Determining a cost-effective customer service level

    Authors

    M. M. Jeffery; R. J. Butler;L. C. Malone

    Comments

    Authors: contact us about adding a copy of your work at STARS@ucf.edu

    Abbreviated Journal Title

    Supply Chain Manag.

    Keywords

    customer services quality; customer service management; inventory; management; cost effectiveness; electronics industry; SUPPLY CHAIN; INVENTORY SYSTEMS; POLICIES; MODEL; Business; Management

    Abstract

    Purpose - The purpose of this paper is to provide an approach for determining inventory levels that result in a minimum cost customer service level for specific products based on their demand characteristics and profit margin. Design/rnethodology/approach - The paper uses logistic regression to quantify the relationship between customer service level and inventory on-hand in relation to forecasted demand, as well to estimate the impact of factors such as forecast accuracy, customer lead-times, and demand variability on this relationship. It then performs financial analysis in order to associate a cost with customer service level. Findings - Empirical results based on data from a semiconductor manufacturer indicate significant cost-savings can be achieved by applying the proposed method over the organization's current ad hoc practices. Research limitations/implications - The minimum cost customer service level identified via the methodology is based on values of dynamic factors that are specific to the time when data were collected. Therefore, frequent updating is necessary to ensure the customer service level remains close to the minimum cost. Future research could identify the ideal frequency for updating inventory levels based on cost minimization and production stability. Originality/value - This research presents an inventory management methodology for organizations with variable, non-stationary demand. in contrast to much of the current inventory modeling literature, in which service level goals are selected in an ad hoc or a priori manner, this research determines an ideal (minimum cost) customer service level from the supplier's perspective based on products' unique characteristics.

    Journal Title

    Supply Chain Management-an International Journal

    Volume

    13

    Issue/Number

    3

    Publication Date

    1-1-2008

    Document Type

    Article

    Language

    English

    First Page

    225

    Last Page

    232

    WOS Identifier

    WOS:000256830900006

    ISSN

    1359-8546

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