THE IMPORTANCE OF 3C’s IN LOGISTICS
The 3Cs in logistics and their relationship with each are as follows:-
The source of competitive advantages is initially found in the ability of the organization to differentiate itself in the EYES of the customer.
• From its competition
• By operating at a lower cost
• Greater profit due to above
In today’s global competitive market a product will not sell itself either
• Based on its BRAND image
• Based on its success today
COMMERCIAL SUCCESSES can be derived from either:
COST advantage or
VALUE advantage or
BOTH
1. COST ADVANTAGE
Cost advantage can be gained by productivity improvements or increasing the sales and market share. The expenses or costs are distributed over the sales volume and the more the sales – lesser are the costs (cost per unit).
All costs will decline at a given rate as volume of sales increased. Cost in the logistics can be reduced by
a. Savings in transportation costs – outward/inward
b. Savings in operating costs
c. Savings in post production costs viz. warehousing, distribution, etc.
These savings can be passed on to customers.
Example:
1. Cost of Ariel and Surf came down.
2. Cost of TV/DVD recently came down (DVD 1 Lacs to Rs. 30,000)
3. Costs of Gold plating on watches came down due to change in processing viz
• Instead of chemical processing called electronics – present technology is physical vapour defisution (Cost / strap from Rs. 180 to Rs. 50 for gold plating)
4. Cost of wrist watches are competitive and nearby fixed.
5. Cost of computers has come down.
6. Cost of Air Conditions came down. (Rs. 1 lacs to 30000 for 1.5 tone A.C.)
2. VALUE ADVANTAGE:
“Customer’s don’t buy products – they buy BENEFITS.
Hence number of advertisements tells us about what that product can deliver in addition to its basic function.
Example Surf / Arial not only wash clothes but REMOVES STAINS.
• Ayush Shampoo – Not only acts as cleaning agents but strengthen hair.
• Watch not only shows TIME but also has features like Date, Day, stop-watch function, etc.
• Some cars – more leg space etc.
Therefore companies manufacture number of models for Niche market i.e. requirement of a section of people.
Example
• Maruti – 800 - General Public
• Maruti – Zen - For slightly more comfort requirement
• Maruti Esteem - High class people
• Maruti Omni / Van - Specific use Marrayes
Value advantage is gained by
1. Delivery service
2. After sales-service
3. Financial package
4. Technical support (say upgrading of computers)
For value advantage a customer will be ready even to PAY MORE.
TO BRIEF
1. CUSTOMER - Needs benefits from the products in addition to its primary function at the same cost or even paying slightly more.
2. COMPETITOR - Always trying to be ONE-UP and hence requires productivity and cost improvements.
3. COMPANY - Assets / Facilities utilization.
- Having a cutting edge Better Technology Process / R & D.
EXAMPLES
1. Fridge
• Double door
• Auto Defrosting
• Front door water outlet etc.
2. TVs are tooled up with
• DVD / CVD connections
• Multi – Channels
• Act as computers
3. Telephones with
• Caller Identification
• Storage of some phone numbers
• Hand set
• Call waiting features
• Call transfer etc.
4. Titan Watches
• Titan showrooms – General Class
• Tanishq showrooms – exclusive costly watches and jewellery
COMPETITIVE ADVANTAGE
(A) CUSTOMER SERVICE
INTRODUCTION TO CUSTOMER SERVICE
A consumer may define customer service in terms of the department store clerk, who ignored him or her at the cash register, or in terms of the assistant manager who helped order a difficult-to-find item. Consumers approach customer service the way they approach art; they are not sure what it is, but they know it when they see it. To provide superior customer service, integrated logistics must understand customer expectations in measurable terms and develop a channel of distribution that can meet those expectations.
WHAT IS CUSTOMER SERVICE
The overriding goal of integration logistics is to provide superior service to the customer. The customer may be a manufacturer or the final consumer, another department in the company or a consumer living half way around the world. The role of a customer service is to provide time and place utility in the transfer of goods and service between the buyer and the seller. Customer service may be defined as an activity that must be managed such as invoicing, order processing or handling complaints. It can also be defined with performance measures, such as filling 98% of all orders within 24 hours.
The “Seven R’s rule” offers a simple description of how integrated logistics creates customer service. The seven R’s mean having the right product, in the right quantity, in the right condition, at the right place, at the right time, for the right customer and at the right cost. Any breakdown in the seven R’s disrupts the flow of product and leads to poor customer service. Firms that routinely deliver the seven R’s add value for customers and create a competitive advantage for themselves.
