CC BY
158Russian Journal of Logistics and Transport Management, Vol.2, No.1, 2015
©Elisaveta Domaseva and Yulia Panova
Petersburg State Transport University
IMPROVEMENT OF THE QUALITY OF THE LOGISTICS SERVICES:
ORBIS COMPANY CASE STUDY
Abstract
Nowadays, services are at the heart of the modern economy, as it did with the industry (in the industrial economy). In order to assess the level of services quality provided by the company, the most common approach (e.g. Gap-model) was applied. The analysis of the financial activity of the freight forwarding business and customer complaints depicted an insufficient level of the profitability of forwarding operations and the quality of logistics services. Examples include the field of road transportations and warehousing operations. To maximize customer satisfaction, the implementation of a balanced scorecard has been proposed.
Keywords: balance scorecard, Gap-model, key performance indicators, strategic map.
1 Introduction
In a current economy, high-quality services are considered significant components that determine the competitiveness of the logistics of companies. That is why the study of issues of meeting clients’ demand at a high level is timeless. The quality of the services of the company can be improved by the introduction of a balanced scorecard (BSC) (Kaplan and Norton, 1996).
In order to build a balanced scorecard for the company, the presence of the most important components is necessary (Gorbashko, 2012):
- Map of strategic objectives, coherent with the strategic goals;
- Key performance indicators (quantitatively measure the effectiveness of business processes, ‘point achievement’ and time frame, in which to be achieved the desired results);
- Specific projects (investment, training, etc.) to ensure the implementation of the necessary changes;
- Balanced scorecard software that allows leaders of various levels to monitor and evaluate activities.
The components mentioned above have been considered in the article, since they are the main preconditions for the implementation of the balanced scorecard - an integrated management technology for the company that allows assessing its performance continuously.
26
2 Assessment of the quality of the services
In a market economy, the problem of quality is the most important factor in increasing the standard of living, economic, social and environmental security. Quality is a comprehensive concept that characterizes the efficiency of all aspects of the activity: the development of the strategy, organization of production, marketing, and others.
As a rule, quality of service must provide:
- Improving the quality of service and compliance with customers' requests;
- Analogy quality services with advanced foreign services;
- Given the current advances in science and technology and the main directions of scientific and technological progress and the development of services;
- Characterization of the properties of services at the stages of its life cycle, which cause the opportunity to meet some of the needs of customers in accordance with its purpose.
There should certainly be a program that is aimed at continual improvement of the quality of services. It can also help to achieve efficiency and effectiveness of the complete cycle of operations for the service (Gorbashko, 2012). More often, the analysis, which is carried out by management, includes an assessment of the results of internal audits. They are performed directly by the governing bodies or representatives of the management who are responsible for the functioning of the system (Grigoriev, 2012). However, comparison of estimates of the customer and the service provider is carried out not regularly.
Meanwhile, only the continual assessment of the compatibility of the two quality measures can progress an improvement of the quality of service. Additionally, the corrective actions to determine whether the activity of the freight forwarding company meets the requirements of the customer should be provided. In this regard, the primary attention should be paid to factors that determine consumer perceptions of the service quality (Table 1).
Table 1
Factors, determining consumer perceptions of service quality.
Factors Description of factors
Competence Personnel service firm has the necessary skills and knowledge to provide services.
Reliability Company is stable. It provides the required level of quality constantly and everywhere. Commitments are fulfilled.
Responsiveness Employees strive to quickly, always and everywhere to respond to client requests.
Availability Physical and psychological availability.
Understanding Company is trying to understand better specific customer needs and adapt to them.
27
Factors Description of factors
Communication Company provides information to customers about the services offered in the language, which they understand, suited to the characteristics of the target group.
Confidence It is determined by reputation, guarantees of a serious attitude to customers.
Security Consumers are protected from financial, material, and moral hazard.
Courtesy Politeness, respect, attention, and friendliness of the staff.
Tangibility Tangible evidence of services - facilities, staff, etc.
Assessment of the quality of services rendered is an essential element of its management. Through this evaluation, it is possible to control the quality of service. It also provides the basis for the analysis and administration decisionmaking, providing feedback, which is an integral part of each stable and capable of the development system.
There are not many concepts of marketing services. Among the most popular are the so-called ‘GAP-model’ or ’discrepancy model’ (Fadeeva, 2012). The simplified model is represented in Figure 1.
Deviation of the quality of service Customers’ expectations from service
4.T ^
Deviation
if
Focused on consumer specifications and service standards Fig. 1. Simplified GAP model for the evaluation of the quality of services.
The centerpiece of the gap model is the ‘consumer divergence’, which consists in not match the customer’s expectations and perceptions of service. Accordingly, the fundamental task of the company is to reduce this difference to meet the needs of clients and building long-term relationships with them.
