dr Bogdan Wierzbiński

mgr Tomasz Surmacz

University of Rzeszow

Faculty of Economics

Department of Marketing

 

THE IMPORTANCE OF LOGISTICS CUSTOMER SERVICE IN SUPPLY CHAINS

 

Introduction

       The current market environment creates both opportunities as well as threats for companies. The competition has always been increasing together with the pressure for constant improvements in meeting customer demands. To remain viable, producers need to market products that have a perceivable advantage in relation to competing products. To gain and maintain this perceived advantage producers certainly need to monitor the market in terms of price, availability, new laws and regulations, innovative products and selling methods. [1]

       Logistics is one of spheres which still have potential as far as improving performance is concerned. There are large, unused capacities in logistics processes in the range of costs reduction and quality of service. There are three major groups of logistics processes: relationships with suppliers, internal processes and relationships with customers. Nowadays these processes must be viewed from a supply chain perspective. Many processes in companies require collaboration  between internal functions (e.g. marketing and logistics). But along with an increasing acceptance for process orientation, enterprises start to integrate both their internal and external activities in supply chains. Integration of logistics activities creates value for end customers. Supply chain management emerged as a result of integration of activities between enterprises. It optimizes value added by all links of a chain to a product expected by a customer.

 

1.    Characteristic of Logistics Customer Service in nowadays economy

The fast changes in the global environment bring opportunities for development of business enterprises and all large and small organizations seek success, which is possible by providing marketing and logistics activities on a suitable level to deal with customers, creating customer value and satisfaction.

But we can observe the changes not only in business circumstances. All the world is changing and the way people live too, bringing occasions for developing approaches of business providing. This happens in many fields of economic activities of business including innovations processes, management, logistics, marketing. Each of these spheres is important for knowledge development and attracting customers and gaining market. [2] In today’s competitive and turbulent environment it is not enough to offer a product meeting customers expectations. Equally important is the way of its delivery and connected with it customer service. It is assumed, that one of major aims of logistics activities is providing high level of customer service. The continuous growth of importance of customer service in contemporary logistics is determined by the following factors:[3]

§        changes on markets and  a pressure for a higher quality of services,

§        necessity of having high levels of efficiency,

§        gap between level of service offered and expected by clients.

 

Changes in companies’ environment (individualization of customer needs, transformation from seller’s market to buyer’s market) make it necessary to build relations with customers (keeping existing by maintaining a proper level of customer service). It is important to create customer value, considered as a difference between benefits and costs as well as quick response to customer’s needs and strategies of reducing time of order’s realization. In demand oriented supply chains it can produce a synergy effect.

The starting point in deliberations concerning customer service should be a statement, that area of customer is much wider than just logistics, but logistics is of a crucial importance.[4] Logistics approach means building an innovative system of consumer requirements that has special importance in the frame of keeping strong relationship with the clients, quick response to consumer needs and reliability of services. Customer service is one of major concepts of modern logistics. It stems from the aim and principles of logistics management, which can be expressed by a well-known rule of 6R. Customer service can be considered as an ability or capability of satisfying needs and wants of customers, especially concerning time and place, with the usage of all available forms of logistics activity i.e. transport, warehousing, inventory management, packages. Customer service makes all logistics processes and activities meaningful to such a degree, that nowadays it is called customer logistics. Quality of customer service is one of the best ways of keeping current and gaining new clients, enabling enterprises to successfully compete on very demanding domestic and foreign markets.

LaLonde and Zinszer describe customer service in three ways: as an activity aimed at customer satisfaction, standards of a service and company’s philosophy.[5]

The logistics components of customer service can be classified in different ways.  They may be seen as  transportation-related elements, where the emphasis is on the specific service provided, such as on time delivery, or they may be seen as functional attributes that are related to overall aspects of order fulfillment, such as the ease of order taking. Transaction elements are usually divided into three categories, to reflect the nature and timing of the particular service requirements: [6]

·        Pre-transaction elements: these are customer service factors that arise prior to the actual transaction taking place,

·        Transactional elements: these are the elements directly related to physical transaction and most commonly concerned with distribution and logistics (order cycle time, order preparation, inventory availability, delivery alternatives, delivery time, etc.).

