The changes seen in the Latin American business environment, with the liberalization of trade and the consequent arrival of new competitors, are putting pressure on local companies to improve their distribution operations. This article is the result of a survey carried out with traders in the food sector in Brazil. The study sought to identify the expectations of companies that most value the service as an element in deciding who to buy and how they evaluate the performance of their suppliers in terms of availability, operational performance and reliability. The study identified the dimensions that should be prioritized by suppliers interested in serving the segment of customers most sensitive to good service and also revealed that this segment has a high level of dissatisfaction with its current suppliers.
INTRODUCTION
An expressive volume of literature has drawn attention to the competitive advantages that a well-managed Operations area can provide to a company. [eg Hayes & Wheelwright, 1984; Skinner, 1985; Hill, 1993]. Slack et al (1995), for example, opine that doing it right, quickly, on time, cheaper and being able to change what is done, constitute the basic performance objectives with which Operations contribute to the competitiveness of an organization.
Focusing these objectives on the distribution operations of a goods manufacturing company, and considering the customer's perspective (wholesalers, retailers or even the final consumer), those performance objectives can be translated into an extensive set of customer service attributes.
Thus,
- doing it right can include deliveries as ordered, products in good condition, packaging that facilitates storage, cordiality during delivery, having a recovery system for possible failures;
- distributing quickly can mean reducing the time between the order and the delivery of the products, agility in order confirmation, speed in information on the status of orders;
- doing it on time can represent the ability to promise delivery times and honor them, which can allow a reduction in the customer's safety stock.
- doing it cheap can mean, without sacrificing the other performance objectives, that the distribution is able to reduce its operating costs in order to practice competitive prices. Finally,
- being able to change means that the distribution has the flexibility to, for example, deliver at special places and times, accommodate urgent deliveries, accept changes to orders, etc.
In times of globalization, where there is unprecedented competitive aggressiveness, customers are increasingly oriented to get value from their purchases. Heskett et al (1997), define value as the relationship between the benefits for the customer and the cost of having the product or service. The benefits derive from both the acquisition of the good or service and the quality perceived in the purchase process, and the cost is the price paid plus the “cost” of having access to the product or service: waiting time, commuting, risks in choosing suppliers, etc.).
Adopting this concept and considering what happened in Brazil with the increasing importation of foreign products, perceived as of better quality by the consumer, the great challenge for national manufacturers in the sense of creating value for their customers, was in terms of either improving the process by which customers receive products or working on the denominator of the relationship that defines value, reducing the “cost” of having access to products. Such a challenge can also be seen as an opportunity, since it is more difficult for importers to provide a distribution service that meets certain needs of the local consumer. In summary, the Brazilian manufacturer needed to start identifying and exploring the potential of its distribution system in order to meet those aspects capable of increasing the value content of the products it sells.
Returning to the Operations performance objectives defined by Slack et al (1995), those authors clarify that the objectives are not equally important for consumers. Therefore, it is necessary to know which customer needs the company wants to meet and then define the Operations mission.
This clarification is obviously valid for the distribution function. Aspects of quality, speed, flexibility, etc. contemplate a wide range of performance attributes that are certainly not equally valued by customers. By knowing the real needs it needs to satisfy in terms of distribution, the manufacturer will be able to provide a good service and, at the same time, not spend resources on aspects considered of little or no importance by its customers.
The purpose of this document is to present the results of a survey carried out during 1997 in four Brazilian capitals (São Paulo, Rio de Janeiro, Curitiba and Recife) with 240 merchants seeking to know the distribution service standards they require and how they evaluate the practices of distribution of its food product suppliers. The fact of concentrating the research in a sector provided a more focused analysis of the results, as it allowed isolating characteristic variables of that sector.
To research distribution service patterns, the three perspectives of the customer service concept according to Bowersox & Closs, 1996 were used: availability (ability to have the product at the time it is requested), operational performance (involves the commitment with the expected execution time and its acceptable variation) and reliability (which involves the dimensions related to the quality of the service).
