THE COPPERBELT UNIVERSITY - SCHOOL OF BUSINESS

BSP 354 – LOGISTICS AND DISTRIBUTION MANAGEMENT

LOGISTICS AND CUSTOMER

VALUE

By: Peter Simasiku

January 21, 2025 1

Logistics and competitive advantage
Two factors have perhaps contributed more than anything else to the
growing importance of logistics as a competitive weapon.
1. One is the continual increase in customer expectations; in almost every
market the customer is now more demanding, more ‘sophisticated’ than
he or she was, say, 30 years ago.
2. The second factor is the slow but inexorable transition towards
‘commodity’ type markets. By this is meant that increasingly the power
of the ‘brand’ is diminishing as the technologies of competing products
converge, thus making product differences difficult to perceive – at
least to the average buyer.
Defining Customer Value?

The success or failure of any business can be determined by the level of

customer value that it delivers in its chosen markets.
Defining Customer Value?
• Customer value can be defined quite simply as the difference between
the perceived benefits that flow from a purchase or a relationship and
the total costs incurred.
• Another way of expressing the idea is:

• ‘Total cost of ownership’ rather than ‘price’ is used here because in most
transactions there will be costs other than the purchase price involved.
Defining Customer Value?
See the 2018 model for Mercedes Benz Car below:
•
Total cost of ownership

• ‘Life-cycle costs’ have long been a critical issue in procurement

decisions in those markets.
 Business Value – Products, and
Services
Collection of activities that a business (or a chain of businesses)
undertake to design, produce, market, deliver, and support
products or services
Product Attributes and Benefits

Products have two main types of attribute – tangible and

intangible
Tangible (or physical) attributes, Core attributes represent the
functional capability of a product, its primary features
Core features of a product includes strength, capability and
reliability
Styling, performance capabilities, packaging, size or weight are
features that help distinguish a product or enable it to perform
better than competitive products
Product Attributes and Benefits
Product Attributes and Benefits
Intangible attributes are all the other aspects that customers
perceive to surround a product
These concern the psychological aspects associated with service
and support, the warranties and guarantees, the financial services,
the training and, very importantly, the reputation of the company and
its perceived status
These are increasingly recognised as important discriminators and
can help customers understand the relative value of market offerings
For example, companies provide a 24-hour support services to
ensure customers are happy
Product Attributes and Benefits

Categorize into tangible or intangible attributes

Competing Through Logistics
• It is important to question how products win orders in the marketplace?
How does logistics contribute to competitive advantage?
• Companies win orders depending on the products that they offer.
Competing Through Logistics
• A 'Logistics product' is actually a combination of the physical product (for
example, a 200g pack of cheese) and its accompanying service (for
example, how it is merchandised in the store - easy to find, availability,
attractive presentation, lighting, temperature).
• While the physical product is determined by marketing and R&D, service
is heavily influenced by logistics.
• A Logistics product is a collection of characteristics and customer
perceptions that can be manipulated only to a limited degree by a
logistician.
WHAT IS CUSTOMER SERVICE?
• The vast majority of companies consider customer service to be an
important aspect of their business.
• When pressed, however, there are many companies that find it difficult
to describe exactly what they mean by customer service or provide a
precise definition of customer service measures.
• Traditionally, service provisions have been based on very broad
assumptions of what customers want, rather than taking into account
the real requirements of customers or at least customers’ perceptions of
what they require.
WHAT IS CUSTOMER SERVICE?
There are three (3) major factors that need to be considered when trying
to understand Customer service.
1. The definition of customer service and its measurement. It is also
important to understand that customer service and customer service
requirements can and will differ not just between industries and
companies but additionally between the market segments a business
might serve.
2. Recognition of the complexity of customer service provision.
Customer service is inextricably linked to the process of distribution
and logistics. Within this process.
WHAT IS CUSTOMER SERVICE?
There are three (3) major factors that need to be considered when trying
to understand Customer service.
3. Finally, the need to balance the level of service provided with the
cost of that provision. The downfall of many a service offering is often
the unrealistic and unrecognized high cost of providing a service that
may sometimes be greater than is required by the customer.
Logistics refers to ‘the positioning of resource at the right time, in the right place, at the
right cost, at the right quality’. This can be expanded into what might be considered as the
seven ‘rights’ of customer service.
The components of customer
service ?
1. Pre-transaction elements: these are customer service factors that arise prior to the actual
transaction taking place. They include: written customer service policy; accessibility of order
personnel; single order contact point; organizational structure; method of ordering; order size
constraints; system flexibility; and transaction elements.
2. Transaction elements: these are the elements directly related to the physical transaction and
are those that are most commonly concerned with distribution and logistics. Under this heading
would be included: order cycle time; order preparation; inventory availability; delivery
alternatives; delivery time; delivery reliability; delivery of complete order; condition of goods;
and order status information.
3. Post-transaction elements: these involve those elements that occur after the delivery has
taken place, such as: availability of spares; call-out time; invoicing procedures; invoicing
accuracy; product tracing/warranty; returns policy; customer complaints and procedures; claims
procedures.
GROUP DISCUSSION
• Questions & Discussions

