Page 68 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 3: Customer Accommodation

willingness to provide accurate information to customers regarding operations and order status. Notes
Research indicates that the ability of a firm to provide accurate information is one of the most
significant attributes of a good service program. Increasingly, customers indicate that advanced
notification of problems such as incomplete orders is more critical than the complete order
itself. Customers hate surprises! More often than not, customers can adjust to an incomplete or
late delivery, if they have advanced notification.

3.2.8 The Perfect Order

The ultimate in logistics service is to do everything right and to do it right the first time. It is not
sufficient to deliver a complete order but to deliver it late. Nor is it sufficient to deliver a
complete order on time but to have an incorrect invoice or product damage incurred during the
handling and transportation process. In the past, most logistics managers evaluated customer
service performance in terms of several independent measures: fill rates were evaluated against
a standard for fill; on-time delivery was evaluated in terms of a percentage of deliveries made
on time relative to a standard; damage rates were evaluated relative to a standard for damage;
etc. When each of these separate measures was acceptable relative to standard, overall service
performance was considered acceptable.
Recently, however, logistics and supply chain executives have begun to focus attention on zero-
defect or six-sigma performance. As an extension of Total Quality Management (TQM) efforts
within organizations, logistics processes have been subjected to the same scrutiny as
manufacturing and other processes in the firm. It was realized that if standards are established
independently for customer service components, even if performance met standard on each
independent measure, a substantial number of customers may have order-related failures.

Example: If orders shipped complete, average on-time delivery, average damage-free
delivery, and average correct documentation are each 97 percent, the probability that any order
will be delivered with no defects is approximately 88.5 percent. This is so because the potential
occurrence of any one failure combined with any other failure is .97 x .97 x .97 x .97. The converse
of this, of course, is that some type of problem will exist on as many as 11.5 percent of all orders.
The notion of the perfect order is that an order should be delivered complete, delivered on time,
at the right location, in perfect condition, with complete and accurate documentation. Each of
these individual elements must comply with customer specifications. Thus, complete delivery
means all products the customer originally requested, on time means at the customer’s specified
date and time, etc. In other words, total order cycle performance must be executed with zero
defects – availability and operational performance must be perfectly executed and all support
activities must be completed exactly as promised to the customer. While it may not be possible
to offer zero defects as a basic service strategy across the board to all customers, such high-level
performance may be an option on a selective basis.

Self Assessment

State whether the following statements are true or false:
5. Fill rate cannot also be used to differentiate the level of service to be offered on specific
products.
6. Safety stock exists to accommodate forecast error and cushion delivery delays during base
stock replenishment.
7. The performance cycle was not positioned as the operational structure of logistics.
8. Operational consistency refers to a firm’s ability to handle extraordinary customer service
requests.

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