EVALUATION OF THE PHYSICAL DISTRIBUTION SERVICE: THE RELATIONSHIP BETWEEN THE CONSUMER GOODS INDUSTRY AND THE WHOLESALE AND RETAIL TRADE

The objective of this work is to present the results of research on the evaluation of the quality of the physical distribution service provided by suppliers of the consumer goods industry to the wholesale and retail trade.

For that, a methodology was developed to measure the quality of the physical distribution service, which was applied in two different moments; shortly after the implementation of the real plan, in 1994 and at the end of 1995.

The results indicate strong changes in market behavior over the period elapsed between the two surveys. The results demonstrate that the importance of customer service, as a purchase decision variable between the consumer goods industry and commerce, has grown substantially over the period considered in the two surveys.

The research also showed that, if on the one hand, the customer became more demanding for better services, on the other hand, suppliers worsened the level of physical distribution service. The percentage of dissatisfied customers therefore increased substantially between June 1994 and the end of 1995.

Keywords: Customer Service, Physical Distribution

1. INTRODUCTION 

The year 1994 will be remembered as a watershed when analyzing market relations in Brazil, between the consumer goods industry and commerce. The myopia caused by the inflationary environment diverted the attention of executives and consumers towards the conjunctural aspects associated with rising prices, distorting the natural balance of market forces. The unbridled race for financial gains, if, on the one hand, it inhibited the entrepreneur to make investments in the improvement of its products and services, on the other hand, it degenerated the market's perception of the real value of these products and services. There was a clear predisposition to exchange quality, of products and services, for pseudo-discounts in prices.

Other purchase decision factors not directly related to the loss of the currency's purchasing power were artificially relegated to the background. Issues related to order cycle speed, frequency and consistency of delivery time were not properly considered in the competition for space on supermarket shelves, or in wholesalers' warehouses. The set of physical distribution activities was seen as a necessary evil in the process of negotiating and transferring ownership of the marketed product. Until then, the market as a whole did not experience the conjunctural conditions favorable to the full appreciation of the physical distribution service as a competitive weapon.

In the United States and Europe, the highly competitive environment of recent decades has given rise to good examples of companies that stand out for the excellence of their physical distribution services. These companies have elevated the competence in generating high-quality delivery services to the forefront of their marketing strategies. Authors such as BOWERSOX (1992), LAMBERT (1993) and CHRISTOPHER (1992a) state that the logistics training of companies has assumed a fundamental role in the process of maintaining customer satisfaction and, as a consequence, business profitability.

LAMBERT (1993), for example, assesses that reductions in logistics costs or market positioning based on logistics training can have substantial impacts on profit margins, especially in companies in sectors where the value added by logistics is relevant. And this is the case of the food and paper sectors, which present logistic costs between 30% and 40% of the total added value. Added value corresponds to the costs added to raw materials – such as the transformation process, physical transfer, storage, image – which are reflected in the final price/value of the product or service.

However, ensuring product availability at the right time and place, at the customer's convenience, is not a trivial task if the goal is high efficiency. Adding value to the product through distribution logistics presupposes meeting customer expectations at the lowest possible cost. And these efforts extend to inter-company relationships, along the entire supply chain, all the way to the final consumer.

By defending the concept of customer service in a broader context, several authors (BYRNE (1991); BOWERSOX (1992); CHRISTOPHER (1992a); LAMBERT (1993); LALONDE (1988); MANRODT (1992) and SCHARY (1992 )) state that the implications of customer service strategies extend beyond the immediacy of operations between customer and supplier. Customers not only learn to expect good service, they learn to demand it. As a result of increasing competition, the minimum acceptable for good service remains under pressure and is continually rising. And opportunities for improvement are perceived from an approach that considers the entire supply chain. The logistical project leaves the scope of customer-supplier relations, to another where the objective is the integration of the physical flow from the raw material supplier to the final consumer of the product. The elimination of operational duplication becomes the focus of attention. Delegating component inspection activities to the supplier on a just-in-time basis is a good example of operational integration.

LA LONDE (1988), when considering the exchange relations between companies in the same channel, defines customer service as the performance of physical distribution activities from the supplier company to the consumer company. The author adds that the competitiveness of the product in the market, both in terms of costs and in terms of satisfaction of the final consumer, depends, to a large extent, on the performance resulting from the activities that make up the logistics process throughout the entire supply chain. BOWERSOX (1992), in other words, says that while many transactions are carried out between companies along the chain, the only fundamentally important transaction is the purchase for consumption, whether made by an industry or end customer.