The dimensions defined above were opened in distribution service attributes. For this purpose, studies by Bowersox (1992), Christopher(1992) and La Londe et al(1988) were used.
Recognizing that not all traders give the same importance to purchasing decision variables, a group of 64 elements was extracted from the sample, which were defined as the most service-oriented. (The procedures for identifying this group will be explained later in the methodological aspects). The identification of the needs of this interest group and the knowledge of how its elements evaluate the distribution service they have been receiving, constitute valuable information for those manufacturers that wish to stand out for providing an excellent distribution service.
METHODOLOGICAL ASPECTS
In order to know the expected service standards, the interviewees were asked the degree of importance they attributed to the eight dimensions of the distribution service and which sought to cover the previously defined aspects of availability, operational performance and reliability. (see table 1 in the results chapter).
Each of the dimensions was operationally replaced by a series of attributes for which an attempt was made to find out the performance expectation regarding an excellent distribution service.
Supplier performance was assessed at two levels. For each attribute, the interviewee's perception of market practice (what suppliers generally practice) and best practice (what their “best” supplier usually does) was asked. Each attribute corresponded to 2 gaps, allowing the evaluation of the interviewee's satisfaction with the market practice and with the best practice.
As previously mentioned, the sample of 240 elements was divided into two groups: the more service-oriented merchants (64) and the others (176), separated as follows:
• The 240 interviewees were asked to distribute 100 points according to the importance they attributed, in 1997, to the variables product, price, customer service and promotion and advertising in their decision on who to buy food products from.
- Respondents who attributed 25 points or more to the customer service variable and who maintained or increased this score when asked about the importance that those same variables would have in 1999, became the group of those most service-oriented.
Considering the two groups of respondents, the following research questions were defined:
P1. What customer service standards do most service-oriented merchants demand? Are they more demanding than marketers oriented to the other purchasing decision variables?
Q2: How satisfied are the more service-oriented customers with the distribution service provided by their food product suppliers? Are they more satisfied with the service received than merchants oriented to the other purchasing decision variables?
To verify the existence of differences between the two groups in terms of demand and satisfaction with the service received, correlation tests were performed. When the variables in comparison were at intervals, the simple correlation test was used. When at least one of the variables under study was ordinal, Spearmann's correlation coefficient was used. In these cases, 5% was adopted as the critical significance level to confirm the existence of a difference between the two analyzed groups.
RESULTS
Question 1: What customer service standards do most service-oriented merchants demand? Are they more demanding than marketers oriented to the other purchasing decision variables?
Asked to give scores from 1 (none) to 5 (a lot) for the importance of customer service dimensions in their current merchandise procurement process, the results obtained for the set of respondents more service-oriented and the rest of the sample are in table 1.
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It is observed that in just two dimensions (product availability and delivery time consistency) the more service-oriented merchants are not more demanding than the others. A possible interpretation for this result is that, although more oriented towards other decision variables, the rest of the sample sees product availability and consistency of delivery time as qualifying criteria (Hill, 1985), that is, they are aspects in which the customer expects a minimum of performance to then judge other criteria (order winners) and decide whether to be a customer of that supplier.
In the dimensions marked with (*), significant differences were obtained between the importance attributed by the more service-oriented traders and the rest of the sample. Therefore, Support during delivery and the Support Information System are two dimensions to be explored by suppliers interested in serving merchants who are sensitive to good service.
Next, each dimension that appears in Table 1 will be analyzed in detail according to the attributes that constitute them.
Product Availability
The survey sought to find out the minimum expectations of traders regarding:
- to the percentage of demand satisfied when taking the order,
- to the delivered percentage of the total order,
- the percentage of orders that are delivered complete, and
- waiting time for receipt of pending items
For the first three attributes, the frequency distributions, considering the 64 respondents who are more service-oriented, had a median of 100%. The same analysis, but considering the rest of the sample, showed medians of 92,5, 95 and 95% respectively.
