Customer Service

Customer service is complex subject of its own, but basically it has two aspects – customer relations and availability of service or items. Customer relations is about having the right interpersonal skills with customers, and company maintaining good reputation with customers with regards to the product quality, service and expectations of customers, and making sure customers are happy with their purchase so that there is a potential for repeat business and more sales subsequently. To the customers it doesn’t matter whether the supplier is good or bad, what does matter sometimes is what the customer thinks about the suppliers, and customers can provide good-will spread of words to friends and business associates, or for a very dissatisfied customer to sometimes having deliberate intention to disrepute and discredit the image of the company.

Customer service through the availability of service or items is a technical management of inventory control. The risk of material stockout can be reduced by increasing the inventory levels of stock items, but there must be an optimal tradeoff between service level and inventory dollars investment, where inventory are scrutinized by performance measures such as inventory turns, cost of goods sold, gross margin, etc.

The overall Service Level to external customers or internal customers can be measured by adding the demand provided on all the individual stock items (categorized into buckets of time issue frequencies) and divide it by total stock items demand. On-time availability can be measured in the time issue frequencies of hourly, 4 hourly, 12 hourly, daily, within 36 hours, 48 hours, weekly or monthly, depend on your customer's requirement. Below is an example.

For companies supplying individual stock items and finished products, Availability or commonly known as Customer Service Level will have the following formula:

For companies supplying large export orders, such as using bank’s “letter of credit” or the whole shipment must be sent in one crate or in a whole steel container, Service Level measurement should be: [Total no. of complete orders supplied on-time/Total no. of orders]

The definition of "on-time" delivery has the same meaning as measuring the "ship-to-promised" date to customer, which really should be the date and time the customer receives the Goods as the required date they specified in their Purchase Order. It should not be the date and time when the Goods leaves the store or the issued-out date in company's system.

You will have the different measurement of service level depending on the requirement and wishes of your customers. For example, if your customer requires 20 pieces but your stock on-hand is only 16. What customer service level will it be when you deliver with 4 pieces short? Is it 80% because only 16 out of 20 can be delivered? Is it 0% because customer demanded a full delivery of 20 but the delivery was not complete? Or should it be 100% because you argue that the balance 4 pieces can be delivered a few days later before the customer actually needs them, since it is also not an urgent order? Different customer situations will determine the order of priorities of their purchases. It all depends on the company's order fulfillment policy and the agreement that company had reached with the customers.

Customer's Back-Order measurement

Once an item has missed its delivery date, it is considered as a non-hit item and then become a back-order. Consider a situation where there are two demands for a stock item - one non-hit item as mentioned above which is already past a delivery due date, and a new order from another customer which has to be delivered on time. When the stock is later replenished, the priority should be given to satisfy the back order or fulfill the new order? In such circumstances, there is a tendency for the planner to fulfill the current new order, not the back-order, since fulfilling the current order will improve the service level whereas the back-order has already failed in service level. In practice, there is normally a need to give precedence to the customer whose order is already overdue. There should be a system to measure how many orders are overdue and how late they are in terms of hours or days aging.

However, back-orders viewed on the system may not be all true demand or needed urgently because of the following reasons:

• back-orders even though long overdue, but customer has no urgency to use the stock item any time soon.

• customer does not really want and they are buying in parallel from an alternate source.

• customer does not want and they had not cancel the order.

Outstanding customer back-orders need regular review to ensure the non-urgent items are either rescheduled or cancelled. If back-orders arrears continue to build up, they will give a distorting signal or false alarm to internal purchasing department which will make more stock purchases to fulfill the virtual arrears.

Customer service best practices

Below are a list of best practices and useful pointers for providing a good customer service:

• Voice of Customer. VOC methods as one of Six Sigma tools. Company must focus products on meeting customer needs rather than delivering the next great technology. Company representatives must understand what customers really want and not what they think or assume what customers want. It is even more crucial to identify the unstated or unspoken customer needs, needs not traditionally associated with the products, or needs that would provide an opportunity for further business growth if addressed. By properly collecting and investigating Voice of the Customer, a company can deliver a product that will provide superior added value by addressing what is of priority to the customer.
  
  VOC method in Six Sigma is intended to better understand the customer needs and prioritize how important each of those needs are to the customer. VOC goes beyond traditional market research, surveys, focus groups, user group feedback, interviews and database complaint logs to better understand the customer needs and uncover the unstated needs. VOC attempts to find how customers value the various functions and features of a product or service, and their worth to the customer. A well-executed Voice of the Customer investigation will result in fundamental insights into customer needs that lead to products and services that provide superior value to the customer.

