Logistics Planning: Enhancing Customer Service Levels
LOGISTICS PLANNING: A TOOL FOR THE IMPROVEMENT OF THE LEVEL OF SERVICE.
Summary:
This article presents a theoretical study aimed at contributing to the literature on logistics planning and the level of service offered to customers. The target audience includes executives and academics seeking competitive advantages in a globalized economy. Readers will enhance their ability to evaluate and recommend strategies for establishing service levels within logistics planning.
Key words: Planning Logistics, Customer Service.
INTRODUCTION
In a highly competitive market with rapid innovations and diverse consumer needs, companies seek new ways to manage their business and foster customer loyalty. Along with customer satisfaction, companies must also ensure sufficient return on invested capital. This approach increases their chances of maintaining market presence and competitive positioning.
Developing guiding strategies is crucial for market maintenance. This process requires the participation of the entire management team and the support of skilled strategists to establish a solid foundation for activities.
Day (1999) emphasized that strategy determination aims to achieve and sustain competitive advantages. Porter (1999) noted that managers must understand the prevailing environmental factors to effectively position the company or influence the environment in its favor. The market is dynamic, requiring flexible strategies to achieve expected performance.
Currently, transport—the task of moving goods—is a prominent business activity. It connects industries, traders, and customers, involving factors such as price, timeliness, and physical condition of goods. Customers consider these elements when selecting transport services.
In Brazil, freight is undergoing restructuring due to globalization and market opening. International companies have introduced modern management tools, enhancing services and creating a more dynamic sector.
This new scenario forces domestic firms to redefine their management methods to maintain viability. Customers now demand differentiated services and negotiate contracts with companies that meet their needs at an acceptable cost.
Wright et al. (2000) stated that the primary purpose of developing strategies is to create shareholder wealth through customer satisfaction. Strategic guidelines are necessary to adapt to new market realities and achieve company goals.
This context introduces a management toolset for logistical planning, aiding in decisions about distribution center locations, technology development, order entry systems, transport modes, fleet composition, operating segments, and customer service levels.
This article clarifies how logistical planning improves customer service levels. The next section details this contribution, followed by a discussion of service level concepts and how to determine the offered service level against customer expectations. Finally, the study concludes.
LOGISTICS PLANNING: HOW TO IMPROVE THE LEVEL OF SERVICE
According to Ballou (2001), Logistics encompasses planning, production control, material handling, packaging, storage, dispatch, physical distribution, transportation, and communication systems. Synchronized operations add value to customer services and foster competitive advantage.
Bowersox and Closs (2001) stated that the main objective of logistics is to achieve optimal customer service at the lowest possible cost, emphasizing flexibility, agility, operational control, and perfect service. Wood et al. (1999) defined customer service as activities aimed at customer satisfaction, creating a perception of the company as a valuable business partner.
Ballou (2001) identified four key areas for logistical planning in transport companies: i) customer service levels, ii) distribution center siting, iii) inventory levels, and iv) transport decisions (Figure 1).
These four areas are crucial and should be planned in an integrated manner to achieve profitability within market demands. Gathering market information and understanding needs are essential for planning and resource allocation.
As seen in Figure 1, defining customer service levels significantly impacts business viability. It is the indicator by which clients decide whether to use a company’s services. Logistical planning should structure operations and set service level standards.
Ballou (2001) emphasized that logistics is responsible for providing goods or services as expected by customers: at the right locations, within agreed times, and in the best physical condition, while maximizing financial returns. Novaes (2001) added that logistics optimizes activities to generate returns through better service levels and enhance competitiveness, for example, by reducing costs.
Rapid market changes often catch companies unprepared, making adaptation difficult. A robust planning process, especially logistical planning aligned with market demands, is crucial for maintaining control. This control balances financial resources and specialized services, adding value and fostering competitive advantage without compromising profitability.
Heikkilä (2002) argued that structured logistical planning facilitates the development of a service system that meets customer needs. By addressing the uncertainty of customer expectations, companies can better measure and offer service levels without jeopardizing profitability.
Logistical planning should align with strategic planning to achieve set goals. Strategists should assist in its development, and the process requires the consent of management and shareholders to ensure acceptance of changes in market position.
According to Emilio (2001), transport companies, such as the Employment services firm (the largest carrier in Brazil by cargo volume), are redefining strategies and implementing logistical planning for specific market niches. These niches may have smaller volumes but offer higher returns, often with higher service levels.