January 21, 2025 21

Developing a Program for Controlling
Logistics Service
• A programme for controlling logistics service requires the definition of
such service for an individual industry, company, product, geographic
area, or customer.
• Once the concept of service is defined, standards can be established,
measurement accomplished, and control exercised.
• So the programme should involved:
1. the Definition of Logistics service
2. Establishment of Standards
3. Measurement of Key Performance Indicators
4. Control
1. Logistics Service Definition
Various ways in which customer logistics service is typically defined,
ranked roughly in order of their popularity, are:
• The elapsed time between the receipt of an order at the supplier’s
warehouse and the shipment of the order from the warehouse.
• The minimum size of order, or limits on the assortment of items in an
order which a supplier will accept from its customers.
• The percentage of items in a supplier’s warehouse which might be
found to be out of-stock at any given point of time.
The key is to know what is important from the customer’s point of view.
Many companies do not know because they have never asked their
customers. Those who do, for example, are continually surprised by the
fact that most customers express a greater need for dependability than
for speed in responses to their orders.
2. Establishment of Standards
There are many factors that influence companies in establishing such
standards for customer logistics service:
1. Economic - cost of the service
2. Nature of the Environment – environmental considerations e.g.
competitors response time, their transportation methods, policies etc
3. Nature of the Product – Product characteristics
i. Substitutability
ii. Physical Characteristics
iii. Pattern of Demand
3. Measurement [key performance
indicators]
• The measurement of logistics service performance must be
consistent with definitions used for customer service standard.
• It varies in difficulty with the scope of the customer service cycle
being measured. Unfortunately, customer service standards are
defined too often in terms of what can be measured rather than what
is relevant to the performance of a logistics system.
• For example, it may be convenient to measure the proportion of
orders picked, packed, and shipped within 24 hours of their receipt at
a supply point. However, this measure provides information about
only a small and relatively unimportant element in the order cycle.
3. Measurement [key performance
indicators]
• Customer-oriented standards of service are often most relevant to
service programme design efforts.
• Realistically, three dates can be found for every order:
1. the date of the order;
2. the date on the bill of lading indicating order shipment; and
3. the date on a dock receipt signed by the customer at the time of
delivery.
4 Control
• Logistics service control can be incorporated as part of a broader
programme for controlling all aspects of logistics management.
• Specifically, once the appropriate measures and standards of
performance are established, information about them should be
reported up through the organization, they should be taken into
account in evaluating performance, and they should form the basis
for corrective action which, when possible, has been planned in
advance as a part of the programme.
4 Control
At a given distribution centre or at the corporate level, a company may
employ periodic reports indicating items such as:
1. Proportion of line items shipped vs ordered.
2. Proportion of orders filled completely within a certain time after
their receipt, with a tabulation of reasons for non-performance.
3. Proportion of emergency orders in the total processed.
4. Proportion of air freight (or other premium transportation) costs
in total transportation costs on a warehouse region or corporate-
wide basis.
5. Sampled customer replenishment cycle times.
6. Transit times and their variability between given points, by carrier.
In using such measures to evaluate individual performance, care must be taken to ensure
that an individual so measured has a reasonable amount of control over the measure
used
DEVELOPING CUSTOMER SERVICE
POLICY
Developing a Customer Service Policy