IMPORTANCE OF CUSTOMER SERVICE FOR GAINING STRATEGIC ADVANTAGE
Customer service is the output of the logistics system and is the key interface between the marketing and logistics functions, supporting the “place” element of the marketing mix. But even more important, customer service plays a significant role in developing and maintaining customer loyalty and ongoing satisfaction.
The product, pricing and promotion elements of the marketing mix create value added for customers. However, when the performance of the competitors is similar on these attributes, it is customer service that really brings the customer back.
Products and prices are relatively easy for the competitors to duplicate. Promotional efforts also can be matched by competitors, with the possible exception of trained and motivated sales force. Thus logistics play a key role in contributing to the organizations competitive advantage by providing excellent customer service.
CUSTOMER SERVICE ELEMENTS
The “seven R’s” are linked to the elements of customer service and to value relative to the product or service. The first customer service elements are called pretransaction. This refers to those aspects of customer service that must precede the core service. Without these, the service may not satisfy the customer. These items deal with policy and require management decisions. The organizational mission statement may reflect these items.
The transaction elements implement the pretransaction elements. These aspects of customer service deal with the movement of the product or service. Although all transaction items are important, the order cycle particularly interests consumers because it tells how long it will take to get the product or service. The order cycle begins when an order is placed and ends when the consumer receives the order. The order cycle consists of order transmittal (customer place the order), order processing (process the order and make it ready for shipment), order preparation (picking and packaging the order), and order shipment (physically moving the order to the consumer).
The final customer service elements, posttransaction, are referred to as service after the sale. These aspects of service engage after delivery or during shipment. Warranties, guarantees, claims, complaints, and returns are examples of posttransaction elements. Posttransaction activities can cement a solid relationship with the customer and lead to repeat business, one of the goals of customer service.
THE ORDER CYCLE SYSTEM
The order cycle consists of four primary components: order transmittal, order processing, order preparation and order shipment. Many people and many departments handle the order. Each handling of the order means more time – and money – spent. Today, both integrated logistics and marketing managers seek to reduce order cycle time by removing as many people and departments as possible from the process.
ORDER TRANSMITTAL
Order transmittal is the time from order placement by the customer to order receipt by the seller. Customer place orders using five basic methods: (1) with a sales representative – in person or by telephone – who physically delivers it to the firm, (2) through the mail, (3) via the telephone, (4) via fax, or (5) through an EDI application.
Before telephones and computers, sales representatives and the mail were the only methods available to place orders, which took weeks or months. As communications became more sophisticated, the telephone, fax, and EDI became preferred methods of order transmittal.
The selling company normally seeks as much control over order transmittal as possible. They want to determine how, where, and when orders are placed. Whether they provide a toll-free number, a post office box mailing address, a customer service fax number, or even computer communications linking into their computer system, sellers must ensure that the customer has trouble-free access to order transmittal.
ORDER PROCESSING
Once the seller receives the customer’s order, many internal activities take place. By definition, order processing is the set of activities necessary to make the correct goods ready for shipment to the customer – right up to the point where warehousing assembles the order. Processing the order includes checking customer credit, crediting a sales representative’s account, ensuring product availability, and preparing the necessary shipping documents. The seller should be able to control order cycle activity. Order processing time has been shortened largely through computer applications.
ORDER PREPARATION
Order preparation begins when the order is given to the warehouse and ends when the shipment is on the warehouse dock ready to be transported. The seller seeks to control order preparation. Order preparation activities include picking the right products and packaging them for shipment. Picking may be manual, with people taking the products from inventory, or automated, with computers linked to automated retrieval equipment. Computer applications have reduced the time these tasks take.
ORDER SHIPMENT
The final step in the order cycle is delivery to the customer. Unlike the previous steps, the seller might not control this activity. Rather, the transportation carrier contracted to move the shipment controls the transit time and delivery. Of course, the seller controls the shipment when in-house or private fleets are involved. For many sellers, this step takes the longest time.
The length of the order cycle depends on the type of order transmittal system, degree of automation of order processing and order preparation, and distance from the customer. They vary by industry, by the importance of the customer to the seller, and by the nature of the production process. The order cycle time can be hours or a few days. One Australian company reports an order cycle of over 600 days for certain parts. Domestic order cycle times are normally shorter than international cycles.
