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Customer Service Definitions Elements of Customer Service Estimating the Benefits of Service Estimating the Costs of Service Determining Optimal Service Levels. Definitions of Customer Service.

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Presentation Transcript
slide1

Customer Service Definitions

Elements of Customer Service

Estimating the Benefits of Service

Estimating the Costs of Service

Determining Optimal Service Levels

slide2

Definitions of Customer Service

Elapsed Time Between the Receipt of an Order at the Warehouse and the Shipment of the Order from the Warehouse.

Minimum Size of Order, or Limits on the Assortment of Items in an Order Which a Supplier Will Accept from Customers.

Percentage of Items in a Supplier's Warehouse Which Might be Found to be Out-of-Stock at Any Given Point in Time.

Proportion of Customer Orders Filled Accurately.

Percentage of Orders Filled Within a Certain Time Period from Receipt of the Order at the Supplier's Warehouse.

Percentage of Customer Orders Filled Completely Upon Receipt at a Supplier's Warehouse.

Proportion of Goods Which Arrive at a Customers Place of Business in a Saleable Condition.

Elapsed Time Between the Placement of an Order by a Customer and the Delivery of the Goods to the Customer.

Ease and Flexibility with Which a Customer Can Place Orders.

slide3

Customer Service Definitions

Elements of Customer Service

Estimating the Benefits of Service

Estimating the Costs of Service

Determining Optimal Service Levels

slide4

Elements of Customer Service

Cycle Time

Dependability

Convenience

Communication

slide5

Cycle Time

Approval Time

Transmittal Time

Processing Time

Assembly Time

Shipment Time

Re-Stock Time

slide6

Order Cycle

(Need Recognition to Need Fulfillment)

Activities

Unload/Re-Stock Time

Order Requested

Processing Time

Transmittal Time

Assembly Time

Approval Time

Need Fulfilled

Delivery Time

{

{

{

{

{

{

Order Sent to

Warehouse

Order Received

In Office

Order Shipped

Replenishment

Completed

Order Delivered

Need Recognized

Order Sent to Supplier

Events

slide7

Dependability

Consistency

Completeness

Correctness

Condition

slide8

Convenience

Ease of Placing Orders

Constraints on Order Sizes

Constraints on Placement Times

Who Arranges Transportation

slide9

Communication

Easy Access to Empowered People

No Surprises

slide10

Customer Service Definitions

Elements of Customer Service

Estimating the Benefits of Service

Estimating the Costs of Service

Determining Optimal Service Levels

slide11

$

Service Level

Effects of Service Levels on Revenue

Revenue

slide12

Estimating the Benefits of Service Quality

Logistics Service as a Sales/Promotion Tool

Methods of Estimation

Questionnaires

Historical Data

Multiple Regression Analysis

Example

Important Issues

slide13

Estimating the Benefits of Service Quality

An Example

Sales = f (P, Adv, SF, Pro, OCT, VCT, BO, BOT, FR, IC, LD)

Where:

P = Price

Adv = Advertising

SF = Sales Force

Pro = Other Promotions

OCT = Order Cycle Time

VCT = Variability in OCT

BO = Back Orders

BOT= Back Order Time

FR = Fill Rate

IC = Incorrect Shipments

LD = Loss & Damage

slide14

Estimating the Benefits of Service Quality

Logistics Service as a Sales/Promotion Tool

Methods of Estimation

Questionnaires

Historical Data

Multiple Regression Analysis

Example

Important Issues

Non Linear Relationships

Lagged Relationships

Cumulative Effects

slide15

Revenue and Service Variables

Variable Coefficient T-Ratio

Constant3.95800.09

Price-1.1024-2.52

Pro (4mma,t-4)0.71821.88

OCT (5mma,t-5)0.95932.15

BOT (3mma,t-2)0.51152.00

Crd(3mma,t-2)0.13421.98

R2 = 71.4%; F=16.951; df = 34

slide16

Customer Service Definitions

Elements of Customer Service

Estimating the Benefits of Service

Estimating the Costs of Service

Determining Optimal Service Levels

slide17

Estimating the Cost of Service Quality

Two Views as to the Cost of Service Quality:

