1. CHAPTER 3
Customer
Accommodation

2. Overview of customer
accommodation
Customer-focused marketing
Customer service
Customer satisfaction
Customer success
Developing customer
accommodation strategy
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3. Whoperspective ofcustomer?
is the the total supply chain
From
 End user of product in consumer market
 Company is customer in business market
From perspective of specific firm within a
supply chain
 Intermediate customer organizations exist between
the firm and end users
From perspective of a logistics manager
 Any delivery location

For example, consumer home’s, retail / wholesale
businesses, receiving docks of manufacturing plants and
warehouses
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4. Basic principles of the marketing
concept
Customer needs and requirements are more basic
than products and services
Different customers have different needs and
requirements
Products and services become meaningful only when
available and positioned from the customer’s
perspective
Profit is more important than sales volume
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5. Transactional vs. Relationship
Marketing
Transactional marketing
is a traditional strategy with
a focus on creating
successful individual
transactions between the
company and its customers
Relationship marketing is
a new strategy with a focus
on the development of longterm relations with key
supply chain participants in
an effort to develop and
retain long-term preference
and loyalty
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6. Relationship marketing to a
segment of one
Micromarketing or one-to-one marketing recognizes
that each individual customer may indeed have unique
requirements
 For example, Wal*Mart and Target are both mass merchandisers

However, their requirements to interact logistically with suppliers
differs significantly
• One-to-one relationships can
– Significantly reduce transaction costs
– Better accommodate customer
requirements
– Move individual customer transactions
into a matter of routine
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7. 3 discrepancies must be overcome to enable
exchange of goods and services
Discrepancy in space refers to the fact that the
location of production activities and location of
consumption are seldom the same
Discrepancy in time refers to the difference in
timing between production and consumption
Discrepancy in quantity and assortment refers
to the mismatch between customer demand and
manufacturing supply
Customers seek small quantities and wide assortment
Firms specialize in large quantities of a limited
assortment
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8. 4 generic supply chain service
outputs eliminate discrepancies




Spatial convenience is the amount of shopping time
and effort will be required on the part of the customer
Lot size is the number of units to be purchased in each
transaction
Waiting time is the amount of time the customer must
wait between ordering and receiving products
Product variety and assortment differs by supply
chain



Supermarkets may have over 35,000 items on the shelves
Warehouse stores generally stock 8,000 to 10,000 items with
only one brand and size of an item
Convenience stores may stock only a few hundred items
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9. 3 levels of customer
accommodation
Supply chains provide a mix of services, both generic
and custom, in order to accommodate a range of
customer requirements
Each service mix can be configured to achieve one of
the following levels of customer accommodation
Customer service
Customer satisfaction
Customer success
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10. Basic customer service provides
customers
With the right amount
Of the right product
At the right time
And the right place
In the right condition
At the right price
With the right information
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11. Basic elements of customer service
Service Reliability
Availability
Fill rates
Stockout frequency
Orders shipped
complete
Operational
Performance
Damage free
Error-free invoices
Shipment matches
order
Shipped to correct
location
Etc.
Speed
Consistency
Flexibility
Malfunction recovery
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12. Availability is the capacity to have inventory
when desired by a customer
Fill rate measures the
magnitude or impact of
stockouts over time
Stockout occurs when
a firm has no product
available to fulfill
customer demand
Orders shipped
complete requires
shipping everything
that a customer orders
to count as a complete
shipment
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13. Operational performance deals with the time
required to deliver a customer’s order
Speed of the performance cycle is the
elapsed time from when a customer
established a need to order until the
product is delivered
Consistency of the order cycle is
measured by the number of times that
actual cycles meet the time planned for
completion
Flexibility is a firm’s ability to
accommodate special situations and
unusual or unexpected customer
requests
Malfunction recovery is a firm’s ability
to quickly implement contingency plans
when a failure occurs in the supply chain
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14. Service reliability is a firm’s ability to perform all
order-related activities and provide critical info
Service reliability involves a combination of
logistics attributes beyond simply availability and
operational performance. For example:
Damage free measures how many shipments arrive
without damaged products
Error-free invoices measures what percentage of
invoices contain no errors
Shipment matches order measures how many
shipments contain the exact amount of product ordered
Shipped to correct location measures how many
shipments are made to the customer’s selected location
Plus a capability and willingness to provide
customers with accurate information regarding
operations and order status
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15. The perfect order is the ultimate in
logistics service levels that is
The perfect order is an order
Delivered complete
Delivered on time
Delivered at the right location
Delivered in perfect condition
Delivered with complete and accurate documentation
This requires the total order cycle performance to
be executed with zero defects
+
+
+
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16. Example of zero-defect performance
measurement
 Consider an order cycle that
achieves the following
performance levels for shipments
 97% delivered complete
 97% delivered on time
 97% delivered in perfect
condition
 97% delivered with correct
documentation
 Probability that any order will be
Therefore, the
Therefore, the
probability that any
probability that any
order has a problem is
order has a problem is
11.5%
11.5%
delivered with no defects is only
88.5%
 P (zero defects) = .97 x .97 x .97
x .97 = .885
What resources are needed
What resources are needed
to achieve a zero-defect
to achieve a zero-defect
level?
level?
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17. The basic service platform is a commitment to
perform each basicAelement at platform for customer B
a given level
Service platform for customer
Service
 Availability level = Medium
 Availability level = Low
 Operational performance =
 Operational performance =
High
 Service reliability = Above
Operational
average
Performance
Medium
 Service reliability = Average
Level
Basic
Service
Platform
Availability
Level
Service
Reliability Level
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18. How much basic service should the supply chain
provide? establish their basic service
Many firms
platforms using two factors
 Competitor or industry acceptable practice