PERFORMANCE MEASURES FOR CUSTOMER SERVICE
There are four traditional dimensions of customer service from a logistics perspective. They are as follows
• Time
• Dependability
• Convenience
• Communication
There are essential considerations in developing a sound and effective customer service program. They also provide a basis for setting standards of performance for customer service in the logistics area.
Now however the standards have been changed as per the needs of the customer. They have become customer service oriented as compared the previous seller oriented standards.
The NEW BASIS customer service performance measures are:
• Orders received on time
• Orders received complete
• Orders received damage free
• Orders filled accurately
• Orders billed accurately
There was a problem with the traditional form of customer service performance measures because they looked after the performance of only pre shipment. So any problems that took place during the delivery of the goods that could cause problems and dissatisfaction to the customer were not catered to. And thus the seller using the traditional method of measurement would not have any basis upon which to evaluate the magnitude and extent of the problem.
The current method focuses on the measurement at the delivery level not only provides a database to make an evaluation but also more importantly provide early warning of problems as they are developing.
IMPLEMENTING CUSTOMER SERVICE STANDARDS
• SETTING STANDARDS
This highlights the key for successfully developing and implementing customer service standards. The first point is to be careful of adopting easily achievable performance standards, such standards may be too low to be of practical value. While setting and adhering to a meaningful standard should help to differentiate your firm thom the competition setting standards at unrealistically low levels will not help to establish a competitive advantage.
• LEVELS OF QUALITY
Some current management philosophies such as emphasis on total quality are very critical of ant acceptable quality level set below 100% this does not mean that the firm can achieve 100% performance at all times for the use of 100% represents an attitude more than a measurement. From a practical viewpoint however establishing a desired quality level that is less than 100% will generally limit rather than encourage superior performance.
• COMMUNICATION WITH CUSTOMERS
The firm should develop customer service policies and standards through customer consultation. After adopting the standards the firm should formally communicate them to customers. Certain firms prefer to keep silent about their customer service standards and avoid letting their customers know their exact policies and performance targets. The best approach however is to communicate these policies and standards to customers very closely
• CONTROL OF CUSTOMER SERVICES
The firm should develop procedures to measure, monitor and control the customer service quality called for by the firms performance measures and standards. Using techniques such as statistical process control obtaining feedback and taking corrective actions are essential to success. When customer service standards are ineffective the firm should not hesitate to discontinue them as appropriate.
The 3Cs in logistics and their relationship with each are as follows:-
The source of competitive advantages is initially found in the ability of the organization to differentiate itself in the EYES of the customer.
• From its competition
• By operating at a lower cost
• Greater profit due to above
In today’s global competitive market a product will not sell itself either
• Based on its BRAND image
• Based on its success today
COMMERCIAL SUCCESSES can be derived from either:
COST advantage or
VALUE advantage or
BOTH
1. COST ADVANTAGE
Cost advantage can be gained by productivity improvements or increasing the sales and market share. The expenses or costs are distributed over the sales volume and the more the sales – lesser are the costs (cost per unit).
All costs will decline at a given rate as volume of sales increased. Cost in the logistics can be reduced by
a. Savings in transportation costs – outward/inward
b. Savings in operating costs
c. Savings in post production costs viz. warehousing, distribution, etc.
These savings can be passed on to customers.
Example:
1. Cost of Ariel and Surf came down.
2. Cost of TV/DVD recently came down (DVD 1 Lacs to Rs. 30,000)
3. Costs of Gold plating on watches came down due to change in processing viz
• Instead of chemical processing called electronics – present technology is physical vapour defisution (Cost / strap from Rs. 180 to Rs. 50 for gold plating)
4. Cost of wrist watches are competitive and nearby fixed.
5. Cost of computers has come down.
6. Cost of Air Conditions came down. (Rs. 1 lacs to 30000 for 1.5 tone A.C.)
2. VALUE ADVANTAGE:
“Customer’s don’t buy products – they buy BENEFITS.
Hence number of advertisements tells us about what that product can deliver in addition to its basic function.
Example Surf / Arial not only wash clothes but REMOVES STAINS.
• Ayush Shampoo – Not only acts as cleaning agents but strengthen hair.
• Watch not only shows TIME but also has features like Date, Day, stop-watch function, etc.
• Some cars – more leg space etc.
Therefore companies manufacture number of models for Niche market i.e. requirement of a section of people.
Example
• Maruti – 800 - General Public
• Maruti – Zen - For slightly more comfort requirement
• Maruti Esteem - High class people
• Maruti Omni / Van - Specific use Marrayes
Value advantage is gained by
1. Delivery service
2. After sales-service
3. Financial package
4. Technical support (say upgrading of computers)
For value advantage a customer will be ready even to PAY MORE.
