Customer service measurement: A methodology for increasing customer value through utilization of the Taguchi Strategy

Journal of Business Logistics, 1994 by Holcomb, Mary Collins

Logistical customer service has long been recognized as a key area for creating customer value.(1) Furthermore, evidence suggests that the customer service component will become more important in the future as compared with product, price, and promotion.(2) The focus on customer service, however, is not new. A number of studies have been conducted over the years ranging from generic ("average" customer requirements) to specific customer needs. These efforts have increased awareness by many firms that using logistics proactively to improve customer service can differentiate them from competitors.

But as a firm gets better, so does its competition. The dynamic nature of market forces are such that as competition acquires similar customer service systems, customer service expectations also increase. The trend becomes one of an upward and never-ending spiral of increased competition and heightened expectations.(3) The need to improve requires a constant focus on the determinants of customer value: quality and cost of service.

The traditional method of quality improvement is statistical process control. At best, the tools and techniques associated with this approach are a "downstream" side of the process.(4) More powerful quality techniques, such as design of experiments, provide significant gains in the performance of the logistics system, and are more meaningful in the long run.(5) The focus is upstream in the process such that a product or process is well designed, thereby virtually eliminating unsatisfactory performance before it occurs.

The purpose of this research is to develop a comprehensive method for designing, assessing, and improving customer service offerings, from both a quality and cost perspective. Customers do not want processes that barely meet specifications. They want service performance clustered around a specified target value. Part of the research objective is to demonstrate that higher quality service can be achieved in some cases at no cost to the customers through the reduction and elimination of variability. By utilizing the Taguchi methods and strategies of parameter design in a logistics context, it will also be possible to establish a theoretical basis for the design of a customer service system for the creation and delivery of value.

CUSTOMER SERVICE AND LOGISTICS SYSTEMS EVOLUTION

The traditional value-added concept in logistics has been viewed as that of cost efficiency versus competitive service levels.(6) Technological and environmental changes in the decade of the 1980s, however, demanded the development of new approaches in the firm's quest to establish and maintain competitive advantage through value creation. Based on the premise that logistics customer value is created through effectiveness, efficiency, and differentiation, customer service within the logistics function has evolved to mean much more than simply having "the right product, at the right place, at the right time, in the right quantity, and in the right condition."(7)

The attainment of quality in products and services became a major focus in the 1980s. Yet, few academic researchers have attempted to define and model quality because of the difficulties involved in delimiting and measuring the construct.(8) In the area of customer service, earlier research on standards has also been inconclusive and limited in scope.

In addition to understanding the components of customer service quality, it is necessary for the firm to design a process for delivering the right mix of service elements desired. The Taguchi strategy, developed by Dr. Genichi Taguchi in the late 1950s in Japan, offers a systematic method for working with a large number of variables, interactions, and levels of variables in different environments. The technique simplifies complex analysis through the design and analysis of experiments, for the purpose of designing and improving product and process quality. Successful use of the Taguchi methods by Nippondenso, Ford Motor Company, and ITT has resulted in significant cost savings to these firms as well as improving the quality of the product. This approach has also helped some Japanese companies become world economic competitors. By using and understanding the Taguchi methods in their context, logistics managers will be able to improve the quality of customer service, without controlling or eliminating certain causes of variation in the operating environment.

The methodology presented in this study represents a new and innovative approach to the creation of customer value. As such, the role and scope of this research is a part of the continual evolution of the logistics system. This viewpoint is also compatible with today's business environment where new customer-driven strategies are emerging. In the future, successful companies will be even more customer-oriented as characterized by the development of value-added products and services and responsiveness to customer needs.

RESEARCH DESIGN

A major objective and contribution of the study to the discipline was to demonstrate the effectiveness of the methodology developed herein as an integral part of the logistics customer service process. In order to accomplish this, several research phases were designed. In Phase 1 of the study, it was necessary to determine which customer service factors are important, and how various levels of these factors are perceived in their role of creating value for the customer. In addition, an understanding was needed of how customers are willing to consider delivery service trade-offs among specified desirable alternatives.