2) + loss of direct revenue from the customer today and continuously
in the future
(4) The customer cannot wait until next time, so buys from your
competitor today, will not come back to you again in the future and
also spread bad words-of-mouth about you: (3) + loss of direct
revenue from the customer today, continuously in the future and
prospective revenue from selling to potential customers
2.10 Identifying and Fulfilling Customers’ Needs
and Expectation
• To determine and anticipate the needs of your
customers, you need:
– Effective communication
– Analysis of customers’ needs
• Effective communication includes:
– listening to feedback, sometimes with personalized
approach
– informing staff and customers of any product/service
changes
– treating customers with respect and sincerity
Identifying and Fulfilling Customers’ Needs and
Expectation (C)
• Analysis of customer needs
– Explicit: features such as door-to-door service
– Implicit: sufficient resources & capabilities to provide
• Five needs of every customer – encompasses both
explicit and implicit needs:
– Service – that they consider appropriate for the
purchase
– Price – value for money
– Quality – meet their expectations
– Action – for when a problem or question arises
– Appreciation – that we appreciate their custom
Identifying and Fulfilling Customers’ Needs and
Expectation (C)
• Expectation is unique and constantly changing
• Two levels of expectation
– Primary/basic e.g. ship gets shipment from A-B
– Secondary: safe and reliable journey
• Before you can exceed customers expectations,
you must know what they are!
– Get to know them
– Ask what their expectations are
– Tell them what you will deliver
– Deliver what you promise
– Again and again and again and again!!!!!
Identifying and Fulfilling Customers’ Needs and
Expectation: Getting to Know Customers
• Talk to your staff about customers
• Analyse complaints and compliments
• Use industry data if available
• Do your family and friends use company’s
products/services? What do they think?
– Turn your friends into customers and your customers
into friends
• Observe their behaviour at your business
• Market research
Identifying and Fulfilling Customers’ Needs and
Expectation (C)
• Watch the competitors & their strategies
– How are your products/service positioned relative to
theirs?
– What are their strengths and weaknesses?
– What substitute products/services are available?
– What’s changing in the business environment? What
new opportunities does this present?
• Remember: it is easy to overestimate (by
misperception) your strengths and your
competitors’ weaknesses
Identifying and Fulfilling Customers’ Needs and
Expectation (C)

• Common misperceptions include

– Your unique selling proposition and its strength in the
marketplace
– Your quality compared to those of competitors

• Three important issues to remember: initial

impressions, identifying customers’ needs, and
providing the ‘right’ amount of attention
Identifying and Fulfilling Customers’ Needs and
Expectation: Initial Impression

• Greet your customer appropriately: friendly,

polite, well-groomed staff, smile
• Use appropriate body language: make eye contact
with the customer, smile where appropriate, and
listen attentively
• Acknowledge multiple customers: acknowledge
those who are waiting whilst dealing with each
customer in turn
• Servicescape: front office
• Offer willing, timely and knowledgeable
assistance
Identifying and Fulfilling Customers’ Needs and
Expectation: Identifying Needs

• Asking the right questions:

– “How may I be of assistance” or “May I help you?”
will not always be redundant
– The right questions to ask are open-ended questions
that encourage and allow customer to provide a more
detailed answer
• Listening:
– good listening is an active process
– make the effort to interpret what the customer is
saying and check your understanding by repeating for
the customer what he or she has just said to you
Identifying and Fulfilling Customers’ Needs and
Expectation: Identifying Needs (C)
• Taking note and observing your customers:
– putting together a rough customer profile through
observation
– Sometimes you can anticipate your customer’s needs:
• suppliers that offer to use overnight courier (without being
asked) when an order has been delayed;
• restaurants that are experiencing a busy period which is
causing delays that offer you a complementary “snack”
whilst you wait to be seated;
• organisations who offer to telephone for your cab

– Such organisations demonstrate the effort to ‘think

ahead’ and stand out from their competitors
Identifying and Fulfilling Customers’ Needs and
Expectation: Right Amount of Attention
• Providing ‘right amount’ or ‘balance’ of attention
to your customer: not being pushy, overbearing or
dominating
– There are many times when a customer will be happy
just browsing and does not want to be interrupted

• If you are offering a range of suggestions or

choices to a customer regarding services or
products available:
– remember to break your offers or responses down to
manageable portions
2.12 Delivering Customer Service: Maintaining
Positive Attitude
• Attitude is the way you look at things mentally
• There is a direct relationship between your attitude
and productivity
– When you are “upbeat”, your customer is likely to
respond in a positive manner
– When you are negative and pessimistic, a drop in
productivity can be expected

• Customers wish to be served in a positive manner,

with the service provider communicating the
“right” attitude
 Delivering Customer Service: Promise Good,
Deliver Great

• Customers’ needs change, as do their expectations

of how well these needs will be met
• Customer expectations change as customers
become more sophisticated and other competitors
offer more products and additional services
• You should not only be prepared to cope with this
change but also be prepared to anticipate these
changes and the changes in customer expectations
• Today’s excellent service may be tomorrow’s norm
 Delivering Customer Service: Promise Good,
Deliver Great (C)
• However, do not make mistake of creating
unreasonably high customer expectations
– Clearly and honestly communicate with your customer
about what level of service you can provide

• Thus, exceeding expectations means in a manner

appropriate to the situation

• Know exactly what your customer expects/wants

and what is possible in order to exceed your
customers’ expectations appropriately
Delivering Customer Service: Showing that You
Care!

• You must show your customers that you care about

their wellbeing

• There are certain behaviours that you should display:

– Put aside other tasks when a customer needs attention
– Use appropriate body language such as: facing the
customer directly; making eye contact and smiling
– Use the customer’s name if possible
– Comment on past service encounters
– Respond in a positive manner to the customer requests,
no matter how extraordinary or difficult
– Meet customer needs promptly
– Offer that little bit more (going extra mile)