Over the past few years, time-based competition strategies have been developed, and ECR (Efficient Consumer Response) is currently emerging in the consumer goods sector, where logistics is put under severe pressure to respond to consumer needs. in a flexible and agile way, at the lowest cost. The standards of logistics operations are well defined with minimal levels of fault tolerance, requiring a high level of intercompany integration. In this case, the guarantee of continuous supply to the trade requires the coordination of a set of activities, in fine tuning, which is only viable through a broad system of monitoring the resupply process between companies along the same channel. It should be remembered that the ECR was developed from the initiative of a group of industrial and commercial companies that operate in the grocery products sector (food, hygiene and cleaning, etc.). It is based on information generated at points of consumption in retail to define assortment, develop promotions and drive the flow of products along the chain of companies.

Therefore, measuring the performance of customer service, in the light of pre-established standards, constitutes a fundamental pillar for the management of the logistics system, especially in an environment of increasing operational complexity. BOWERSOX (1992) and BYRNE (1991) emphasize the difficulty of quantifying the quality of the service provided and claim that the average performance does not measure the quality of the logistics performance. According to the authors, customers, even after receiving a series of excellent quality services, continue to demand better quality services in all current and future requests.

As in the United States and Europe, the current environment of growing competition in Brazil has been demonstrating that product attributes alone are increasingly insufficient to obtain and maintain customers. Customer service, as a way of adding value to the product, assumes a substantial role in the competitive strategy of companies. According to LAMBERT (1993), this is the most promising path for maintaining a lasting competitive differential, difficult to duplicate by the competition. Staying competitive presupposes answering questions such as: What is the importance and what does customer service consist of in the market's perspective? How does the customer perceive my service? How is my company doing compared to the competition? What is the most appropriate level of service for the customer's reality?

In Brazil, the Associação Brasileira de Logística - ASLOG took the initiative to bring together, at the end of 1993, a group of companies that manufacture consumer goods and universities with the objective of developing an instrument to assess the quality of the service provided to the trade. Based on this initiative, a research methodology was developed aimed at identifying the priority dimensions of customer service, assessing the levels of expectations of retailers and wholesalers, as well as measuring the performance of the suppliers' physical distribution service.

This work, in addition to proposing a research methodology, also presents evidence of changes in market behavior, based on information collected in two surveys carried out between 1994 and the end of 1995, in the cities of São Paulo and Rio de Janeiro.

2. METHODOLOGY

Service quality is related to the ability to minimize discrepancies between expectations and perceptions of customers and their suppliers. In general, the service quality evaluation methodologies presented in the literature are based on an evaluation process in which the consumer compares the perceived service with the expected service.

According to an analysis based on several published surveys, perception gaps may originate from the development of the service strategy. Misidentification of customer priorities by the supplier is likely to lead to customer dissatisfaction. A correct analysis of service attributes that positively impact the performance of the logistics system offers the company the opportunity to segment customers. Among the service attributes identified as most important, those that appear most frequently are: product availability, order cycle time, delivery time consistency, frequency of deliveries, proportion of orders fulfilled, support information, technical support, documentation quality, support in physical delivery and merchandise.

Another perception gap found in surveys is related to analyzes of perception discrepancies between what suppliers believe they are performing and the assessment made by customers. Research results indicate that suppliers, as a rule, believe they are performing better than the assessment made by customers. According to the authors BYRNE (1991) and LALONDE (1988), this can be explained by the fact that companies base their evaluation process on information internal to the organization. For example, a vendor might be evaluating the percentage of orders filled against confirmed product items. However, customer satisfaction is more related to their original needs, that is, the total number of product items ordered before the shortage verified by the supplier when the order was received. An article in Exame magazine (“The Unhappy Consumer, 1996) confirms this perception gap in Brazil, where customers are much less satisfied than companies imagine.

The methodology developed by PARASURAMAN (1988) is perhaps the most complete with regard to the identification of quality gaps. However, this methodology is based exclusively on qualitative measurements, using a Likert scale. HOPKINS (1993) adapted this model for research on the transportation sector in the United States, represented in Figure 1.

Gap 1 represents differences in expectations between carrier and customer. This gap indicates the amount of discrepancy between what the customer really expects and the service the carrier thinks the customer wants. The second gap in the model occurs when the carrier incorrectly translates customer expectations into service quality specifications. Gap 3 is caused when the service provided does not meet quality specifications. Gap 4 is the difference between the service provided and the external communication made by the carrier to the customer. Finally, gap 5 occurs when there is a discrepancy between the service received and the customer's expectations.

