Logistics and Supply Chain Management, 4th Edition

LOGISTIC S & SUPPLY CHAIN MANAGEMENT

50

value. If appropriate a ‘weight’ could be assigned on the basis of criticality and the

80/20 ranking based on profit could be adjusted accordingly. Table 2.2 provides

an example.

Table 2.2 Critical value analysis

Products Profitability

rank order

Critical value to

customers

1 2 3

Rank ×

Critical

value

Order of

priority for

service

C 1 x 3 1

P 2 x 4 2 =

R 3 x 6 5

B 4 x 4 2 =

X 5 x 5 4

Y 6 x 18 8

Z 7 x 14 7

H 8 x 8 6

J 9 x 27 10

K 10 x 20 9

Critical values: 1 = Sale lost

2 = Slight delay acceptable

3 = Longer delay acceptable

Setting service standards

Obviously if service performance is to be controlled then it must be against prede-

termined standards.

Ultimately the only standard to be achieved is 100 per cent conformity to cus-

tomer expectations. This requires a clear and objective understanding of the

customers’ requirements and at the same time places an obligation upon the sup-

plier to shape those expectations. In other words there must be a complete match

between what the customer expects and what we are willing and able to provide.

This may require negotiation of service standards since clearly it is in neither par-

ty’s interest to provide service levels that would lead to a long-term deterioration in

profitability – either for the supplier or the customer.

What are the customer service elements for which standards should be set?

To be effective these standards must be defined by the customers themselves.

This requires customer research and competitive benchmarking studies to be con-

ducted so that an objective definition of customer service for each market segment

may be identified.

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However, for the moment we can indicate some of the key areas where stand-

ards are essential:



Order cycle time



Stock availability



Order-size constraints



Ordering convenience



Frequency of delivery



Delivery reliability



Documentation quality



Claims procedure



Order completeness



Technical support



Order status information

Let us examine each of these in turn.

Order cycle time

This is the elapsed time from customer order to delivery. Standards should be

defined against the customer’s stated requirements.

Stock availability

This relates to the percentage of demand for a given line item (stock keeping unit,

or SKU) that can be met from available inventory.

Order-size constraints

More and more customers seek just-in-time deliveries of small quantities. Do we

have the flexibility to cope with the range of customer demands likely to be placed

upon us?

Ordering convenience

Are we accessible and easy to do business with? How are we seen from the cus-

tomers’ viewpoint? Do our systems talk to their systems?

Frequency of delivery

A further manifestation of the move to just-in-time is that customers require more

frequent deliveries within closely specified time windows. Again it is flexibility of

response that should be the basis for the performance standard.