The Traditional Economic View of Service Quality

Crosby’s View that Quality is Free

slide18

$

Cost of Service

Service Level

Estimating the Cost of Service Quality

Traditional Economic View of Service Quality

Costs Increase at an Increasing Rate

slide19

Estimating the Cost of Service Quality

Crosby’s View that Quality is Free:

Do it Right the First Time

Costs are not Affected by Levels of Quality

and May Perhaps Have a Positive Effect

slide20

Cost of Service if Quality is Free

$

Cost of Service

Service Level

Estimating the Cost of Service Quality

slide21

$

Cost of Service

Service Level

Estimating the Cost of Service Quality

Cost of Service if Quality has a Positive Effect

slide22

Estimating the Cost of Service Quality

Which View is Correct? Traditional View vs Crosby?

A Better Question is When is each View Correct?

Physical Capacity vs Human Performance

Measure Each Dimension of Service Quality Separately

slide23

Customer Service Definitions

Elements of Customer Service

Estimating the Benefits of Service

Estimating the Costs of Service

Determining Optimal Service Levels

slide24

Cost

$

Revenue

,

Service Level

Determining Optimal Service Levels

Profit = Revenue - Cost

slide25

Profit

Slope = Zero

Slope Negative

Slope Positive

,

Service Level

Determining Optimal Service Levels

Maximize Profit Where the Slope of the Profit Curve = Zero

slide26

p

Profit

=

= Revenue - Cost

p

= Revenue - Cost

.5

2.5

X

X

Revenue = -250 + 20

Cost = 500 + 4.76

Determining Optimal Service Levels

(Fill-Rate Example)

slide27

p

.

.

5

2

5

X

X

= -250 + 20

- [500 + 4.76

]

p

.

.

5

2

5

X

X

= -250 + 20

- 500 - 4.76

X = 10/11.9

= .92

Determining Optimal Service Levels

(Fill-Rate Example)

and solve for X

To maximize profit, set 1st derivative = zero

slide28

Previous Efforts:

Ozmentand Chard (3M Company)

AditiSen and Ozment (Holiday Inn)

AhrenJohnston and Ozment (JB Hunt)

slide29

Ahren Johnston (JB Hunt)

  • Longitudinal data obtained directly from a national truckload motor carrier
  • Data set contained cost and service quality data on every order for nine months
  • Research focused on truckload, but data also was available for intermodal shipments
  • Was aggregated into daily observations for use in the analysis
slide30

Ahren Johnston (JB Hunt)

H9:Total operating costs will be positively related to the physical dimension of service quality.

H10:Total operating costs will be negatively related to the human performance dimension of service quality.

slide32

Motor Carrier Costs and Service

C = f(X,W1,W2,W3,W4,Z1,Z2,Z3,Q1,Q2)

Where:

C =Total Cost of Operations

X=Revenue Ton Miles

W1=Price of Fuel

W2=Price of Labor

W3=Price of Capital

W4=Price of Purchased Transportation

Z1=Average Length of Haul

Z2=Average Load per Vehicle

Z3=Empty Mileage

Q1=Physical Dimension of Quality

Q2=Human Performance Dimension of Quality

slide34

Order Level Stop Level

Variable Parameter Coefficient Significance Coefficient Significance

Constant α -0.003 .000 -0.0034 .000

Y αY 0.499 .000 0.4995 .000

W1 β1 0.3697 .000 0.3697 .000

W2 β2 0.368 .000 0.368 .000

W3 β3 0.2561 .000 0.2561 .000

W4 β4 0.0063 .000 0.0063 .000

Z1 τ1 0.4933 .000 0.4932 .000

Z2 τ2 -0.517 .000 -0.5167 .000

Z3 τ3 -0.077 .000 -0.0776 .000

Q1 φ1 0.0646 0.083 0.1386 0.008

Q2 φ2 -0.068 .000 -0.0919 .000

Q1Q2 ψ12 5.5902 0.198 -1.6002 0.828