Another customer service evaluation format can be found in the methodology developed by CHRISTOPHER (1992b), which is focused on the practice of benchmarking. Figure 2 succinctly shows the steps to be followed in this service quality assessment approach. The central idea is to segment the customer base, according to their priorities, by customer service components and, subsequently, evaluate the company's performance in the main service components in relation to the competition.

The basic difference of the research methodology developed in this work, in relation to the others, lies in its central objective, which is to establish reference parameters that serve the sponsoring companies to evaluate their positioning in relation to the expectations of the clients and the performance of the market. From initial meetings with the project participants, it was decided that it was essential that the methodology provided participants with subsidies for the evaluation and subsequent review of the activities that make up the Customer Service in the stages: previous; during and after the transfer of the product, according to the definition of CHRISTOPHER (1992a). The focal universe would be the customers of companies that manufacture consumer products, whether they are wholesalers or retailers, members of the same supply chain.

In the proposed methodology, the purchase decision process between industry and commerce is evaluated considering the variables of the marketing mix, namely: product, price, point (or distribution channel) and promotion and advertising. At this time, an effort was made to establish the degree of relative importance attributed to customer service, which ultimately corresponds to the performance of the point's physical distribution activities. Research carried out by STERLING (1987) and LAMBERT (1989) determined that the variables product and customer service contribute more consistently to the increase in business than the other variables.

Priorities in the composition of customer service are also evaluated according to 9 dimensions: product availability, order cycle time, delivery time consistency, delivery frequency, flexibility of the distribution system, support information system, remediation system of failures, physical delivery support and post-delivery support. These variables were defined from studies carried out by BOWERSOX (1992), CHRISTOPHER (1992a) and LA LONDE (1988), and later, adapted and complemented by the working group during the definition of the data collection instrument.

The variables of each dimension (see annex) are measured, according to the customer's perception, based on three references: minimum customer expectations, market practice and best supplier practice. The minimum expectation represents that service performance below which the customer feels dissatisfied. Best market practice reflects the best performance among suppliers, therefore to be pursued as the benchmark. Finally, market practice represents the performance of a typical company among the main suppliers of the researched company. The information obtained was aimed at enabling gap analyzes with the aim of evaluating the percentage of dissatisfied customers in the sample for each variable surveyed. Unlike gap 5 by PARASURAMAN (1988), the measurement made is generally quantitative, based on the perception of respondents.

The development of the methodology aimed to enable the formulation of hypotheses about differences in the purchase decision, in the expectations and perceptions of performance of the physical distribution service in function of the type of product (perishable food, non-perishable food, hygiene and cleaning and paper), market geographic location (São Paulo, Rio de Janeiro and Recife), business size and type of establishment (wholesaler and retailer).

Between June and August 1994, a pilot survey was carried out in the cities of Rio de Janeiro and São Paulo, where 108 questionnaires were applied. After improving the original methodology, a second survey was carried out at the end of 1995, this time including the city of Recife, which totaled 360 field interviews.

An extremely important point that must be taken into account in this type of analysis is the composition of the sample. Chart 1 and Chart 2 reveal few differences in the profile of respondents between the surveyed markets relevant to the analysis to be presented below, that is, São Paulo and Rio de Janeiro.

This article will focus on the comparative analysis of the results obtained in the two field surveys with the aim of identifying both the evolution of purchasing decision variables and the level of satisfaction with the services provided by suppliers of consumer goods to the retail and wholesale trade. The Recife market was not considered in this work, because it was not the object of the first research.

3. RESULTS ANALYSIS

Figure 2 and Table 3 show the evolution over time of the four classic marketing variables during the period between the 1994 and 1995 surveys. The 1997 values ​​represent the respondents' forecasts for the two-year horizon after the last survey. The weight of the price and promotion/advertising variables give way to the product and customer service and confirm a substantial change in behavior in market relations. Respondents were asked what was the relative importance of the variables product, price, customer service and promotion and advertising in their purchasing decision with their suppliers, considering a total of 100 points.