Logistical planning must acknowledge that not everything will always go as planned. Wright et al. (2000) noted that strategy implementation requires modifications as environmental or organizational conditions change, often unpredictably. Internal factors (vehicle breakdowns, distribution center fires) and external factors (road interruptions, strikes) can hinder service level delivery.
Transport strategy
- Modal transport
- Carrier scripting/programming
- Shipment size/consolidation
Stocks Strategy
- Stock levels
- Stocks disposal
- Customer service goals
Control Methods
Localization strategy - Number, size, and location
- Storage point designation for supply points
- Demand allocation for storage or supply points
- Public/private storage
Managers should develop flexible logistical plans with contingency actions for unexpected events. This approach avoids customer stress, potential contract breaches, and the loss of high-yield customers.
SERVICE LEVEL
Traditionally, cargo focused on shifting products between points, with time being secondary. Carriers transported goods from point A to B without a set delivery period.
Market changes and a focus on customer service led to the identification and quantification of factors for new service levels, such as execution time and reliability, task processing time, personnel and equipment availability, ease of error correction, speed and accuracy of service information, cargo tracking, complaint resolution, and transparent pricing.
Ballou (2001) grouped service level factors into three categories based on the timing of the company-client interaction: pre-transaction, transaction, and post-transaction.
Pre-transaction elements define service level policies (e.g., delivery times, loss procedures), clarifying customer expectations and preventing false assumptions about the services.
Transaction elements are the results of product delivery (e.g., transport mode selection). They affect delivery time, order accuracy, and goods condition, which are closely observed by customers.
Post-transaction elements cover customer service for returns, requests, complaints, and packaging returns. These occur after service delivery but must be planned in advance. The service level encompasses all three categories, as customers respond to the overall experience.
Previously, companies treated logistics service as fixed. Sales staff determined service levels, and logistics personnel aimed to meet targets at minimal cost.
Currently, customers choose services based on the offered logistics service level. Lai et al. (2002) stated that companies aim to provide transport services more effectively and efficiently than competitors. The service level can be a promotional tool, like discounts or advertising. Special transport, faster processing, timely delivery, and standard packaging enhance competitiveness by adding value.
DETERMINING THE LEVEL OF SERVICE
Once viewed as a cost center, logistics now operates with a focus on the client to make progress beyond the traditional ways of handling materials, toward a powerful tool for adding value to the services offered and also gaining competitive advantage before the competition .
The level of service being offered by the company to its customers is still a factor highly complex. The managers are extremely difficult to adapt it to its distribution structure in a way that satisfactorily meets the needs of its customers and shareholders. The main difficulty is to determine which services customers really want and need.
Thus, the level of service can be measured by time of delivery, ie the transport time from the warehouse to the customer’s address or as a percentage of orders delivered within a certain period after receiving the request. Another form of assessment is through a questionnaire, answered by customers, will provide information useful to analyze the logistical performance of the company. Ballou (2001) argues that the definition of the level of service to offer customers is essential to achieve the goals of the company’s profit.
A customer service and made it an important variable that can guarantee, beyond a demand, the retention of potential customers. In this regard, it has been the key point in determining the level of service as it would make it hard to obtain a differentiated service to each client company, because many customers are sporadic and highly volatile compounds that are not loyal to the company. Potential customers should be the focus, as a highly differentiated service generates high costs and therefore higher prices which tends to limit the number of customers able to buy it.
Thus, should be considered the client’s needs and service levels. This is information about the volume of applications, location, convenience, delivery and so on.It is noteworthy that customer expectations are not always homogeneous, it becomes necessary to group customers into segments based on their needs and requirements of distribution. According to Otto and Kotzab (2003), the ideal is to provide a great level of service to specific customer segments. Once the segments are identified, you can draw on paper a distribution system capable of meeting the requirements of each customer group.
After measured segments of clients served by the company, you can define more specific parameters for them. As the report of the Institute of Management Accounting (1999a), can be identified with high potential customers within a specific segment, that can make a specific list, where exclusive services and high added value can be offered in order to meet your requirements odd, with the support that these customers can absorb the costs offered by different service policies.
You need to manage the level of service and establish levels of logistics activities in order to provide the level of logistics service plan, it is important to identify the key elements that determine the same. You have to determine customer needs and how they can be taken to, after, set the standard for service level and plan extra services. Lambert (1998) describes that often companies confuse the level of customer service with the concept of customer satisfaction, please note that, although service can be a very high level, not meeting the basic needs of the customer, will not satisfy expectations.