Regarding the waiting time to receive pending items, the median distribution of minimum expectations in both groups was 2 days.
Analyzing the correlations, it is not possible to state that there is a significant difference in expectations, for the four attributes, between the two researched groups. In fact, the simple observation of Table 1 made it clear that product availability is a requirement of the entire sample.
Order Cycle Time
The median distribution of the expectation variable regarding order cycle time for both groups was 2 days, showing that there is no difference in expectation between them.
Delivery Frequency
Similar analysis can be done for this dimension. Respondents in Group I have a minimum performance expectation equal to the rest of the sample: 4 monthly deliveries as the median of the distribution. It seems that merchants as a whole do not have expectations that suppliers will make more frequent deliveries.
Delivery Time Consistency
According to table 1, there is a slight superiority in the importance attributed to this dimension by the rest of the sample. For a better analysis, this dimension was divided into two attributes: percentage of late deliveries and average delay.
- A surprising result was obtained when examining the expected percentage of late deliveries. While the median distribution for Group I was 0%, for the rest of the sample it was 5%, exactly the group that declared to give greater importance to the consistency of delivery times.
- For the attribute minimum expectation regarding the average delay, the median of the distribution was the same in both groups: two days.
None of the correlation analyzes involving the two attributes found significant results that could support the assertion that there is a difference between the two groups.
Fault Recovery System
This dimension was evaluated in three attributes, as shown in table 2.
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It is observed that most of the traders in Group I do not admit that they have to make complaints and, when they do, they want the problem to be resolved at the first request. The other elements of the sample are somewhat tolerant in relation to these two attributes. There is a coincidence, however, regarding the deadline for solving problems. More service-sensitive merchants are more demanding on this typical aspect of customer service. The correlation test confirmed that merchants in group I are more demanding with regard to expectations regarding the percentage of complaints resolved in the first request.
Flexibility in Distribution
This dimension was subdivided into eight attributes, five related to special delivery conditions and three associated with regular conditions. Considering the same scale from 1 to 5 already mentioned, table 3 presents the degrees of importance obtained for the special delivery conditions.
Although no attribute received an expressive score, a significant difference was observed between the requirements of the two groups in two variables: Advance notice of delivery and unloading operations at a special location.
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An interesting difference in terms of flexibility refers to the percentage of orders subject to some special delivery condition. While group I demands a special condition in 50% of the orders and expects that at least 95% of these orders will be met satisfactorily, in the rest of the sample only 20% of the orders require a special condition and 90% was the minimum level of expectation regarding the fulfillment of these requests.
With regard to regular delivery conditions, the results (table 4) show that issues such as the expiry date are the ones that deserved the most importance, which is not a result that calls attention since the research works with food retailers. Expiry dates would thus be, as has happened with other attributes, a qualifying criterion to be met by suppliers. The correlation analysis even showed a significant negative coefficient between the points attributed to the service as a decisive factor of who to buy and the importance given to the expiry date. The explanation is not difficult to test: the expiry date, although it can be considered as a service element, in reality it is perceived as an attribute of the product; therefore, those more product-oriented marketers give validity the utmost importance, which is not necessarily true of the more service-oriented respondents.
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Physical Delivery Support
The Physical Delivery Support dimension was subdivided into five attributes. In this question, the scale also ranged from 1 to 5, where 1 represents a low expectation and 5 a high expectation. Table 5 brings together the results obtained for the average expectations.
The particularity of this set of attributes is that for all of them the analysis of correlations showed that, significantly, the more service-oriented merchants are more demanding than the rest of the sample. This is an important result for suppliers prepared to provide a good delivery service.
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Support Information System
This variable was evaluated in five attributes, as shown in table 6.
There was a positive and significant correlation in the four marked attributes.