·        Post-transactional elements: these involve those elements that occur after delivery has taken place, such as availability of spares, call-out time, invoicing procedures, etc.

Customer service elements can also be classified by multifunctional dimensions.  The intention is to assess the different components of customer service across the whole range of company functions to try to enable a seamless service provision. Recognizing that customer management needs formal frameworks upon which relationships are built, many companies now have formal service level agreements with their customers. The essence of these agreements is that they are negotiated and agreed between the parties, and they set the expectation against which subsequent performance will be managed. Increasingly these agreements go beyond simple issues of delivery lead times and reliability to encompass wider areas for collaboration. [7]

2.    Building up relationships with customers as an effect of integration across supply chains

Achievement of multiple connections between the two parties clearly requires a mutual  understanding of the benefits that can be achieved through partnership. This new style partnership approach changes conventional thinking about buyer – supplier  relationship. It suggests a more proactive approach to integration with customers.

Schönsleben defines integration as a broad capability of an information system to exchange information. [8] Integration can be analyzed from intra-firm and inter-firm point of view. The first one is internal integration of separate functions in a single company. Many processes in companies require collaboration  between internal functions (e.g. marketing and logistics).

Customer service is perceived in different ways by representatives of marketing and logistics. From logistics point of view customer service are logistics activities  bringing clients utility of place, time and form, by guaranteeing, that non-damaged product will be in a right place and in a time preferred by a client.[9] On the other hand, from marketing point of view, customer service can be considered as something, which is additionally provided with a purchase of a product. In this perspective customer service becomes an element of so called augmented product, which constitutes additional value for a buyer. [10]

But along with an increasing acceptance for process orientation, enterprises start to integrate their external activities in supply chains. Integration must be viewed from a supply chain perspective. Non-integrated supply chains can bring about difficulties for consumers i.e.: too high inventory volume, incomplete deliveries and lack of timeliness. Suppliers also face some difficulties connected with uncertainty of orders and lack of sufficient information on client’s actions and needs. It usually results in with a lower level of customer service, higher costs and lower income.

Integrated supply chains are characterized by strong connections  (electronic and other) between all organizations creating these chains. It facilitates a flow of information along the chain and consequently increases timeliness and quality of taken decisions. Hence, the competitiveness of enterprises is strengthened, due to cost reductions. [11]

Definition accepted on Global Supply Chain Forum says, that: SCM is an integration of key business processes from an end user to suppliers, assuring products, services and information adding value to customers and other stakeholders.[12] Value added, in question, concerns costs, quality or flexibility of actions. This value can be achieved by integration of key business processes such as: customer relationship management, orders realization, management of material flow in production, procurement, reverse logistics etc. This type of integration, according to Frohlich and Westbrook, is a set of actions used by a producer to integrate his operations with suppliers and customers. These actions include access to planning systems, EDI usage, sharing production plans, information on inventory level, orders frequency and other.[13]

Copacino emphasizes importance of integration in his definition of SCM: new vision of supply chain management, which connects members and actions included in transformation of raw materials into products and delivering these products to consumers in a right time, right place and the most efficient way.[14]

Successful supply chain management requires fulfillment of these conditions: [15]

§        supply chain must be viewed as one organization,

§        delivery is a shared aim of all members of a chain, and strategic decisions have impact on costs and share in a market,

§        supply chain, because of information integration, changes the attitude towards inventory; it doesn’t eliminate it at all, but reduces to most appropriate levels,

§        integration of chain members is based on usage of modern IT and partnership.

