Customer service

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Russian: Обслуживание клиентов

In its broadest sense, customer service refers to the points of contact orchestrated by sellers in the exchange process with customers. At this broad level, a sales representative at a department store driving to a competitor to acquire out of stock merchandise for a valued customer is a customer service activity. While logisticians may scoff at such excessive service, it is similar to a firm seeking inventory from a distant warehouse when one more proximate to a valued customer is out of stock. During the 1970s, researchers asked managers what customer service meant in their firm. Managers responded in one of three ways: (1) as a set of activities, including order processing, tracing, and invoicing; (2) as set of measurable system outputs, including fill rates, lead times, and perfect order rate; or (3) as a business philosophy.[1] Later definitions refined and developed these perspectives to varying degrees (e.g., logistics service quality), but this classification schema retains its original importance. This is because customer service means different things not only to different firms, but may mean different things to different functions within the same firm. In addition, while a firm may view customer service from a particular perspective, all three are interrelated.


As Activities

From a logistics perspective, customer service as a set of activities is embedded within a much larger and temporally oriented pre-trabsactional, transactional, and post-transactional ordering of activities.[2] As seen in the Figure, pre-exchange activities include a range of events, processes, policies, plans, goals, and so on. For example, an everyday low pricing (EDLP) policy tends to reduce price changes across time, which in turn reduces billing errors and customer billing disputes. Perceived service by the customer and customer satisfaction improve. Formal logistics goals may also be stressed by the firm: e.g., service targets in terms of intended on-time deliveries and out-of-stock rates. The result should as well be better service. Transactional activities are those that directly reside within the exchange itself and include those within the order cycle. They exist between the customer sending an order (some firms may define the order cycle as starting as when they receive an order) and receipt of the order by the customer. This is equivalent to lead time from the buyer’s perspective. The Figure shows an abbreviated order cycle for a typical large industrial firm. The major elements of the order cycle are order receipt; order processing; order selection; and order delivery. Some of the activities involved include order receipt, order entry, credit check, transmission of the order to plant or warehouse, a product availability check, warehouse load planning, advance shipping notice (ASN), invoicing, truck loading, and order delivery and unloading.


As a Set of Measurable System Outputs

The Figure also provides a listing of measurable system outputs that a firm may opt to monitor and manage. The logistics customer service mix consists of three major components: (1) product availability which includes fill rates, stockouts, and percent of orders shipped complete; (2) operational performance which includes speed, consistency, flexibility, and recovery; and (3) service reliability which includes misshipments (goods delivered to the wrong location) and damage.[3][4] Each element of the mix may be the focus of a business in managing its logistics customer service (see selecting the customer service level). Finally, we have post-transactional elements of customer service. Straightforward examples include warranty repairs and after sales service, the latter being a factor along which some business have striven to create a sustainable advantage. In addition, post transactional financial issues involve the collection of receivable and the order-to-cash cycle. A rewrite of an order processing system should look to reduce billing errors and discrepancies as this will have a direct financial impact on the firm by reducing day sales outstanding.

As a Philosophy

The third perspective on customer service is that of service as a philosophy encouraged through long-term investment in people. When we say that a firm has superior customer service, we usually think of how customers are treated by the staff of the selling firm at all levels of contact. This is not a matter of technique – that is, it is not a matter of designing effective order processing systems or of implementing sophisticated inventory management systems that determine the appropriate amount of safety stock.[5] Rather, it is a matter of a deeply embedded mission patiently cultivated by selective recruitment and relevant training. Firms that focus on customer service as a philosophy often do not serve low-end markets. Indeed, they often sacrifice low cost operations for a core capability of quality that focuses on customer satisfaction. For example, the training budget of Nordstrom’s, a high end American department store, is about four times higher and wages are about three times higher than the industry average. Sales quotas are strict and low performers are pruned from the workforce. At the same time, inventory per square foot at the store is several times higher relative to department store competitors. This is sharply contrasted against Wal-Mart, a retailer that focuses on low cost operations. Service is important, but the target market consists of customers that are economical. Wal-Mart’s service is therefore commensurate with the price conscious shopping behavior of the target market.


  1. LaLonde, B.J. and Zinszer, P. (1976), Customer Service: Meaning and Measurement, National Council of Physical Distribution Management: Chicago, IL.
  2. Bowersox, D.J., Closs, D.J., and Cooper, M.B. (2002), Supply Chain Logistics Management, McGraw-Hill, Boston, MA.
  3. Ballou, R.H. (1992), Business Logistics Management, Prentice Hall, Upper Saddle River: NJ
  4. Lambert, D.M. and Stock, J.R. (2000), Strategic Logistics Management, Irwin: Chicago, IL.
  5. Miller, D. and Le Breton-Miller, I. (2005) Managing for the Long Run: Lessons in Competitive Advantage from Great Family Businesses, Harvard Business School Press: Boston, MA.
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