TO BRIEF
1. CUSTOMER - Needs benefits from the products in addition to its primary function at the same cost or even paying slightly more.
2. COMPETITOR - Always trying to be ONE-UP and hence requires productivity and cost improvements.
3. COMPANY - Assets / Facilities utilization.
- Having a cutting edge Better Technology Process / R & D.
EXAMPLES
1. Fridge
• Double door
• Auto Defrosting
• Front door water outlet etc.
2. TVs are tooled up with
• DVD / CVD connections
• Multi – Channels
• Act as computers
3. Telephones with
• Caller Identification
• Storage of some phone numbers
• Hand set
• Call waiting features
• Call transfer etc.
4. Titan Watches
• Titan showrooms – General Class
• Tanishq showrooms – exclusive costly watches and jewellery
COMPETITIVE ADVANTAGE
(A) CUSTOMER SERVICE
INTRODUCTION TO CUSTOMER SERVICE
A consumer may define customer service in terms of the department store clerk, who ignored him or her at the cash register, or in terms of the assistant manager who helped order a difficult-to-find item. Consumers approach customer service the way they approach art; they are not sure what it is, but they know it when they see it. To provide superior customer service, integrated logistics must understand customer expectations in measurable terms and develop a channel of distribution that can meet those expectations.
WHAT IS CUSTOMER SERVICE
The overriding goal of integration logistics is to provide superior service to the customer. The customer may be a manufacturer or the final consumer, another department in the company or a consumer living half way around the world. The role of a customer service is to provide time and place utility in the transfer of goods and service between the buyer and the seller. Customer service may be defined as an activity that must be managed such as invoicing, order processing or handling complaints. It can also be defined with performance measures, such as filling 98% of all orders within 24 hours.
The “Seven R’s rule” offers a simple description of how integrated logistics creates customer service. The seven R’s mean having the right product, in the right quantity, in the right condition, at the right place, at the right time, for the right customer and at the right cost. Any breakdown in the seven R’s disrupts the flow of product and leads to poor customer service. Firms that routinely deliver the seven R’s add value for customers and create a competitive advantage for themselves.
IMPORTANCE OF CUSTOMER SERVICE FOR GAINING STRATEGIC ADVANTAGE
Customer service is the output of the logistics system and is the key interface between the marketing and logistics functions, supporting the “place” element of the marketing mix. But even more important, customer service plays a significant role in developing and maintaining customer loyalty and ongoing satisfaction.
The product, pricing and promotion elements of the marketing mix create value added for customers. However, when the performance of the competitors is similar on these attributes, it is customer service that really brings the customer back.
Products and prices are relatively easy for the competitors to duplicate. Promotional efforts also can be matched by competitors, with the possible exception of trained and motivated sales force. Thus logistics play a key role in contributing to the organizations competitive advantage by providing excellent customer service.
CUSTOMER SERVICE ELEMENTS
The “seven R’s” are linked to the elements of customer service and to value relative to the product or service. The first customer service elements are called pretransaction. This refers to those aspects of customer service that must precede the core service. Without these, the service may not satisfy the customer. These items deal with policy and require management decisions. The organizational mission statement may reflect these items.
The transaction elements implement the pretransaction elements. These aspects of customer service deal with the movement of the product or service. Although all transaction items are important, the order cycle particularly interests consumers because it tells how long it will take to get the product or service. The order cycle begins when an order is placed and ends when the consumer receives the order. The order cycle consists of order transmittal (customer place the order), order processing (process the order and make it ready for shipment), order preparation (picking and packaging the order), and order shipment (physically moving the order to the consumer).
The final customer service elements, posttransaction, are referred to as service after the sale. These aspects of service engage after delivery or during shipment. Warranties, guarantees, claims, complaints, and returns are examples of posttransaction elements. Posttransaction activities can cement a solid relationship with the customer and lead to repeat business, one of the goals of customer service.
THE ORDER CYCLE SYSTEM
The order cycle consists of four primary components: order transmittal, order processing, order preparation and order shipment. Many people and many departments handle the order. Each handling of the order means more time – and money – spent. Today, both integrated logistics and marketing managers seek to reduce order cycle time by removing as many people and departments as possible from the process.