The results of the survey carried out at the end of 1995 confirm the trend predicted in mid-1994, obtained in a previous survey, when the economic stabilization plan was implemented. Price, the most important purchase decision variable between trade and the consumer goods industry, lost ground to the product in 1995 and, according to forecasts, will continue to decline by 6% in the period. The same occurs with the promotion and advertising variable, which had its relative importance reduced, while customer service grew significantly in the same period considered. Customer service increased by 24,3% as a purchase decision factor between 1994 and 1995 and is expected to gain another 7,3% over the other variables by 1997.

When analyzing the changes in priorities of the dimensions of the physical distribution service in the customer's perception between 1994 and 1995, Table 4 points to some significant changes in priorities.

It is interesting to observe that the four dimensions identified as the most important are associated with the two most fundamental issues of the physical distribution process, namely: “having the product in the right place and at the right time for the customer”. Suppliers that provide a low quality delivery service in these dimensions generate undesirable costs for their customers. Businesses that do not have full product availability are at serious risk of incurring product shortage costs or lost sales. On the other hand, the worse the consistency of the supplier's delivery time, the greater the safety stock needed to avoid product shortages and, consequently, the greater the cost of working capital for the business. The dimensions of order cycle time and delivery frequency are directly related to the economical replenishment lot and the base stock level that eliminates the possibility of shortages of goods. These last dimensions, when not properly considered, also imply higher operating costs.

When comparing the evolution of the priorities of the customer service dimensions over time, it is observed that the fault remediation system, which appeared in last place in 1994, moved to the fifth position among the most important dimensions. This change can also be explained by the drastic reduction in inflationary gains. Maintaining the flow of products with a minimum of failures has become more relevant to companies' profit margins. Post-delivery support is another dimension that has had its relative position greatly changed. It went from sixth to last in 1995.

Figure 3 and Chart 5 show the evolution of the percentage of dissatisfied customers between 1994 and 1995, considering the three most important dimensions in customer service priorities. The results are alarming, as these are the basic dimensions of logistics. The level of customer satisfaction declined substantially in the period between the two surveys.

Product availability, the most important dimension in customer perception, has seen an increase of around 48% in dissatisfied customers since the economic stabilization plan.

When looking at the time-related dimensions, the performance of consumer goods suppliers appears to have deteriorated further. The dimension consistency of delivery time had an increase of dissatisfied customers in the order of 90%, while the percentage of dissatisfied with the order cycle time grew by 136%.

These results lead to two questions. Considering that customer dissatisfaction is the result of their expectations associated with the practice of their suppliers, is the increase in the number of dissatisfied customers due to an increase in customer expectations? Or was there a reduction in the level of service provided by suppliers?

Chart 6 is enlightening to respond to the reasons for the increase in the percentage of dissatisfied customers in the three main dimensions of customer service.

The minimum expectations of the main product availability dimension, measured by the variables delivered quantity of the total order and waiting time to receive pending items, increased between 1994 and 1995. Despite not presenting significant differences between the averages, the results as a whole indicate this trend. The only contradictory result refers to medians of the quantity delivered variable of the total order. While, in 1994, the minimum expectation for the amount delivered was 95%, this percentage dropped to 90% in 1995. However, the waiting time for receiving pending items, which in 1994 was 3 days, dropped to 2 days in 1995, resulting in a higher level of customer demand.

When analyzing the second most important dimension of customer service, there is more evidence of the growth in the level of demand on the part of customers. In this case, statistically significant differences were found between the means of the variables that make up the consistency of delivery time dimension between 1994 and 1995. The percentage of tolerated late deliveries that represented 10,3% of orders in 1994, dropped to 8% in 1995 The same trend is observed when we analyze the average delay variable. The tolerable average delay of 2,9 days, in 1994, dropped to 2,1 days, in 1995. The analysis of the medians shows similar results, proving that there was an increase in customer expectations in relation to the consistency dimension of delivery time in considered period.

Order cycle time, the third most important dimension, also showed improvement in customer expectations. The maximum tolerable time for receiving the request, which was 4,2 days in 1994, is significantly higher than the requirement level of 3,1 days obtained in the 1995 survey. The analysis of the medians also points to a similar result.

The same type of analysis can be done with regard to market performance to see if there has been a deterioration in the services provided to customers by suppliers.

In this case, there was statistical evidence that suppliers have worsened their services in terms of product availability. Market practice for the average quantity delivered of the total order, which was 98,3% in 1994, dropped to 90,3% in 1995. Even the best practice had its performance reduced, between 1994 and 1995, from 99,4% % to 98%. The time taken to receive pending items also deteriorated substantially. While market practice was 4,4 days in 1994, providers increased their response time to 6,1 days in 1995. Median analysis confirms the above results.

