Factors influence customer service: Relationship between response time & Number of Facilities Design Options for a Distribution

f Facilities Design Options for a Distribution Network

Elements of customer service influenced by network structure: Increasing the number of facilities moves them closer to the end customers. -Manufacturer Storage with Direct Shipping
Response time: Response time is the time between when a customer places This reduces the response time. -Manufacturer Storage with Direct Shipping and In-Transit Merge
an order and receives delivery. Response times are the time between when a customer places an order and -Distributor Storage with Carrier Delivery
Fast response time increases customer satisfaction by providing quick receives delivery. If customers can tolerate a large response time, fewer -Distributor Storage with Last Mile Delivery
solutions to problems and reducing issue resolution time. A fast response to locations are required in a distribution channel and the emphasis would be -Manufacturer or Distributor Storage with Consumer Pickup
customer queries builds trust and loyalty, demonstrating a commitment to on the larger capacity at each location. However, if customers require short -Retail Storage with Consumer Pickup
excellent customer service response times then the more locations should be built in the network. -Selecting a Distribution Network Design
Product variety: Product variety can be defined as the range of different As Amazon has built warehouses, the average time from the warehouse to
models/types offered within a single product line or category. One of the end customer has decreased.
the main reasons for increases in variety within a product category is the
consumer.
As each individual has a preference for different product variants. Companies
try to satisfy their customers by offering products, which ideally satisfy
customer needs, in order to in-crease their sales, market share, and profits.
This can also give companies a competitive advantage by increasing
customer value & thus influence customer service. 500
Product availability: Availability is the probability of having a product in
stock when a customer.
order arrives. Consistent product availability is the essence of a positive
shopping experience and the backbone that ensures a secure income stream
and loyal customers. By failing to provide the right products at the right time
and price, you can lose business to your direct competitors. One reason
behind this should be apparent - you fail to offer the experiences that 100
customers want.
Customer experience: Customer experience includes the ease with which
the customer can place and receive their order. Customer experience is also In this case, the manufacturer ships the commodity directly to the end
2 day
the experience customers have with your brand and the lasting impression customer, bypassing the retailer, who takes the order and initiates the
you leave across the entire buyer's journey, from discovering your brand to 7 day delivery. This is also known as dropshipping. The retailer does not maintain
post-purchase. inventory. The manufacturer receives information directly from the
Customer Experience is helping customers solve problems, showing them We can see in the above graph, the number of facilities is 100 hundreds, the
consumer through the retailer and the manufacturer ships directly to the
how to use products, and answering questions and thus influence customer response time is 7 days, but when we increased it to 500 across the country,
customer.
service. it becomes 2 days response timSo, Firms that target customers who can
The primary benefit of drop-shipping is the manufacturer’s ability to
Order visibility: Customers expect to know the status and location of their tolerate a large response time require few locations that may be far from the
centralize inventory and aggregate demand for all retailers it supports. As a
orders across multiple channels, devices, and touchpoints. Order tracking customer and can focus on increasing the capacity of each location. On the
result, the supply chain will maintain a high degree of product availability
and visibility can influence customer service as, they can enhance customer other hand, firms that target customers who value short response times need
while maintaining low inventory levels.
experience and trust by providing transparency, convenience, and control to locate close to them. These firms must have many facilities, with each
When supply chains use dropshipping, they save on fixed costs associated
over their orders. Customers can avoid uncertainty, frustration, or location having a low capacity. Thus, a decrease in the response time
with warehouses since all inventories are centralized at the manufacturer.
disappointment by knowing when and where to expect their orders, and how customer’s desire increases the number of facilities required in the network.
This removes the need for additional supply chain warehousing space. There
to contact the retailer if needed may also be some cost savings associated with handling, as the manufacturer-
Returnability: return process is a critical part of the customer experience. A to-retailer transition is eliminated.
smooth, convenient return process can create happy customers who are more
likely to shop with a company again in the future. On the other hand, a For example, our cement industry, People order directly in the factory or
difficult or inconvenient return process can frustrate customers and damage through agents and get directly delivery with company transport in their
their satisfaction with a company. construction location.
 A conceptual model of service quality: the service gaps Measuring customer service
Relationship between Inventory Cost & Number of Facilities
“Develop a service quality model – Gap Analysis” Different measures of customer service can be used, but they must reflect the
Inventory costs increase with the number of warehouses because firm
Gap 1: Customer Expectation vs. Management Perception - caused by a lack key service requirements for the customer.
maintain a safety stock of all (or most) products at each facility.
of understanding of customer requirements. Order fulfillment can be measured in various ways, including the number
Companies in order to have a responsive supply chain tend to increase the
Gap 2: Management Perception vs. Service Standard - caused by inadequate of orders satisfied, lines delivered, value of the order completed, etc.
number of facilities depending on the situation. However, a company needs
operational setup. “Customer has given order for 10 items but got 8 items. So it failed to
to consolidate its number of facilities in order to have a responsive and
Gap 3: Service Standard vs. Service Delivery - caused by inefficiency within comply with order fulfillment.”
efficient supply chain. The numberof facilities has a direct impact on the
delivery service. Timeliness of delivery operations can also be measured through the order
costs. An increase in the number of facilities willlead to an increase in the
Gap 4: Service Delivery vs. External Communication - caused by cycle time or lead time from receipt to final delivery.
facility costs and vice versa.
misunderstandings in communication. “Customer promised to give 2 days’ delivery but got the product after one
Gap 5: Actual Service vs. Perceived Service - caused by different ways of week, which failed to comply with timeliness”
measuring service by supplier and customer. The "perfect order" is a measure that takes into account all key attributes
Gap 6: Perceived Service vs. Expected Service - the major aspect of service of an order that satisfies customer requirements.
quality to be measured, caused by differences between the service perceived “If someone ordered 2 pack of 500 gm detergent, a subtotal of 1 kg, but
and expected. he/she is provided a single 1 kg pack, which failed to comply with perfect
order criteria”
Discrepancies between actual and target performance should be assessed
cumulatively for realistic measurement. Organizations should set clear,
customer-service-driven performance measures that reflect their goals.
“Need to find which criteria is not fulfilled, Need to take action based on
customer complain”
Clear and simple visual methods, such as radar charts, can be used to
present and compare actual and target performance.

1. Distribution cost directly impact cost & customer service or not?

2. Distribution network design related to low cost, high
responsiveness or both?
As a rule of thumb we can say, the more facilities in a network, it causes more 3. Response time will impact customer service & how?
inventory costs but less shipping costs. In opposite, the less number of 4. 80% cost comes from 20$ items
facilities would lead to less facility overhead cost but more transportation 5. Ratio between perceived quality and measured performance
costs for remote customers. There is no doubt that a minimum number of
locations are required to minimize the logistic costs but in order to be more
agile and quick to respond to market changes an organization should go
beyond the cost minimization.

Example of a gap analysis