Measuring Customer Service: The Up-and-Coming KPI
Using key performance indicators (KPIs) tied to customer service metrics helps logistics providers benchmark their value to shippers.
Delivering highly anticipated video games and movie releases to stores three days prior to their street date is practically a law in the entertainment industry. So when Camarillo, Calif.-based Technicolor Global Logistics, the supply chain and logistics arm of entertainment technology company Technicolor Worldwide, learned that an air shipment headed to Alaska would not make it on time, its customer service team jumped into action, asking its local last-mile service provider to call every store expecting delivery and convince the management to stay open extra hours so Technicolor could make the three-day window.
Technicolor Global Logistics works hard to deliver that level of service, says Elaine Singleton, the company's vice president of supply chain.
Every company knows customer service is important; but it is seldom well-defined, and even more rarely measured in logistics operations.
Many logistics service providers tout their customer service excellence, and shippers give equal voice to the importance of customer service, particularly when the vendor relationship is more than transactional. But it is often easier to spot a customer service failure than to define excellence.
Many providers cite standard key performance indicators (KPIs) such as on-time delivery and order fill rate as proof of their customer service prowess. Others, however, insist customer service falls into its own category, and deserves its own standards of measurement.
"Customer service is often lumped with service execution, and many businesses don't differentiate between the two," says Jim Craig, chief marketing officer with third-party logistics (3PL) provider BNSF Logistics, a wholly owned subsidiary of Burlington Northern Santa Fe with domestic headquarters in Springdale, Ark. "The KPIs we provide are related to service. Timely delivery of those KPIs equates to good customer service."
The focus on customer service is starting to increase as some shippers and their service providers work to develop deeper, more collaborative, and mutually beneficial relationships. At this level, competently executing services such as warehousing and transportation procurement is expected. Service providers stand out by adding value, and customer service is a substantial part of the equation. Its growing importance means customer service must be made more measurable—as the adage goes, you can't manage what you can't measure.
The Challenge of Measuring GOOD Service
Measuring customer service is not easy. In addition to being a soft benefit that defies a uniform definition, it is also relatively unexamined. Most shippers serve end customers via the supply chain, so any definition of a satisfactory experience has to start with those end customers' expectations.
"Often, however, the 3PL's customer has not defined customer service," says Karl Manrodt, Ph.D., associate professor in the department of management, marketing, and logistics at Georgia Southern University, Statesboro, Ga. Any definition of good customer service is incomplete if it is not based on customer views.
Another challenge is making aspects of customer service measurable. Not every quality lends itself to a numerical scale—honesty, for example.
"I expect 3PLs to be honest with me, and to let me know if they can't meet my expectations. That's my greatest customer service need," says Mary Barker, office manager and logistics supervisor for Fixture Finders. The Wyoming, Mich., store fixtures liquidator books trucks through Columbus, Ohio-based transportation and logistics provider Zipline Logistics so it can clear out stores quickly to avoid rental fees.
Then there's the issue of leveraging the cost of good service. Service providers such as 3PLs must invest in people, processes, and technology to deliver high-quality service, but not all shippers are willing to pay for that. So the provider must develop strategies to serve each shipper at its desired level of service, without creating fragmented processes that result in inefficiency.
Defining Customer Service Metrics
Even a metric as seemingly clear-cut as on-time delivery (OTD) is subject to opinion. A carrier might exclude deliveries missed due to emergency construction, for example, while a consignee stills counts that shipment as late. In researching their book Keeping Score: Measuring the Business Value of Logistics in the Supply Chain, Dr. Manrodt and his co-authors found two in five respondents did not know how their OTD metric was defined.
Nailing down a quantifiable metric for something as variable as customer service is that much more difficult. In some cases, it is 3PLs rather than shippers that are advocating for the use of customer service KPIs.
"It's rare for shippers to ask for customer service KPIs," says BNSF's Craig. "We often raise the subject, and they are typically in favor of it. After a few months, they say they would miss having the data if we stopped providing it. We think it's a competitive differentiator."
So what is a customer service KPI? Some examples include:
- Time taken to answer calls or fulfill quote requests.
- Timeliness of electronic data interchange transactions, status updates, and reporting.
- Frequency of end-customer visits and customer surveys.
- Flexibility demonstrated by the service provider.
- Engagement demonstrated by customer service staff.
- Performance in executing escalation processes and decision trees.
- Frequency and quality of supply chain recommendations.
Many of BNSF's customer service KPIs focus on the processes and technologies it uses to provide shippers with visibility, such as moving to a phone call when an exchange with a customer exceeds two back-and-forth e-mails.
"Customer service is synonymous with communication," says Craig. "If two 3PLs are similar on price and service, customer service is the way one stands out. 3PLs make themselves more valuable through communication, accessibility, and engagement."
