Sunday, 15 January 2006 22:25
To Steal A March On Through Improved Customer Service Level
A globalization process is dominating the whole world. The borders are removed and regional markets are established within this process. Specialist/expert companies throughout the whole world are entering into these markets and trying to find new clients and increase their revenues. The companies are recently configured to make business in international markets. The companies, which are not able to make business in international markets, are pulling out of the markets.
Making business in such worldwide markets has vital importance to supply best products and/or services to the customers with reasonable prices. Those, who are aware of this fact, make an effort to reduce their costs. Those companies, which attempt to reduce their costs, are also reducing the capital employed on their stocks and, instead, they are developing new systems which allow them to purchase the products from their suppliers when they receive an order.
Within today’s markets, subject to firmer competition, everybody has urgent needs and as a result of this, they would like to buy required producs as soon as possible. Those, who do not find the required products through their suppliers, usually fulfil their needs through another company as they do not want to wait. The companies, which do not want to lose their customers, should measure “customer service level” correctly. Service level is a indicator of success level for companies. Service level improvement plays a crucial role for the companies, which aim to develop and fortify their position within the market.
Customer service level is also expressed as availiability and calculated with the following formula:
Number of shipped order line
within a pre-determined
period
Service Level (availability) = -------------------------------------------- x 100
Total customer
order lines
within a pre-determined
period
Service Level (availability) = -------------------------------------------- x 100
Total customer
order lines
The orders, which shall be received for the following categories, should also be evaluated while calculation of service level:
Products not included within stocks: Companies, sometimes, do not want to keep a stock for some certain products on purpose. If those products are not taken into account, the results shall be certainly wrong. For this reason, the orders for those products shall be excluded during calculation of service level.
Advance-ordered products: Orders for products, whose advance-order are received and a further delivery time is given, should not be included within calculation, because, those products shall be delivered later even if they are existed within the stock. That is to say, orders for the products within this category shall not be considered while calculation of service level.
Products directly shipped from manufacturer: Products, sometimes, might be shipped directly from manufacturer's warehouse to customers. Orders should not be taken into account for such products during calculation of service level.
The fact whether total order amount for product in each line is fulfilled or not should also be considered for service level calculation. For instance, if ten products, which is on an incoming order line, is demanded and the company is able to provide ten products, a full mark (or 1) should be given for this line. However, if the company is able to provide only 9 products of the order, a bad mark (or 0) should be given for this line. For example, if the company receives 20.000 lines of order in one month and is able to provide 19.000 products within promised date from his stock, the service level shall be
19.000
Service Level (availability) = ------------- x 100 = % 95.
20.000
Service Level (availability) = ------------- x 100 = % 95.
20.000
Higher service level is a key success factor for companies. Companies, usually accepts 95% availiability rate as satisfactory rate. However, if the company aims to be best, it has to achieve 100% service rate. The company should categorize the products with stock-control according to sales amount and demand frequency, and, also determine individual and independant service level targets for each category. Targeted service levels- even if general target is on desired value- shall be examined carefully, and, measures, when necessary, shall be taken immediately.
In order to raise service level;
- Previous demand series should be examined thoroughly, and, reduced demand trend should be determined on product basis,
- Orders should be prepared periodically (daily or weekly),
- Manufacturer shall prepare the products as early as possible,
- The shipment process, from manufacturer to the warehouse (included), should be reduced,
- Detailed analysis of products, which can not be provided from the stock, and required measures should be taken after determination of the cause of problem.
Products, which can not be supplied, shall not only decrease service level, but also cause a criticial sales loss. Customer might wait for some products, which are not available in stock, but also do not want to wait for some products which are not available in stock. In this case, not only sales losses shall occur but also customer, who purchases the products from another company, might leave the company forever.
In case of a downward trend of service level, customers tend to increase their orders in order avoid a problem within their operations. The orders shall be higher than actual demand under those circumstances. Those order level, which does not reflect market demand, shall reduce the service level of company which has difficulty even in fulfilling the actual demand. Required measures should be taken in order to prevent a possible decrease in service level. In case of an inevitable decrease in service level, customers should be informed about this fact and reasons of this decrease and measures should be declared instantly. Nevertheless, if inflated demand is not prevented;
- Customer demands should be compared with previous average demands,
- Orders above average demand should be determined,
- Orders above average demand should be deemed as advance-order, and it should be declared that delivery operation shall be made in a postdate,
- Curent stock should be distributed to each customer on an equal basis by considering average demand quantities.
In conclusion; customer’s orders should be immediately supplied in order to provide customer loyalty and unconditioned satisfaction in global world. Follow-up of service level plays an important role for the success of this process. Measurement of service level (rate), in other words availability and taking measures, when necessary, shall prevent the companies from loss of customers and ensure them to steal a march on their competitors.