 

3.    Customer service in supply chains as a way of improving performance (based on survey among companies from Podkarpackie voivodeship)

The survey on a sample of 30 large producers from Podkarpackie voivodeship was conducted to analyze the attitude of companies towards integration with customers and suppliers in supply chains. The study proved, that enterprises still have areas, which can be improved to a large degree. Especially in the sphere of measurement integration. Some important finding from the research are presented below.

The respondents were asked to choose three major goals of their supply chains. The majority of enterprises (23) point out at decreasing costs of deliveries as a major goal. But the next aim is better customer service (19 answers) and higher quality standards (16 answers). For studied companies factors like improved communication or higher ROA are of a less importance. It shows the importance of customer service.

The respondents were then classified as more integrated and less integrated, due to their answers in 5 different dimensions. Table 1. shows that more integrated enterprises asses their logistics abilities (on a 5 point scale) much better than less integrated ones. It can be assumed, that higher level of integration facilitates customer service.

Table 1. Differences in logistics capabilities in more and less integrated enterprises

 

The average score for more integrated enterprises

The average score for less integrated enterprises

Ability to reduce time between order and delivery

3,77

3,29

Ability to keep time of orders

4,15

3,76

Ability to react on customers needs

4,23

3,94

Ability to assure requested quantities of  orders

4,23

4,00

Ability to modify quantity or structure of orders

4,08

3,71

Ability to adjust time of delivery to customers’ needs

4,00

3,59

Source: Own study.

Respondents were also asked to assess elements, which are important as far as collaboration with clients is concerned. They have evaluated selected criteria in a scale from 1 (the least important) to 5 (the most important). Looking at the average scores, it can be noticed, that the most important element in collaboration between companies is timeliness. The respondents also valued ability to efficiently react on customer complaints as well as flexibility in satisfying needs. The least important were: using EDI standards and practices such as Just-in-Time.

       The role of customer service in logistics supply chain systems will continue to change. Therefore, the need to improve logistics customer service to consumers is greater than ever before. Increasing customer service raises customer satisfaction and increased customer satisfaction improves corporate performance.      

 

Summary

       Logistics is one of spheres which still have potential as far as improving performance is concerned. There are large, unused capacities in logistics processes in the range of costs reduction and quality of service. There are three major groups of logistics processes:  relationships with suppliers, internal processes and relationships with customers. Nowadays these processes must be viewed from a supply chain perspective. Integration of logistics activities creates value for end customers. In today’s competitive and turbulent environment it is not enough to offer a product meeting customers expectations. Equally important is the way of its delivery and connected with it customer service. Supply chain management emerged as a result of integration of activities between enterprises. It optimizes value added by all links of a chain to a product expected by a customer.

 

References:

1.        Biddle I., Climate change and business marketing opportunities, “Businessdate”, May 2008, Vol. 16, Issue 2.

2.        Blaik P., Logistyka – koncepcja zintegrowanego zarządzania przedsiębiorstwem, PWE, Warszawa 1996.

3.        Campbell J., Sankaran J., An inductive framework for enhancing supply chain integration, “International Journal of Production Research” 15 August 2005 , vol. 43, no. 16.

4.        Christopher M., Peck H., Marketing logistics, Butterworth-Heinemann, 2003.

5.        Copacino W.C., Supply Chain Management: The Basics and Beyond, St. Lucie Press/ APICS Series on Resource Management 1997.

6.        Coyle J.J., Bardi E.J., Langley Jr. C.J., The Management of Business Logistics, West Publishing Company, St. Paul 1992, MN.

7.        Coyle J.J., Bardi E.J., Langley Jr. C.J., Zarządzanie logistyczne, PWE, Warszawa 2002.

8.        Emerson C.J., Grimm C.M., Logistics and marketing components of customer service: an empirical test of the Mentzer, Gomes and Krapfel model, “International Journal of Physical Distribution & Logistics Management” 1996, No.8, Vol. 26.

9.        Frohlich M.T., Westbrook R., Arcs of integration: an international study of supply chain strategies, “Journal of Operations Management” 2001, no. 19.

