The Customer Service Environment for Supply Chain Management
This chapter is from the book
This chapter is from the book
This chapter is from the book
Customer Service Environment
According to the Supply Chain Knowledge Management Maturity Roadmap (SKMap)1, illustrated in Figure 1.1, tactic integration is the first movement toward a solid supply chain governance structure. Once tactic integration has matured, leaders are capable of interpreting the signals generated within the organization and promoting a solid strategic alignment of the supply chain function with corporate governance. These connections are sustained by five pillars:
- Customer service
- Project planning
- Human resources
- Sustainability
- Information technology
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Figure 1.1 Supply Chain Knowledge Management Maturity Roadmap (SKMap)
At the tactic integration level, the organization strengthens several functional areas and creates the architecture capable of aligning supply chain building blocks with major business objectives. According to the Supply Network Alignment Reference Model (SNAR Model), illustrated in Figure 1.2, these building blocks are planning logistics and synchronous operations (Oliveira and Gimeno, 2014).
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Figure 1.2 Supply Network Alignment Reference Model (SNAR Model)
Moving on to SKMap’s fourth maturity stage (supply chain governance), three major targets complement tactic integration:
- To establish and lead a supply chain risk management strategy
- To define which key knowledge areas must be acquired
- To synchronize supply chain strategies to corporate governance goals
Corporate governance is a complex discipline. A simple approach to understand the concept of governance lies on balancing performance, risk and cost. Usually when the organization maximizes either one of these elements, the others will not achieve minimum required standards. This balancing exercise is continuous because most businesses are constantly under pressure due to both permanent and changing factors.
Customer service plays a major role in the tactic-alignment dynamics. Most publications introduce customer service as a set of activities categorized into pre-transactional, transactional, and post-transactional. This approach induces the readers to believe there is only an operational level for customer service, when its contribution to the organization lies within the tactical and strategic levels.
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Figure 1.3 Customer service levels
This book introduces the Customer Service Management Model (CSM Model), a tool developed by the authors to evaluate the interactions present in the customer service environment. The model presents four pillars and provides a quantitative approach to understand the connection between them:
- Customer’s service level expectation
- Supplier’s service level (hired performance)
- Customer’s service level perception
- Supplier’s service level (delivered performance)
The following figure indicates that it is possible to assign scores to each pillar. The methodology used to classify each pillar should be jointly agreed between supplier and customer. It shows six correlations (1, 2, 3, 4, 5, and 6), which are analyzed more fully in Chapter 2, “Customer Service Management Model.”
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Figure 1.4 CSM Model, correlation grid
Figure 1.5 illustrates the output of the CSM Model. It compares:
- If the customer hires the service level equivalent to its expectation
- If the customer’s perception of the service level is aligned to previous expectation
- If the supplier is delivering the service level as hired by the customer
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Figure 1.5 CSM Model, analysis panel
The combination of these factors defines an aggregated risk index. The lower this percentage, the higher the risk to which the supplier is exposed. The lower part of the panel classifies the supplier’s ability to manage the customer’s expectation. Once again, the fields are illustrated as lines 4, 5, and 6 in the correlation grid (see Figure 1.4).
The performance leverage compares customer’s perception to actual process performance, and the contract leverage compares customer’s perception to the actual hired service level. Finally, process commitment compares supplier’s actual performance to the hired service level. The Customer Service Management Model is detailed in the following chapters.
These correlations interact dynamically and define the efficacy of customer service strategies. However, customer service should initially strengthen the connections with a few preferred customers and with commercial structures within its organization, known as the primary boundary.
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Figure 1.6 Customer service primary boundary2
Despite the basic need of the primary connections, customer service only delivers long-term strategic benefits to the organization as it creates communications channels within various areas of the business.
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Figure 1.7 Customer service maturity3
The ultimate goal of any organization is to deliver value to shareholders. A general model introduces three basic mechanisms that enable the creation of shareholder value: increase sales volume, increase sales revenue, reduce costs. The logical structure is quite simple:
- [1] Volume sold (quantity of products or service)
- [2] Amount paid per unit (product or service)
- [3] Revenue = [1] × [2]
- [4] Cost to serve
- [5] Profitability = [3] – [4]
Figure 1.8 Profitability, basic mechanisms
Note that this basic algorithm has a few simplifications. For example, the cost-to-serve line aggregates all costs and expenses without segmentation. This includes imposts and taxes. We could use more sophisticated models; however, this format is well adapted to the objectives of this book.
The Supply Network Business Value Model (SNValue Model) suggests three building blocks to create shareholder value (Oliveira and Gimeno, 2014):
Enabling sales volume growth.
The main purpose of this mechanism is to increase the volume sold by the company. The volume increase generates increased revenues but the impact on profitability can vary greatly. If the strategy to increase volume defines equally increased costs, then operations profitability may reduce. However, so far when “enabling sales volume growth” is cited, the reader will only consider the number of units traded despite eventual cost consequences. The main policies of this strategy are as follows:
- Enabling market-share growth
- Reducing revenue cycle
- Reducing lost sales
- Supporting marketing and sales initiatives
- Enabling customer experience
Enabling customer experience.
The aggregate set of policies on “enabling customer experience” seeks to change customer perception positively. Customers who see greater value in the product or service offered to them are more likely to spend more, thus increasing revenue and profitability. The main policies of this strategy are as follows:
- Adding value to the customer
- Enhancing cost to serve
- Adjusting the right service at the right cost
Enabling margin growth.
The difference of this mechanism in relation to the two previous ones is in the focus given to cost reduction and elimination of general expenses. The main policies of this strategy are as follows:
- Reducing cost of sales
- Balancing asset management
- Balancing service level and cost structure
The complete SNValue Model integrates all three mechanisms into a coordinated effort to maximize gains to the organizations. The simultaneous application of various policies has a diffuse effect on the final result. Therefore, companies often do not capture the exact correlation between the implementation of a specific action and its outcome. The quantification of the cause-effect relationship is very limited in most cases.
However, the organization may identify how each process will contribute in order to add value. A simple tool to support this exercise is the Business Value Impact Chart (BV Chart). The structure of the BVChart has four key elements; the first is the process identification according to the SNAR Model coding system (see Figure 1.9).
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Figure 1.9 SNAR Model coding system
The second element consists of understanding how the selected process (for example, customer service, SNAR 01.03.01) influences each business value dimension. Although this analysis is business specific, there is some adherence within several different industry sectors.
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Figure 1.10 BVChart for SNAR 01.03.01
The BVChart for customer service obviously has a tremendous potential impact on enabling customer experience despite the fact that this influence is mostly associated with the definition of strategies and policies. The customer service role is also to steer customer culture within the organization and facilitating or incentivizing other areas to perform accordingly.
The third element is the internal evaluation (diagnosis) of the processes. To capture the real contribution requires maturity and represents the most difficult step within the methodology.
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Figure 1.11 BVChart, reality check
Each dimension of the SNValue Model has to be audited and evaluated against set expectations. The example illustrated in Figure 1.12 indicates that this company is fully delivering the potential benefits of the margin growth pillar while the benefits from both the sales growth and customer experience pillars are only partially delivered.
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Figure 1.12 BVChart graph
The last element in the BVChart is the graphical representation of the SNValue dimension. It compares the expectations to a real situation.