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One piece of information that was researched and related to the support information system and that provided an interesting result concerns the format for placing orders. Asked about the system's preference, with 1 representing low and 5 high, the responses were as follows:
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The correlation indices between points attributed to the service as a decision variable for who to buy and the preference regarding the order placement format were significant:
- with salesperson's visit: -0,1771, that is, the less service-oriented are the ones who value the salesperson's visit the most
- with EDI: 0,1451, that is, despite being a low preference index, when compared to the other two, the most service-oriented are those who most prefer EDI.
Question 2: How satisfied are the more service-oriented customers with the distribution service provided by their food product suppliers? Are they more satisfied with the service received than those oriented towards the other purchase decision variables?
In the same way as for question 1, the starting point for the performance analysis are the dimensions of the distribution service that appear in table 1.
product availability
For the three attributes related to product availability, table 7 shows the percentages of dissatisfaction of the two groups surveyed both with market practice and with the best supplier.
The analysis of Table 7 allows us to conclude that, in general, traders in group I have the same degree of satisfaction with the market practice as the rest of the respondents and are less satisfied than these when considering the best practice. A possible interpretation for this result is that, on average, the focus group of the research has better suppliers than the rest of the interviewees, having eliminated from its portfolio of suppliers those less prepared to meet the attributes associated with product availability. Even so, a fair number of such suppliers are failing to satisfy their customers.
Order Cycle Time
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Remembering, this is a dimension considered of great importance by the interest group of this research. Data analysis identified 36% of respondents dissatisfied with market practice and 16% dissatisfied with best practice. When comparing with what happened with the rest of the sample (30% and 6% respectively) it is concluded that the more service-oriented retailers are, in general, more dissatisfied than the others.
Delivery Frequency
The study revealed that 14% of the most service-oriented respondents are dissatisfied with market practice, but 100% are satisfied with best practice. A possible explanation is that while the distribution median for the minimum expectation of delivery frequency was 4 per month, the distribution median for the best practice was 8 per month, revealing that the best supplier exceeds the minimum expectations of its customers. Similar results were observed with the rest of the respondents: 14% dissatisfied with the market practice but only 2% dissatisfied with the best practice.
Delivery Time Consistency
High levels of dissatisfaction were observed for the attributes related to the consistency dimension of delivery time (table 8). More service-oriented traders, compared to the rest of the sample, are more dissatisfied with best practice than market practice.
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Fault Recovery System
The performance of suppliers was evaluated in three attributes related to the failure recovery system. The results are in table 9.
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It is observed that all the dissatisfaction percentages of the merchants in group I are higher than those obtained for the rest of the sample. It is concluded that providers have a long way to go in terms of service recovery.
Physical Delivery Support
A relevant dimension in terms of the expectations of the more service-oriented merchants, support for physical delivery also registered important results in terms of the performance of suppliers. Service-oriented respondents are more dissatisfied with market practice in all components of physical delivery support when compared to the rest of the sample. In particular, unloading speed resulted in a significant (negative) correlation: those who attributed more points to the service as a criterion in deciding who to buy are those who worst evaluated this component of the delivery service.
Regarding the practice of the best supplier, it was observed, among the merchants in group I, a dissatisfaction index of around 30% for all components. Three components were negatively correlated when crossing the variables number of points attributed to the service as a deciding factor of who to buy and evaluation of the performance of the best supplier: unloading speed, cordiality and punctuality of delivery. This means that, in those items, those most sensitive to service are the most dissatisfied with the procedures of their best supplier.
But what really caught the researchers' attention was that in all attributes and for all respondents, the perceived service fell short of the expected service. Thus, according to the assessment of food retailers in general, Brazilian suppliers are lacking in terms of support for physical delivery.
