Logistics Also Plays a Critical Role in Customer Satisfaction

(Originally published as a Customer Service column in the
April 1999 issue of AFSMI's The Professional Journal.)

By William K. Pollock

Many services organizations make the mistake of focusing the vast majority of their customer service and satisfaction activities on external issues, often to the exclusion of key internal issues such as inventory management and logistics. However, these key internal issues can also play an important role in facilitating - or hampering - desired levels of customer service and satisfaction. This is especially true in a services environment that is becoming increasingly global in nature. In other words, when looking to support its customers, a services organization should focus not only externally, at its direct customer interface and interaction, but also internally, at its global inventory management and logistics activities as well - especially as they might impact a multinational customer base.

As a result of the increasing globalization of services, many larger companies are reorganizing their inventory and logistics operations to be more homogeneous. Some utilize an organization structure where individual lines of business (LOBs) operate separately, but all come together at a senior level. Others may manage their logistics activities more on a geographically decentralized basis, rather than in an LOB-centric mode.

In any case, the primarily criterion for determining what type of logistics operation to employ must ultimately be the way in which it can be expected to support customers in a global market. Economics, of course, should always be a key consideration; however, all the cost savings and economies-of-scale that may be realized through a centralized structure will not mean a thing if the customers do not believe they being supported in the manner they require. Most services providers are acutely aware that if they do not support their customers with the service, parts and attention they require, they can generally find the level of support they require - elsewhere.

Further, in a truly global services environment, it has become increasingly apparent that each geography has a different range of customers, with different levels of service requirements. As a result, many organizations are trying to evolve to the point where they can respond directly to the customers' needs; be easy to do business with; command the ability to meet their customers' wants in every geography; and, whether they know it or not, meet their needs as well.

In order to accomplish this, some organizations have chosen to outsource many of their non-core competency activities, such as warehousing, distribution and certain types of equipment repair, to a select group of outsource vendors. For many years, most services organizations have utilized national and international courier services to handle nearly all of their shipping needs. Over the years, many of these couriers have expanded their portfolios to include different options for delivery (e.g., overnight, second day, same day, etc.), as well as warehousing and general inventory management. Some are now also assisting their clients in inventory planning and forecasting. As a result, many services organizations no longer believe that they need to perform these activities themselves in addition to the various manufacturing, sales and marketing, and customer service activities that they are already performing on a day-to-day basis.

However, as more services organizations realize that the increasing costs of inventory management and logistics are likely to impact both their bottom lines and their ability to support customers - especially if they are presently running either an outdated or otherwise inefficient operation to begin with - they may have some strong reservations with respect to outsourcing some of these key activities. The greatest fear among most organizations is that outsourcing will almost immediately result in the lessening of customer service performance, either real or perceived, and therefore, loss of control over an historically critical component of their overall customer service and support equation.

Those organizations that have already moved toward outsourcing suggest that there are still many ways in which to ensure that the organization retains control over these critical areas. It is true that some still believe that there are no outsource vendors that are truly global in terms of their inventory management and logistics capabilities - that some are good at warehousing, some are good at distribution, and some are better than others in certain geographies - but none are able to do it all globally. Still, others believe that there are only one or two superior vendors in each geography, and that it is critical to select the right ones to represent your business in each area. Where one vendor is judged to be unable to "do it all" in a single geography, some organizations may require them to enter into arrangements where they must work with other local vendors to meet the organization's specific requirements for supporting customers.

Another way to get this type of "shared" scenario to work is to align the outsource vendors in each geography on the basis of their unique capabilities, and incorporate their services directly into the contract bidding process when responding to RFIs or RFPs. Most organizations using this approach believe that by lining up the appropriate partners as part of the bid process, they can both get both a marketing edge over some of their competitors, as well as avoid the risk of quoting a bid and then not being able to deliver it either satisfactorily or profitably. By lining up their vendors prior to responding to the bid, and knowing what their approximate costs and terms are going to be before even getting the sale, they believe they can protect themselves in many ways, and avoid the risk of negatively impacting customer service.

The secret to success, of course, whether the organization goes it alone, or whether it utilizes the services of one or more outsource vendors in any global geography, is to ensure that all of the players involved work on a "partnership" basis. That is, that they work together as "partners" toward the common, necessary and, ultimately, profitable goal of providing customers with their desired levels of service, parts and support, ultimately keeping them satisfied.

William K. Pollock is president of Strategies For GrowthSM (SFGSM), the Westtown, Pennsylvania-based services consulting firm specializing in strategic business planning, services marketing, CRM consulting, market/survey research, and customer satisfaction measurement and tracking programs. Bill may be reached at 610-399-9717 or via e-mail at wkp@s4growth.com.

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