Defining customer service objectives
The whole purpose of supply chain management and logistics is to provide customers
with the level and quality of service that they require and to do so at less
cost to the total supply chain. In developing a market-driven logistics strategy the
aim is to achieve ‘service excellence’ in a consistent and cost-effective way.
The definition of appropriate service objectives is made easier if we adopt the
concept of the perfect order. The perfect order is achieved when the customer’s
service requirements are met in full. Clearly such a definition is specific to individual
customers, but it is usually possible to group customers into segments and
then to identify, along the lines described earlier, the key service needs of those
segments. The perfect order is achieved only when each of those service needs is
met to the customer’s satisfaction.
The measure of service is therefore defined as the percentage of occasions on
which the customer’s requirements are met in full. Normally this percentage would
be measured across all customers over a period of time. However, it can also be
The whole purpose of supply chain management and logistics is to provide
customers with the level and quality of service that they require and to do so
at less cost to the total supply chain.
LOGISTICS AND CUSTOMER VALUE 43
used to measure service performance at the individual customer level and indeed
at any level, e.g. segment, country or by distribution centre.
One frequently encountered measure of the perfect order is ‘on-time, in-full’
(OTIF). An extension of this is on-time, in-full and error-free. This latter element
relates to documentation, labelling and damage to the product or its packaging.
To calculate the actual service level using the perfect order concept requires performance
on each element to be monitored and then the percentage achievement
on each element to be multiplied together.
For example, if the actual performance across all orders for the last 12 mont