Support Information System
It was observed that among the more service-oriented merchants there is a dissatisfaction rate of around 40% with market practice and, a slightly lower rate, with the practice of their best supplier. It can also be said that between 80 and 90% of the rest of the sample are satisfied both with the market practice and with their best supplier in all components of the support information service.
On the other hand, as with the previous dimension, it was observed that in all attributes there is a negative difference between perceived service and expected service, revealing that the entire sample has not had its expectations met in terms of the Information System of Support.
CONCLUSION
From the results presented, it is possible to enunciate some conclusions about the distribution service standards expected by Brazilian food traders and how they evaluate the distribution procedures employed by their suppliers.
The dimensions “Support for Physical Delivery” and “Support Information System” made a special difference between the more service-oriented merchants and the rest of the sample, both in relation to expectations of good service and in relation to the performance of suppliers. The former are significantly more demanding than the others in all attributes of the Physical Delivery Support (promptness, cordiality and punctuality in delivery, speed in unloading and support in merchandising) and in four attributes of the Support Information System (promptness, cordiality, ease of ordering and credibility). On the other hand, they are more dissatisfied than others with both market practices and best practices in all Physical Delivery Support attributes, and more dissatisfied with market practice in all Support Information System attributes. This is valuable information for suppliers interested in directing their efforts towards meeting the specific needs of a customer segment.
Still with regard to the Support Information System, it was observed that the merchants who are more sensitive to the service have a significant preference for the EDI system to place their orders, contrary to the other elements of the sample that prefer the traditional visit of the seller. The well-known advantages of EDI, not yet fully exploited in supplier-buyer relationships, are therefore best taken advantage of by more service-oriented traders.
Another important difference between the two sets of interviewees concerns the demand for flexibility in the distribution system. While 50% of orders from the more service-oriented merchants are subject to some special delivery condition, in the other group this percentage is only 20%. It is concluded that flexibility is an attribute that suppliers need to pay special attention to if they want to serve more demanding customers in terms of customer service.
The occurrence and response to complaints is another attribute with a reasonable difference in the profile of responses in the two groups. The vast majority of the more service-oriented customers expect the percentage of orders that result in a complaint to be 0%. And when they do need to complain, they want the problem resolved to their satisfaction on the first request. The other members of the sample are more tolerant in this regard. The recommendation for suppliers who want to serve the most demanding merchants is that they act preventively so that failures do not occur and that they have a structured recovery system in order to promptly resolve any problems that may occur. Current performance, as judged by more service-oriented traders, is poor in these aspects of the recovery.
As the survey results generally indicate high levels of dissatisfaction on the part of service-oriented merchants, in almost all dimensions studied, providers have a good opportunity to position themselves in this segment.
It is necessary to take into account, however, that, according to the perception of the trade, a high level of performance in the dimensions Availability, Consistency of deadlines, Cycle time and Frequency of delivery would not be enough to stand out among the segment of customers that most value the service. This is because the two groups surveyed have high performance expectations for these dimensions, without showing significant differences between them. A high level of performance in these dimensions is a necessary but not sufficient condition to be preferred by the more service-oriented customer segment when deciding who to buy from. They are therefore basic, qualifying dimensions.
On the other hand, the results showed that there is a difference between the two groups surveyed in a series of attributes related to the dimensions Recovery from failures, Flexibility, Support in physical delivery and Support information system. Thus, once the requirements in those basic dimensions are met, suppliers who wish to stand out for their service must invest in improving performance in these attributes, meeting or exceeding customer expectations. In this case, it is possible that the trade segment that most values the service may be willing to pay a premium price for the acquisition of products.
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Hesket, JL; Sasser Jr., WE; Schlesinger, LA: The Service Profit Chain. New York, FreePress, 1997.
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LaLonde, BJ; Cooper, MC; Noordewier, TG: Customer service: a management perspective. Oak Brook, Ill. Council of Logistics Management, 1988.
Skinner, W.: Manufacturing: the formidable competitive weapon. New York, Wiley, 1985.
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