Customer value and satisfaction

In currently customer-driven markets, the perceived value to customers of the entire re-lationship with a company is the most critical factor (Simchi-Levi, et al., 2008). The con-sciousness of customers towards value is determinant during the purchase decision pro-cess, wherein customers increasingly are demanding products with more value added, but at lower costs (Waters, 2007).

This customer centric perspective requires linking customer value to SC strategy by tak-ing the end user as the organization’s point of departure (Christopher, 2005). Betak-ing one of the basic functions of SCM the ability to respond to customer requirements. In order to undertake it, SCM contribute by creating availability and selection in the offer to the customers to cover their wants and needs. The price and the service level are also essential parts of the customer value, as well as the value-added services and the relationships and experiences with the firm (Simchi-Levi, et al., 2008).

Customers value many aspects of the total offering of a firm, primarily place value against product quality, order cycle lead-time, cost and service levels (Emmett & Crocker, 2007).

Nevertheless, these elements do not have the same relative importance for the customers, some factors in customer service are more important than others in value adding to them.

Therefore, companies must to understand first, which the core areas are that customer value the most for a certain offering, and focus on leverage and boost them.

Because the customer value is based on perceptions, it requires metrics allowing for iden-tify the company’s advantages as well as opportunities for SC improvement. Typical measures include service level, customer satisfaction and SC performance metrics (Simchi-Levi, et al., 2008).

 Service level

The whole purpose of the SCM is to provide customers with the level and quality of service that they require, thereby the service level measure is used to quantify a com-pany’s market conformance or the ability to satisfy customer’s delivery date (Chris-topher, 2005; Simchi-Levi, et al., 2008). In this sense, when defining the market-driven SC strategy the aim is to achieve “service excellence” in a cost-effective way.

The cost-customer service trade-off is in evidence at setting the proper customer ser-vice level (Christopher, 2005).

To meet with higher customer service levels required by the customers, the activity levels are increased, incurring in costs that increase in a rising rate, as is shown in Figure 4. If customer service level is improved, fewer customers are lost due to out-of-stock situations, slow or unreliable deliveries, and inaccurate order filling. The cost of less lost sales decreases with enhanced service level. In contrast, the cost of main-taining the level of service rises because of improved service means that more must to be paid for transportation, order processing and inventory (Ballou, 2004).

Figure 4: Trade-off in setting the customer service level (Ballou, 2004) In order to set the optimal customer service level, an analysis of the total costs is needed. Through it, the conflicts among different activities of a firm are displayed.

Thus, the different activities can be managed and balanced for the purpose of optimize collectively. As is shown in Figure 2, the best trade-off occurs in a point below the 100% customer service (perfect customer service), where that service level maxim-izes the firm’s profit contribution (Ballou, 2004).

Afterwards, the customer service has to be effectively assessed to improve it contin-uously. For that purpose, tailored customer service measures are needed, focusing in

the more valued aspects for the customers. Total order-cycle time and its variability are one of the best measures due to encompass multiple variables key to the custom-ers. In addition, customer service level can be also measured with SC performance metrics related with: order entry, order documentation accuracy, transportation, in-ventory and product availability, etc. (Ballou, 2004).

With the help of these measures, an inappropriate customer service and SC perfor-mance can be detected and managed. Competitive forces, policy revisions or just ar-bitrary service goals different from those originally set can lead in SC strategy refor-mulation (Ballou, 2004). However, not always is necessary exactly meet the custom-ers’ expectations, most of them accept a relatively wide range of performance in any given service factor (Waters, 2007).

 Customer satisfaction

The customer satisfaction is what customers think about the quality of product/service of the company and the value gotten for the money (Harrison, et al., 2008). Measuring the customer satisfaction is usually done by surveys that provide feedback about sales department and personnel performance. Unfortunately, these are not a very reliable source of information because the surveys are easily manipulated and misleading (Simchi-Levi, et al., 2008).

The subjective attitude of customer satisfaction is based on the value perception for a service/product, which is key to the behaviour of customer loyalty. The customer loy-alty is how long a customer is retained, which helps to generate long-term revenue streams and provide cost savings in comparison with attract new customers. In addi-tion, the loyal customers tend to buy more than new ones, increasing spending over time and may be willing to pay premium prices (Harrison, et al., 2008).

The customer loyalty metric is widely use due to be easier to measure than customer satisfaction. It can be conducted by analysing customer repurchase patterns or internal databases focusing on, for instance, customer retention or customer asset accumula-tion (Simchi-Levi, et al., 2008).

By the measurement and comparison of customer loyalty metrics with the strategi-cally stablished goals for them, companies can adjust them to increase the value added to customers. Changes in service quality, product quality or price deliver a higher perceived value, which ultimately leads into customer loyalty (Harrison, et al., 2008).

 SC performance measures

The SC performance is an important provider of customer value, especially the cus-tomer service (Simchi-Levi, et al., 2008). Typically, these measures are wrongly

based on internal performance, such as how reliably and fast the organization deliv-ered against planned timetable. This approach misses the customer-focus orientation due to these measures might not be aligned with customers’ needs, failing in tracking responsiveness to customers. Therefore, it is necessary to ask customers for their de-sired delivery window and measure performance against that customer-defined meas-ure of success (Waters, 2007).

Furthermore, a standardization in the SC performance measures is required due to reach a common language among the multiple partners in the SC. For that reason, the Supply-Chain Council purposed the Supply Chain Operation Reference (SCOR) model (Simchi-Levi, et al., 2008). A model in which the focus firm is placed in the context of the SC, helping companies to understand their SC performance and oppor-tunities for SC improvement (Harrison, et al., 2008).

The SCOR model is based on a set of metrics for SC performance, which help to analyse the current state of the processes, operational performance and goals of a company. These measures are evaluated against best-practice information of industry benchmarks, such as average and best-in-class (Simchi-Levi, et al., 2008).

The previously mentioned metrics of customer value captured are recorded in company’s information systems. Firstly, the data captured and collected, both internally and exter-nally, must to be transformed into information that can be portraying in a useful manner for decision-making (Ballou, 2004). But, the accuracy and reliability of the data gathered together with its enough abundance of availability are important points to use this infor-mation effectively and have the opportunity to improve the SC performance (Simchi-Levi, et al., 2008). On the other hand, the different measures recollected do not have only to be comparable with existing internal metrics, but also should they be compatible with SC partners’ ones in order to appropriately assist in the decision-making process.