 Appropriate customer service policy needs to be

developed based on the identifiable service
requirements and suitable logistics operation
must be established to provide this service.

 A supplier works towards meeting customers minimum requirements in

order to achieve customer satisfaction.
 Thus it is useful to recognize an approach to determine the basic
requirements and format of this policy
Developing a Customer Service Policy
Steps in developing a customer service policy
1. Identify the main elements of service and market segment
 This involves identifying those elements of service that
are most highly rated by customers e.g. quality,
methods of ordering, delivery reliability or stock
availability.
 The main means of determining these key elements are
market research techniques. These include:
• Identification of main buyers of the product;
• Use of personal interviews
• Use of group interviews
The importance of this stage is also to identify the
different market segment or types. It is unlikely that a
universal level of customer service will be appropriate for
all customers.
1. Identify the main elements of service and market segment
It should be noted that there are different types of customer
service study that can be used and many companies use these for
different purposes. These are include;
• Complaint analysis- qualitative but limited only for complainants.
• Critical incident studies- qualitative but only relevant to individual
customers.
• Customer panels- qualitative but limited coverage.
• Key client surveys- useful Pareto approach and are both
qualitative and quantitative.
• Customer survey/ questionnaires- Good overall coverage and
both qualitative and quantitative.
The most common approach for major studies is likely to be a
detailed questionnaire- based customer survey. This is
undertaken in a number of ways which include; telephone,
mail/post, face-to-face or web-based.
Customer Service Elements - Objectives

Quality Being RIGHT

Market Competitiveness
Speed Being FAST

Dependability Being ON TIME

Flexibility Being ABLE TO CHANGE

Cost Being PRODUCTIVE

2. Determine the significance of each service element
 Research techniques can also be used to measure the
importance of different service components.

 An output of this is a list of components in a form of a

ranking order (‘most’ to ‘least’ importance) or rating
scale (1 to 6 according to importance).
 Qualifiers, order winners and ‘delights’
Qualifiers are the ‘givens’ of doing business
Order Winners gain more business the better you are
Adding Delights
Delights become Order Winners and Order Winners become Qualifiers
Positive
Delights
Competitive Benefit
Order Winners
Neutral
Qualifiers
Tim
e

Negative
Low High
Achieved Performance
 Qualifiers, order winners and ‘delights’ (Continued)
What service elements are Qualifiers, Order Winners and Delights ?

… and in the future ?

What is the logistics doing today to develop the capabilities that will
provide the ‘Delights’ of the future ?

Today Tomorrow

Delights

???
Order Winners

Qualifiers
Customer Service (delights) at
Amazon
3. Establishing company competitiveness in relation to
the service level offered
 Having identified the key service components and their
relative importance to the customer,
 the next step is to measure how well the company is
performing for each of these key components.
 The company will conduct a
survey to compare how key
competitors are performing
according to the key service
components. This will provide
an indication of whether the
company is both
underperforming and over
4. Develop specific customer service packages

 This is the implementation

phase
 depends on the results
obtained from the stages
that have been described.
 Different packages for
different market segments
will be developed and cost.
5. Determine monitoring and control procedures
 It is vital to ensure that any service policy
implemented is monitored.
 This requires an effective measurement of the
service provided and a continuous monitoring
and control.
 Most companies fail to do this because of the
following reasons:
 Because they do not have a recognised
customer service policy
 Because companies find it difficult to
quantifiable standards that are capable of
measurement.
 Service quality
Hand written notes

January 21, 2025 42