All the metrics in the world are meaningless unless there is an infrastructure to measure them, and that's where customer service KPIs can fail to deliver. Assessing a factor as subjective as satisfaction requires a human to assign a rating. Shippers report more success in measuring subjective customer service ratings in business-to-consumer logistics than in business-to-business.
Last-mile logistics provider 3PD capitalizes on this opportunity. The Atlanta-based company recognized that as a last-mile delivery provider for home goods retailers and manufacturers, its services represented an extension of those brands. So eight years ago, the 3PL initiated a post-delivery audit program.
Fifteen minutes after 3PD's driver captures a consumer's signature, the consumer receives a two-minute, five-question call, with the chance to leave any comments via voice mail. Low scores are routed to a marketing manager who can quickly seek to appease dissatisfied customers. The brand also receives feedback, which is shared at the next morning's meeting with drivers.
"Our entire company—even the information technology staff—receives bonuses based on our quality score," says Tim Dreffer, senior vice president at 3PD. "Two companies can have all the same processes, but we stand out because of our execution."
Ann Arbor, Mich.-based cabinet manufacturer Masco Cabinetry—which consists of brands KraftMaid, Merillat, Quality, and Denova—lost critical visibility into the customer delivery experience of the KraftMaid brand. In 2000, the company exited the delivery business in the face of mounting transportation regulations. The 3PL it first used failed horribly.
It took several years for KraftMaid to establish a network of three 3PLs that met its requirements. Just one of these, 3PD, offers automated post-delivery audits, which Masco considers critical.
"The delivery experience is a vital part of purchasing a KraftMaid cabinet," says Tom Bolden, director of logistics for Masco. "We believe our final-mile carriers are an extension of the KraftMaid brand, and 3PD's post-delivery audit allows us to have immediate and constant feedback about what our consumers are experiencing. This feedback drives accountability all the way to the drivers and their helpers. If consumers are not happy with the delivery, we are not happy.
"3PD's internal KPIs are very stringent," Bolden adds. "They can tell us the direction operations are going, what consumers are experiencing, whether drivers are performing as they should, and if they're satisfying the customer. 3PD can document its performance based on actual survey data, compared to other 3PLs who have no survey data to support their statements."
Because kitchen cabinets are a seldom-repeated purchase, Masco Cabinetry's big concern is having dissatisfied consumers. With the ease of posting complaints on social media, Masco wants to prevent any unacceptable experience from occurring.
"3PD's post-delivery audit survey holds drivers accountable for their performance," Bolden says.
With about 30 percent of its orders delivered to businesses, Masco tried using post-delivery audits to monitor those deliveries as well. "Unfortunately, some retail businesses don't like to receive those calls," says Bolden. "We tried, but we had 3PD shut it off after receiving some negative feedback from retailers."
3PD's Dreffer notes it can be hard to ensure the recipient of a text, e-mail, or phone-based survey in a business was actually there for the delivery, and standing over a customer while they complete it tends to skew the results.
Setting up KPIs for customer service is similar to crafting metrics around execution performance. But it does require looking carefully at assumptions and expectations that have not been closely examined in the past. Here are some steps to customer service KPI success:
1. Determine the need. Shippers and 3PLs must understand expectations in order to ensure they are fulfilled. Many 3PLs start their plan for defining and measuring the customer service they provide a shipper during the pre-sale and on-boarding process. Compliance mandates are often part of the service definition. Some shippers base customer service metrics on their own research into customer needs, and prefer to keep their 3PLs and customers away from one another; others encourage their service providers to talk to end customers directly.
One large shipper customer of Kane Is Able, a 3PL serving the U.S. consumer packaged goods market, requires its 3PLs to conduct at least eight customer visits a year to discuss service issues, supplementing these with their own visits.
"We talk about how we're meeting their supply chain needs, what defines a failure, and the impact," says Steve Buckman, vice president of operations at the Scranton, Pa.-based 3PL. Those in-person visits enhance relationships, particularly with the shipper's customer service representative (CSR), making future issues easier to resolve. Shippers tend to feel strongly aligned with their CSRs, Buckman notes.
Surveys are another popular tool to supplement anecdotal reports and customer visits. In its customer survey, MD Logistics, an Indianapolis 3PL specializing in life sciences and pharmaceuticals, retail and consumer goods, and transportation services, found "the feedback is positive overall, but there were some surprising results," says John Sell, vice president, retail and transportation solutions at MD Logistics. "It brought to light some service elements we hadn't thought about."
Some 3PLs serving the retail industry also survey store managers to gather direct feedback on customer service matters.
2. Segment by expectation. Not every shipper seeks high value from its 3PLs, and shippers vary widely in their definition of customer service. Shippers need to assess their own expectations and the value they place on services before engaging a 3PL.