When analyzing the consistency dimension of the delivery time, the reduction in the quality of services provided by suppliers is confirmed. The percentage of late deliveries practiced by the market rose from 16% to 19,1% in the period between the two surveys. The same occurs with the average delay practiced, which in 1994 was 3 days and rose to 4 days in 1995. The companies considered as having best practice also showed a declining performance between 1994 and 1995, that is, the average delay, which was one day rose to one and a half days in 1995.

Market practice on the order cycle time dimension also worsened in the inter-survey period. The time spent between ordering and receiving the product was, on average, three days in 1994, while this period increased to 4,1 days in 1995. Even suppliers with the best practices worsened the quality of services provided in this dimension. In 1994, companies identified as having the best performance delivered orders in a day and a half. In 1995, the service level dropped to a two-day lead time.

4. CONCLUSION

The methodology developed and applied in two field surveys proved to be very useful for the broad analysis of the evolution of market relations between the consumer goods industry and wholesale and retail trade. The results obtained offer a very revealing picture regarding three important issues to be considered in the development of competitive strategies based on logistics training, which are listed below:

• What is the level of importance of customer service in the trade purchase decision?
• what are the priorities of the delivery service dimensions in the customer's perception?
• how is the level of satisfaction of the trade with the services provided?

The analysis of the results is conclusive in pointing out customer service as a purchasing decision variable of increasing importance for commerce when compared to the other variables, that is, the product, price and promotion and advertising. Given the recent changes in the economic environment, it can be expected that the relative importance between purchasing variables should continue to change in the near future, privileging customer service.

Another important conclusion refers to the main dimensions of customer service. Strong evidence was identified that there is a great concern in seeking efficiency in inventory management. The four most important dimensions are associated with the speed of replenishment of goods and the reduction of inventory levels.

The survey also showed that, if on the one hand, the customer has become more demanding for services, on the other hand, suppliers have worsened the level of physical distribution service. The percentage of dissatisfied customers therefore increased substantially between June 1994 and the end of 1995.

With the loss of inflationary revenues, companies created pressures on operating margins to increase profitability. On the trade side, increased competitiveness boosted the demand for better services on the part of customers, aiming at high product availability with lower inventory levels – a result of greater consistency in deadlines and faster replenishment. However, the industry's response aimed at recovering profitability apparently implied actions that resulted in a reduction in the levels of service provided. The classic recipe of “reducing costs at all costs” without increasing productivity, combined with the exacerbation of consumption by the low-income population, resulted in apparent gains in operational efficiency, to the detriment of effectiveness in customer service.

ANNEXED

The composition of customer service – dimensions and variables

1- Product Availability

Quantity Delivered of Total Order (%)
Waiting Time for Receiving Pending Items (days)

2- Order Cycle Time

Time between Order and Receipt of Goods (days)

3- Consistency of Delivery Time

Percentage of Late Deliveries (%)
Average Delay (days)

4- Frequency of Delivery

Number of Deliveries made in the Month

5- Flexibility of the Delivery System

Special Delivery Conditions (Urgent Deliveries, Delivery Times, Transport Packaging, Postponed Delivery, Unloading Place)
Regular Delivery Conditions (Expiry Date, Barcode, Palletized Delivery)
Percentage of Requests for Special Delivery Conditions Fulfilled

6- Failure Remediation System

Reasons for Complaint (Product Malfunctions, Delays, Mismatched Goods, Transport Packaging, Documentation Error, Error Remediation Time)
Percentage of Orders that Result in Complaints (%)
Percentage of Complaints Answered in the 1st Request (%)
Wait Time for Troubleshooting (days)

7- Support Information System

Quality of Service (Ease of Placing the Order, Agility in Confirming the Order, Cordiality, Promptness, Credibility)
Lead Time to Report Changes (Price Changes, Delays, New Product Launches, Order Replacement)
Percentage of Orders Resulting in Requests for Information on Order Status (%)
Percentage of Requests that are Answered (%)
Wait Time to Receive Order Information (days)

8- Physical Delivery Support

Quality of Service (Support in Merchandising, Promptness, Cordiality, Punctuality, Speed)

9- Post-delivery Support

Percentage of Orders Resulting in Requests for Assistance and/or Product Information (%)
Percentage of Requests that are Answered (%)
Waiting Time to Receive Assistance and/or Product Information (days)

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Authors: Paulo Fleury and Cesar Lavalle