ORDER TRANSMITTAL
Order transmittal is the time from order placement by the customer to order receipt by the seller. Customer place orders using five basic methods: (1) with a sales representative – in person or by telephone – who physically delivers it to the firm, (2) through the mail, (3) via the telephone, (4) via fax, or (5) through an EDI application.
Before telephones and computers, sales representatives and the mail were the only methods available to place orders, which took weeks or months. As communications became more sophisticated, the telephone, fax, and EDI became preferred methods of order transmittal.
The selling company normally seeks as much control over order transmittal as possible. They want to determine how, where, and when orders are placed. Whether they provide a toll-free number, a post office box mailing address, a customer service fax number, or even computer communications linking into their computer system, sellers must ensure that the customer has trouble-free access to order transmittal.
ORDER PROCESSING
Once the seller receives the customer’s order, many internal activities take place. By definition, order processing is the set of activities necessary to make the correct goods ready for shipment to the customer – right up to the point where warehousing assembles the order. Processing the order includes checking customer credit, crediting a sales representative’s account, ensuring product availability, and preparing the necessary shipping documents. The seller should be able to control order cycle activity. Order processing time has been shortened largely through computer applications.
ORDER PREPARATION
Order preparation begins when the order is given to the warehouse and ends when the shipment is on the warehouse dock ready to be transported. The seller seeks to control order preparation. Order preparation activities include picking the right products and packaging them for shipment. Picking may be manual, with people taking the products from inventory, or automated, with computers linked to automated retrieval equipment. Computer applications have reduced the time these tasks take.
ORDER SHIPMENT
The final step in the order cycle is delivery to the customer. Unlike the previous steps, the seller might not control this activity. Rather, the transportation carrier contracted to move the shipment controls the transit time and delivery. Of course, the seller controls the shipment when in-house or private fleets are involved. For many sellers, this step takes the longest time.
The length of the order cycle depends on the type of order transmittal system, degree of automation of order processing and order preparation, and distance from the customer. They vary by industry, by the importance of the customer to the seller, and by the nature of the production process. The order cycle time can be hours or a few days. One Australian company reports an order cycle of over 600 days for certain parts. Domestic order cycle times are normally shorter than international cycles.
PERFORMANCE MEASURES FOR CUSTOMER SERVICE
There are four traditional dimensions of customer service from a logistics perspective. They are as follows
• Time
• Dependability
• Convenience
• Communication
There are essential considerations in developing a sound and effective customer service program. They also provide a basis for setting standards of performance for customer service in the logistics area.
Now however the standards have been changed as per the needs of the customer. They have become customer service oriented as compared the previous seller oriented standards.
The NEW BASIS customer service performance measures are:
• Orders received on time
• Orders received complete
• Orders received damage free
• Orders filled accurately
• Orders billed accurately
There was a problem with the traditional form of customer service performance measures because they looked after the performance of only pre shipment. So any problems that took place during the delivery of the goods that could cause problems and dissatisfaction to the customer were not catered to. And thus the seller using the traditional method of measurement would not have any basis upon which to evaluate the magnitude and extent of the problem.
The current method focuses on the measurement at the delivery level not only provides a database to make an evaluation but also more importantly provide early warning of problems as they are developing.
IMPLEMENTING CUSTOMER SERVICE STANDARDS
• SETTING STANDARDS
This highlights the key for successfully developing and implementing customer service standards. The first point is to be careful of adopting easily achievable performance standards, such standards may be too low to be of practical value. While setting and adhering to a meaningful standard should help to differentiate your firm thom the competition setting standards at unrealistically low levels will not help to establish a competitive advantage.
• LEVELS OF QUALITY
Some current management philosophies such as emphasis on total quality are very critical of ant acceptable quality level set below 100% this does not mean that the firm can achieve 100% performance at all times for the use of 100% represents an attitude more than a measurement. From a practical viewpoint however establishing a desired quality level that is less than 100% will generally limit rather than encourage superior performance.
• COMMUNICATION WITH CUSTOMERS
The firm should develop customer service policies and standards through customer consultation. After adopting the standards the firm should formally communicate them to customers. Certain firms prefer to keep silent about their customer service standards and avoid letting their customers know their exact policies and performance targets. The best approach however is to communicate these policies and standards to customers very closely
• CONTROL OF CUSTOMER SERVICES
The firm should develop procedures to measure, monitor and control the customer service quality called for by the firms performance measures and standards. Using techniques such as statistical process control obtaining feedback and taking corrective actions are essential to success. When customer service standards are ineffective the firm should not hesitate to discontinue them as appropriate.