• Customers' expectations. Customers want cost-effective products or services that deliver required benefits to them, and to have their needs satisfied including bending the orders processing procedure to their requirements, advance buy list before they give the firm PO only weeks later, a longer term of credit, and the way that communications are handled.

• Changing customers' expectations. Customers normally become delighted when they under-forecast and a supplier still over-delivers with the actual demand happened higher than the forecast. Even then we cannot assume that we know what customer's expectations are, but we must always ask. Customer expectations will constantly change due to economic situation, competitor products and their experience learned, so they must be determined on an on-going basis.

• Managing customers. Customers are also an exceptional source of information. A company need to know what customers want and need (which enables us to focus our production and service efforts), know which products or customers have most growth potential (which enables us to focus on developing highest potential), know which products or customers are most or least profitable (which enables us to focus on maximizing profit), and know which customers will be supporters (which enables a company to provide references, case studies, and to safely test new products and services).

• Pareto’s 80:20 rule. Pareto 80/20 rule is very useful in problems analysis such as: 20% of customers account for 80% of your turnover, or 20% of customers account for 80% of your profits, or 20% of customers account for 80% of your service and supply problems. It is important to know which customers fit into which category and then manage them accordingly.

• Focus on building customer relationships. The company’s focus of developing core competencies must associate closely with an overall strategy of building customer relationships. In this way, all efforts in the organization can be aligned to customers and the culture of 'going the extra mile' to exceed customer expectation, service being seen as a value-adding activity, customers being treated as partners, reward and recognition being based on customer focus.

• Managing quality service. If a company delivers 100% ship-to promise without quality failure, the customers will see that they are important to the company. Put things right and we will be seen as a supplier who knows how to manage quality product and service. An organization that fails to put things right in ship-to-promise and quality literally has the same effect of saying, "this customer is not important to us". Failing to manage quality service and to prevent reoccurrence, will soon drive away an existing customer. To customers, a single mistake could be forgivable. Remedial action to prevent repetition is crucial but a repeat is totally unacceptable to customers.

• Customers' complaint. Effectively handling customers with their complaints is critical to the company’s reputations as well as their bottom lines. When customers complain and they are satisfied with the way their complaint is handled, they are more likely to purchase another product or service from the same company. By making it easy for customers to complain, more customers will come forward with their problems, giving the company greater opportunity to correct service delivery or production processes.

• Anticipation. Most customers don't expect the company to anticipate ahead, assessing their needs and perception. However, thinking about and talking with the customers will increase their trust in the attention we have for his/her needs.

• Explanation. Some customers like to know the reasons behind the company’s decisions. Being transparent and explain it the customer also means that we act as an interpreter, translating processes and technical terminology in a way that makes your customer comfortable, feel trusted and involved.

• Attention. Giving the customer attention has to do with interest, consideration and involvement. Giving attention means listening closely when customer talks, and provide answers and solutions by focusing on the needs and wishes of the customer. Careful listening motivates the customer to continue talking.

• Creating win-win solutions. Show a "customer-orientation" attitude by resolving priority issues in favor of some important and strategic customers, and where possible, give in, compromise and add value in customer service. Enhance long-term customer satisfaction by giving reliable after-sales spare parts support, pricing discount, or better term of credit. The cost of keeping existing customers is a only small fraction of the cost of acquiring new customers.

• Availability. When a customer asks a question, no matter how trivial that question may look like, they expect a prompt answer whether that is going to face-to-face meet up, by email or by telephone. If you don't have the required information at hand, just confirm you have received the email and then approximate a response time. If you can't be reached by email, make sure senders get an automatic reply mail with alternative contact information.

• Highly satisfied and dissatisfied customers. Highly satisfied customers who perceive a high value in your products and services usually make excellent advocates for the organization - nurture these customers and give them special treatment. Dissatisfied customers who perceive a low value in your products and services are potential saboteurs. These dissatisfied customers could have little or no loyalty, and company should seek to rebuild relationships and trust, and a new basis for a future relationship, or manage the separation with professionalism.

• Customer survey. Ask your customers what is important to them. Find out why the customers do business with the company by giving them a predefined list for selecting answers in areas such as – quality, price, product range, systems compatibility, technical support, location, customer service, etc.

 Next Page >> Managing Suppliers