Not every customer needs or should be treated the same way. Since little is known about the real needs of service required by customers, many companies simply maintains a high level of service, resulting in higher distribution costs than necessary, this in turn causing a higher price. Despite the possibility of adjusting the level of service to individual clients or groups, it is important to keep the generality as far as possible. Companies can not effectively manage service levels separated for thousands of customers, however, is often more economical to provide level of service to a limited number of customer groups.
Thus, companies can separate customers into groups, such as the construction that only depend on the receipt of applications, it does not work with stocks at their worksites, institutional customers (hospitals, restaurants, etc..) Requiring fast delivery, because they work with strict deadlines for service; industry customers who need to trust the service, distribution and delivery applications, since any delay may cause the interruption of the production process leading to large losses, or retailers that do not require emergency delivery orders, as always work with a regular stock to meet your end consumer.
Thus, we can design systems most appropriate distribution, resulting in a more efficient and less costly. It is inefficient to provide higher level of service that customers expect or desire. This excess becomes simply extra costs for businesses and high prices for the customer who, in turn, may migrate to service options that meet only your needs with a lower cost.
The company can provide service policies defining their working procedures. These policies can be developed (to cover in detail factors such as time, reliability, terms of goods, convenience of placing requests and notifications of orders) or simplified (all orders received by noon will be dispatched the same day). With the policy-making service, the customer knows what to expect and charge the company about their working methods and thus can assess whether their needs can be met.
Also, once you set the policy for services, it is important that it be offered to customers, monitoring transactions from the perspective of the customer. According to the Institute of Management Accounting (1999b), it is important to seek information with clients as they are receiving the services provided by the company, so that improvements can be developed at points that have problems and also the opportunity to explore new opportunities that may arise. Are suggested as a way to search this information, reports of care that can be filled by the customer after each delivery of goods made by the company.
Still, Gunasekaran et al. (2001) point out that to assess the level of service and customer satisfaction, you can use some criteria such as flexibility of the company to meet the particularities of each client, the time to serve the company about the requests for information about your shits and possible solutions of problems, measure, and the service being offered to the customer, as well as the customer is receiving these services. At this point, it is important to compare the service offered by the company in relation to services offered by competitors and customers’ perception for both, seeking to better measure the level of service.
It is worth noting that the company, as well as monitoring customer satisfaction to the service offered should also monitor the return that all of this is bringing to the shareholders, that is, if you are profitable. Christopher (1997) argues that the company should monitor its activities by assessing the cost to develop a high level of service to their customers are not larger than the revenue they offer, because if so, does not justify the investment. The company must be attentive to the relationship of cost / benefit decisions for filling the level of service being offered to their customers.
Furthermore, the transport segment is undergoing a radical change in the concept of buying postage to the concept of buying service. This should generate a great impact on companies in this industry because it will mean a need to provide customers greater efficiency and quality of services provided. The client, in most cases, require higher quality, new fleets, trucks that have on-board instrumentation system with satellite tracking, radio frequency system to charge localization, security system, satellite radio, among other factors it deems necessary to which are transported their goods.
CONCLUSION
The use of management tools, such as logistics planning, aims to provide business support to meet the market’s competitive, rapidly-changing requirements and strong and differentiated by each client or groups of them. As a tool that aims to provide improvements in the process of determining the level of service requires that some factors are considered in their development so that it is successful in the process as a whole.
The work of developing a logistics planning can become easier as the company to have a team of highly trained professionals with realistic view of the market and the desire to find the best position in which the company can compete. Another very important point is the involvement of any governing body of the company with the goal of having a strong support of all in decision making. The logistical planning should be highly flexible to respond quickly to changing competitive market.
In all aspects discussed in this study, we can conclude that companies should have an advanced knowledge of all your network clients to better measure their needs, enabling them to provide an adequate level of service, as well as provide an analysis deep around the relationship between service level and return, knowing that it is necessary to provide the business profitability reasonably rewarding in order to meet the wishes of shareholders.
It is recommended to develop work around the projection of possible niche markets that can be exploited in the future, because the likelihood of lack of demand from current customers, it is easier to operate in niche markets previously observed and studied. The strategic design of a logistics system for high performance should be the main objective of total customer service in terms of availability of services, of specified quality and competitive costs. The design of a logistics system must be initiated by the completion of a logistics planning, analyzing the competitive environment in which the company operates.
Remember that the logistics market is booming in Brazil and many world leading companies are establishing their bases in Brazil. These offerdifferentiated services, directly attacking highly potential customers. This, in turn, has to raise considerably the level of care of them. In this context, only companies with well-planned and soundness of their strategies may compete equal terms with the difficult battle of conquest and loyalty.