Customer service in the distributor channel empirical findings

Journal of Business Logistics, 1998 by Maltz, Arnold, Maltz, Elliot

Customer service is a central concern of logistics academics and practitioners. Logistics has to provide customers what they need and when they need it. All other aspects of logistics are conditioned by this mission. Improving customer service is an ongoing focus of the logistics community.

We explore customer service in a relatively un-researched arena, the distributor/wholesaler channel. At a minimum, these channel systems include a manufacturer, a distributor, and the distributor's customer. The manufacturer sells product to the distributor, sometimes called a wholesaler, who sells to business customers. Our interest centers on service to the distributor's customer. Others have looked at customer service in distributor channels,' identifying customer service elements and connecting customer service to market share. We investigate service performance, which we model as a function of both manufacturer and distributor activities. This exercise makes two contributions to the channel service literature. First, we report current levels of service, including objective or "hard" measures of product availability, on-time performance, and cycle time, which are rarely found in channel research.2 Second, we demonstrate the relationship between channel participant activities and service to the final channel customer.

Our rich dataset also allows us to look at more general customer service issues. Previous studies broadened the customer service concept beyond inventory availability and timeliness dimensions,3 and others identified specific facets of this "augmented service product." 4 Our data collection was built around this multifaceted concept of customer service. Thus, we have measures of basic service performance, including availability, on-time delivery, and order cycle time. We have data from the same respondents on perceived channel responsiveness. Finally, we collected considerable information on supplier and distributor channel activities, by industry. As a result, we are able to address a number of fundamental issues. Do different markets demand different levels of inventory availability? Timeliness? Responsiveness? Are higher objective performance levels associated with higher perceived responsiveness? What kinds of activities are associated with higher levels of responsiveness? Higher objective service levels? Are there different drivers of these two aspects of customer service?

Objective and Perceptual Elements of Customer Service

Historically, customer service has been nearly synonymous with inventory availability and order cycle time,5 but these quantitative measures do not completely explain customer ratings of supplier service levels.6 In the 1980s, discussions with industry leaders and service suppliers led to a broader definition of customer service. The newer concept encompasses not only familiar inventory availability and time-based measures but also the supplier's ability to respond to specific customer requests and changes in market conditions.7 Since the traditional service measures are usually available from impersonal sources - receipts, orderfiles, bills of lading and so on, - we refer to these as objective or "hard" service measures. Supplier responsiveness is usually gauged through reports of customer - which we term perceptual or "soft" measures.

Objective Elements: The logistics literature traditionally stresses sharply defined, quantifiable measures for customer service. As noted by La Londe and Zinszer,9 customer service has been measured by stockout levels, order cycle time elements, system accuracy, and so on. 'These various measures fall into two general categories. Inventory capability refers to success in having inventory available to fill customer orders. Typical measures of such capability are order completeness (percentage of requested product actually shipped), fill rate (percentage of items available for picking), or both. Order cycle time refers to the time elapsed between receipt and delivery of a customer's order. Measures include both the length and the reliability of the order cycle.11

Recent research supports inventory capability and cycle time performance as fundamental logistics service constructs. The models of Mentzer and others 122 and Bowersox and Closs 133 explicitly include availability, a synonym for inventory capability. Mentzer and others also propose "timeliness" as a key dimension of customer service. Typical indicators are order cycle time reliability, average delivery time, and so on. Recent empirical work confirms the centrality of both availability/capability and timeliness to the customer service construct.l4 Timeliness also emerges as a dimension in the consumer services literature.15 Bowersox and Closs combine cycle time measures with flexibility and malfunction/recovery measures to form an overall "operational performance" dimension for customer service. 16

Perceptual Elements: The above measures of availability and timeliness can be generated with little participation from the customer. Suppliers record when they receive an order and sign outbound bills of lading. Carriers can report delivery receipt data. Inventory systems track allocation of product to customer orders and generate fill rates. Suppliers and distributors can quantify fill rates, on-time delivery, and speed without contacting the customer.