Minimum and average service performance
levels have emerged in most industries
 The firm’s overall marketing strategy


High service levels needed to compete on
basis of logistics competency
Low service levels are more common when
competing on the basis of price
Zero-defect approach is not taken
across the board for all customers
Establish internal performance
standards for each service component
to reflect industry practice, cost and
resource requirements
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19. What is customer satisfaction?
Expectancy
disconfirmation states if
a customer’s expectations
of a supplier’s performance
are met or exceeded, the
customer will be satisfied
 If Perceived Performance > =
Expectations, then
Satisfaction
 If Perceived Performance <
Expectations, then
Dissatisfaction
“Customers will be satisfied if a supplier meets or exceeds the
customer’s expectations”
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20. Customer expectations related to logistical
performance from Table 3.2
Reliability
Security
Responsiveness
Courtesy
Access
Competency
Communication
Tangibles
Credibility
Knowing the customer
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21. How are customer expectations
created?
Figure 3.1 Satisfaction and Quality Model
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22. The model identifies gaps managers must fill to
help satisfy their customers
Gap 1: Knowledge
 Reflects management’s lack
of knowledge or
understanding of customers
Gap 2: Standards
 Exists when internal
performance standards do
not adequately reflect
customer expectations
Gap 3: Performance
 The difference between
standard and actual
performance
Gap 4: Communications
 Overcommitment or
promising higher levels of
performance than can
actually be provided
Gap 5: Perception
 Customers sometimes
perceive performance to be
higher or lower than actually
achieved
Gap 6:
Satisfaction/Quality
 When one or more gap
exists customer perception is
that performance does not
meet expectations
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23. Increasing customer expectations
Performance that meets
customer expectations one
year may result in extreme
dissatisfaction next year
Competition in an
industry will often raise
the minimum standards
that customer expect
 For example, Federal Express
introduced real-time
tracking of shipment status

In response UPS and other
parcel delivery firms added
this service to their platform
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24. Why customer satisfaction is not
sufficient
Satisfied customers may
not be happy with the
supplier’s performance
 Customer satisfaction
focuses on expectations - not
customer’s real requirements
Considerable research
suggests that “satisfied”
customers still are likely to
defect
• What satisfies one customer
may not satisfy other, much
less all, customers
– There is a tendency by
companies to treat all customers
as being equal and identical
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25. Low expectations always result in
satisfied customers
But what if customer
requirements are not
met?
Figure 3.2 Satisfaction Is Not the Same as Happiness
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26. Level 3 Focus
•
•
•
•
Customer
Success
Assess customer requirements
Extend supply chain to include our customer’s customer
Provide value-added services for select customers
Manage performance cycles and levels to address needs of
each customer segment in the extended supply chain
Level 2 Focus
•
•
Assess customer perceptions of satisfaction
Manage performance cycle levels to keep customers
satisfied
Customer
Satisfaction
Level 1 Focus
•
•
Assess industry and competitor practices
Achieve internal standards for performance cycles
Customer
Service
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27. Achieving customer success requires knowledge
of individual customer requirements
Not all customers have the
same requirements
Know your customers’
processes
Determine how your
capabilities can enhance your
customers’ performance
Extend the supply chain
boundaries to include nextdestination customer
requirements
Introduce new performance
metrics
Develop value-added services
for select customers
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28. Customer success requires a
comprehensive supply chain
perspective
Figure 3.3 Moving Towards Customer Success
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29. Value-added services are a first
step in achieving customer success
Value-added services refer to unique or specific
activities that firms can jointly develop to enhance
their efficiency, effectiveness and relevancy
Transportation carriers, warehouse firms and
other specialists may become intimately involved
to make value-adding activities a reality
For example, a retail customer may desire a
unique palletization alternative to support its
cross-dock activities for its individual stores
Each store requires different quantities of specific
product to maintain in-stock performance with
minimum inventory
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30. Developing a customer
accommodation strategy
Basic principle of supply
chain logistics is that
customers should be
segmented based on their
service needs
Supply chain must adapt
to serve those segments
Companies need
 A framework for choosing
the appropriate customer
specific strategies
 Programs for customer
relationship management
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31. Framework for choosing a customer
accommodation strategy using profit categories
Table 3.4 Choosing Customer Accommodation Strategy
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32. Customer relationship management has grown
rapidly in recent years
Customer relationship management (CRM) is
a process for improving the overall performance of
a business by better understanding and
anticipating the wants and needs of customers
In practice companies and vendors use the term CRM
to mean different things
One CRM example – Procter & Gamble has
employees who live and work in the city of its
largest customer Wal*Mart
Logistics has primary responsibility for many of
the processes that drive value and customer
success
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