10.     Kempny D., Kisperska-Moroń D., Obsługa klienta w logistyce współczesnej firmy, „Gospodarka Materiałowa i Logistyka” 1994, nr 1.

11.     Lambert D.M., Cooper M.C., Pagh J.D., Supply chain management: implementation issues and research opportunities, “International Journal of Logistics Management” 1998, no. 9 (2).

12.     Mentzer J.T., Flint D.J., Hult G.T.M., Logistics Service Quality as a Segment-Customized Process, “Journal of  Marketing” 2001, vol. 65.

13.     Rushton A., Oxley J, Croucher Ph, The Handbook of Logistics and Distribution Management, Kogan Page Publishers, 2000.

14.     Schönsleben P., Integrales Logistikmanagement: Planung und Steuerung der umfassenden Supply Chain,  Berlin Heidelberg New York 2004.

15.     Trappey C., Trappey A., Lin G., Liu C., & Lee W. (2007, July). Business and logistics hub integration to facilitate global supply chain linkage. “Proceedings of the Institution of Mechanical Engineers -- Part B -- Engineering Manufacture”, 221 (7).

16.     Wierzbiński B., The marketing management importance of globalization as a new environmental relationship [in] Managament in Europe – selected aspects, Edited by Pierścieniak A., University of Rzeszow, 2008.

 

 


[1] Biddle I., Climate change and business marketing opportunities, “Businessdate”, May 2008, Vol. 16, Issue 2, p. 2.

[2] Wierzbiński B., The marketing management importance of globalization as a new environmental relationship [in] Managament in Europe – selected aspects, Edited by Pierścieniak A., University of Rzeszow, 2008, p. 144.

[3] D. Kempny, D. Kisperska-Moroń, Obsługa klienta w logistyce współczesnej firmy, „Gospodarka Materiałowa i Logistyka” 1994, nr 1, p. 9.

[4] J.J. Coyle, E.J. Bardi, C.J. Langley Jr., The Management of Business Logistics, West Publishing Company, St. Paul 1992, MN, p. 82.

[5] J.T. Mentzer, D.J. Flint, G.T.M. Hult., Logistics Service Quality as a Segment-Customized Process, “Journal of  Marketing” 2001, vol. 65, p. 83.

[6] Rushton A., Oxley J., Croucher Ph., The Handbook of Logistics and Distribution Management, Kogan Page Publishers, 2000, p. 36-37.

[7] M. Christopher, H. Peck, Marketing logistics, Butterworth-Heinemann, 2003, p. 31.

[8] P. Schönsleben, Integrales Logistikmanagement: Planung und Steuerung der umfassenden Supply Chain,  Berlin Heidelberg New York 2004, p. 425.

[9] C.J. Emerson, C.M. Grimm., Logistics and marketing components of customer service: an empirical test of the Mentzer, Gomes and Krapfel model, “International Journal of Physical Distribution & Logistics Management” 1996, No.8, Vol. 26, p. 29.

[10] J.J. Coyle, E.J. Bardi, C.J. Langley Jr., Zarządzanie logistyczne, PWE, Warszawa 2002, p. 155.

[11] J. Campbell, J. Sankaran, An inductive framework for enhancing supply chain integration, “International Journal of Production Research” 15 August 2005 , vol. 43, no. 16, p. 3325.

[12] D.M. Lambert, M.C. Cooper, J.D. Pagh, Supply chain management: implementation issues and research opportunities, “International Journal of Logistics Management” 1998, no. 9 (2), p. 1.

[13] M.T. Frohlich, R. Westbrook, Arcs of integration: an international study of supply chain strategies, “Journal of Operations Management” 2001, no.19, p. 185.

[14] W.C. Copacino, Supply Chain Management: The Basics and Beyond, St. Lucie Press/ APICS Series on Resource Management 1997, p. 5.

[15]  P. Blaik, Logistyka – koncepcja zintegrowanego zarządzania przedsiębiorstwem, PWE, Warszawa 1996, p. 117, 119.