For 3PLs, tailoring processes to every customer can be costly, a lesson learned by UTi Worldwide, a non-asset-based supply chain management company in Long Beach, Calif. "We started at one end of the spectrum, customizing every service," recalls Jeff Bauer, global vice president, client services for UTi. "It was expensive."
The 3PL began segmenting its customer base, offering a menu of about 30 services it could provide all clients and another 30 that are more customized. Clients choose the additional services they want to procure, and UTi's IT helps workers ensure those services and metrics are implemented appropriately for each customer.
"The larger the customer, the more we move from configurable to customized," explains Ed Feitzinger, executive vice president, global operations for UTi.
Setting High Standards
Another way to tackle discrepancies in customer service expectations is to set internal standards that are higher than most shippers would request on their own. Technicolor Global Logistics achieves this goal by investing heavily in processes and technology such as visibility, business intelligence, and planning systems that ensure high performance levels and provide customers with real-time shipment information.
3. Define customer service-specific KPIs. The onboarding process for any shipper-3PL relationship includes establishing KPIs. Clarity is critical in this step; if two parties can have different definitions for something as seemingly clear-cut as on-time delivery, then a softer metric such as customer service is even more important to spell out.
Greg Younghans, vice president of operations for UTi, recommends no more than 10 to 15 core metrics, including hard and soft measures. "While it's important to measure, you don't want to be paralyzed by analysis," he says.
For Zipline Logistics, working with high-quality partners is a part of its commitment to customer service. The 3PL has incorporated into its customer reporting metrics the Federal Motor Carrier Safety Administration's Compliance, Safety, Accountability (CSA) scores for the carriers Zipline selects on the shipper's behalf.
"Choosing the right carriers to work with is critical," says John Rodeheffer, a partner at Zipline. "It's important that they be quality providers of both equipment and service."
4. Ensure an internal 3PL infrastructure that emphasizes and rewards customer service. Many 3PLs credit technology with enabling the processes they need to ensure each shipper receives the expected customer service levels. Systems help employees track the services each customer expects, and how they're measured. Technology also enables 3PLs to provide shippers with visibility into KPI compliance at all times.
Continual data gathering and reporting ensures 3PL performance aligns with KPIs. "It drives accountability," says Masco Cabinetry's Bolden.
Internal culture is also a key factor in providing quality customer service. BNSF, for example, maintains a celebratory environment that recognizes and rewards employees for their customer service efforts. Employees even came up with the company's tag line: "Yeah, we can do that."
Tracking customer service KPIs enables the 3PL to analyze services provided to an individual customer down to the office level, so others can adopt the best practices used by the location that delivers the best service numbers to that shipper.
Customer service KPIs help Kane Is Able close the loop with internal staff, allowing them to see the direct impact of their services on the 3PL's long-term relationship with the customer.
"Delivering concrete information to an associate is more compelling than simply stating we should perform better," says Buckman. "Associates can see that when they load a shipment, someone else is unloading it, and experiences a real impact if a loading error occurs."
Shippers also look for a culture of continuous improvement. It's all well and good for a 3PL to address customer service and other requirements at the outset of a relationship, says Bolden, but he also judges 3PLs on their ability to monitor the business and offer ideas to optimize the network as the business changes.
"This allows us to control our freight spend to the best of our ability and be a leader in the industry," he notes.
Excellent customer service has become table stakes for 3PLs offering value-added services. But that doesn't mean they can always afford to absorb the cost. 3PLs sometimes look for rewards, revenue-sharing opportunities, long-term contracts, or a combination of these when they commit to delivering customer services that have a significant impact on boosting growth or reducing costs for shippers.
Proving the Value
3PD proves the value offered by its post-delivery audit services by determining the potential impact of providing excellent customer service for potential retail clients. It calculates the lifetime value of a customer to that retailer multiplied by preserving the loyalty of half of those who interacted with customer service in a post-audit survey. So if the average lifetime value is $5,000, for example, and of the 2,500 customers providing comments, half are preserved, that represents $6.25 million.
"Many companies are thinking more strategically and long-term," says Dr. Manrodt. "They're saying, 'If the 3PL saves money, I save money,' while 3PLs are saying, 'If I bring transformation to an organization, I need to get paid for it.'"
A bonus might be tied to a positive assessment of end-customer happiness, he adds.
"Most shippers that take a partnering approach are willing to pay incentives on a few very measurable items," explains UTi's Feitzinger. "On the other hand, if service providers do not meet some metrics, they also pay a penalty."
Shippers' interest in these arrangements may be cyclical, depending on economic factors such as available capacity and corporate cost-cutting initiatives. That makes it hard for 3PLs to continue providing high customer service levels—even though 3PLs say shippers' expectations don't tend to decline alongside the budget.
In general, however, the supply chain industry is "becoming more focused on defining standards and networks," says UTi's Younghans. "More performance data is available, which makes more customer service activities possible.
"Companies are differentiating themselves from competitors based on how they interact with customers," he adds.