Defining service level

Logistics aims to provide customers sufficiently high levels of service at the lowest costs. An adequate level of service is naturally organizational and customer-specific. Thus, each company thinks of the service level separately and it doesn’t need to be the same level for all customers. There are customers who accept e.g. 20 pieces minimum batch of finished garment deliveries, but some customers are willing to pay a small shipping surcharges in order to get even one product in the store.

Improving service level usually means an increase of costs. The service costs are caused e.g. complaints and correction of mistakes and work phase be done twice. Quality assurance contribute to reducing bad quality and mistakes, but in this case, service level production costs may increase considerably high.

Increasing the number of products stored in warehouse adds more rapid product availability to customer, but increases storage costs and the cost of tied up capital.

Therefore, it is important to find an optimum level, where service is good enough, but at the same time costs as low as possible.
Collection of customer feedback and its processing is necessary in order to identify satisfactory service level for customers.

Customer needs can be met, for example, by packing products for store handling and ensuring their handleability. Customer needs are often associated with delivery time or reliability of delivery and companies give related to them service promises.

Well-managed complaint may increase company’s image and ultimately,
turn to a clear competitive advantage.

Three principals of service

Service can be planned by three different principals or by a combination of them, depending on customer and product:

  • Self-service principal – Customer orientation can be based on self-service principal, if customer doesn’t see service to create delivery process value. Typical to this service is customer’s own participation, use of up to date information networks, low unit cost of the process and ease of service
  • Normal service – when share of service increases it is so -called normal service, which means traditional customer service and requires service personnel presence. For example, visiting store’s fish desk or pharmacy.
  • Tailor-made service – tailored services are characterized by customer fitting room, appointment and expensive process cost. As examples, investment advisory, legal clearance or negotiating mortgage.

The danger of part optimization

In logistics, there is a risk of part optimization. In this case, in one function service level is high, but measures implemented in other functions of the company tears it up. Such situations may arise e.g. between storage and transportation and buying and selling, for example, so that customer’s urgently needed spare parts kept in the stock, but they are transported to customer very rarely – then the warehouse operates in vain or sales promises quick delivery but purchase keep deliveries from sub-suppliers with long delivery periods so that the product can not be delivered quickly.

Service may suffer too in connection with, for example, packing or delivery, and it is particularly harmful if carefully planned and implemented supply chain management fails in the final stage of logistics chain, for example, product is damaged during assembly in customer’s premises. In this case, resources being wasted and it will lead to financial losses and failure of customer promises.