This model have been applied to assess the level of logistics services of the most significant types of services, i.e. provision of which is costly and their absence may course substantial losses in the market. Examples would be international maritime transport, deliveries of goods by road, rail freight services, transportation of oversized and heavy cargo, internal customs transit, and repacking of cargo.
Subjective assessment is often the only one factor in assessing the customer service provided. Customers sometimes voluntarily notify the service organization on their evaluation of the quality of services. Clients that have not been met, often cease to use and order the services without informing of their opinion, which makes it impossible to carry out corrective actions. Focusing on customer complaints as a measure of their satisfaction have been used to make conclusions. The quantitative assessment of customer complaints compared with
28
normative values revealed an insufficient level of quality of logistics services (mainly in the field of road transportations and repacking of cargo) (Figure 2).
■International maritime transport
■Transportations of goods by road
■Rail freight services
■Services for transportation of oversized and heavy cargo Internal customs transit
■Repacking of cargo
Fig. 2. Data on the number of customer complaints.
The claims of the customs can be determined by the absence of the storage facilities owned by the company. If necessary, the company leases for a particular time space for cargo storage. Meanwhile, the total quality logistics services found as a weighted average is improving as time goes by.
In 2011, the quality of logistics services was equal to 0.6 (0.58 x 31+ 0.34 x 32+0.96 x 53+0.68 x 43+0.64 x 38+0.51 x 44)/241), while in 2012 - 0.72, in 2013 - 0.80, in 2014 - 0.89.
Additionally, the analysis of the financial activity of the company has been performed, since, in the economic sphere, the principal purpose of the ‘Orbis’ business is to obtain a return. Profitability is a measure that best reflects the efficiency of the volume and quality of services, the state of labor productivity, and the level of cost. For more accurate determination of profitability and effectiveness of the company ‘Orbis’, the scale of profitability was calculated Figure 3 shows that the profitability of the company is on the average level.
2500000
2000000
1500000
1000000
500000
0
Revenues from freight forwarding services, Rrubles. Expenditure on transportforwarding service, Rubles Other income, Rubles Profit, Rubles Profitability, %
■ 2013 2143680 1949640 349188 293496 13,69
■ 2014 1837080 1705200 326760 341040 18,56
Fig. 3. Financial performances of the company, 2013-2014.
29
3 Proposed measures to improve the quality of transport and logical service
So as to increase the level of customer satisfaction, the introduction of a balanced scorecard is proposed. The balanced scorecard is an illustration of the strategy, starting with the long-term financial goals, and then binds them to the indicators that focus on the customer, internal processes, providing quality products and additional investment.
To facilitate the implementation of this system in the organization, taking into account all the peculiarities of the services, the company’s strategy has been analyzed. The policy of the freight forwarding company ‘Orbis’ can be formulated as follows. The improvement of the quality of logistics services can be achieved by motivating employees, providing new, additional types of services, information, and technical support.
This strategy was considered in four positions: customer relationships, finances, business processes, training and staff development (Figure 4).
Internal business processes
Financial
BSC
Learning and growth
•Improve the skills of employees •Increase the efficiency of labor •Increase motivation and employee satisfaction
•Reduce employee turnover
Customer
•Increase of customer base •Providing a high level of service •Increasing the degree of awareness of the company •Expansion of the company's share in the market of logistics services
Fig. 4. Strategic goals from the ‘4 perspective’ approach.
To judge the progress towards the goal presented in four positions on Figure 4 the performance indicators have been considered.
These performance indicators are grouped, regarding the perspectives: internal business processes, financial, customer, learning and growth (Figure 5).
30
Financing perspective
70
60
50
40
30
20
10
0
The actual value
The target The target value for value for 2015 2016
The target value for 2017
Increase in sales revenue, %
Profitability of sales, %
Increase in the volume of services provided for the delivery and storage, %
Return on services, %
40000 30000 20000 10000 0
The actual The target The target The target value value for 2015 value for 2016 value for 2017
I ■ ■ ■
■ Total logistics costs, RUB
Customer perspective
120
100
80
60
40
20
0
29
27
10
9
---------------------- 27--------------
---- 26 10
___25 ________________Z9Z_______ ______
В й u И
The actual The target The target The target value value for 2015 value for 2016 value for 2017
■ Company's market share, %
■ Brand recognition, %
■ Level of logistic service, %
■ Increase of regular customers, %
Internal business processes &Learning and growth perspective
500
450
400
350
300
250
200
150
100
50
0
65
33
8
70
85
71
81
PPP
-РЧ- -- 7Ц - 80
■65J 69 _ 75 _ ^
33 38 47 55
-—в—I-,-—7—1-,-—6—1-,-L-B-l
80
55
5
The actual The target The target The target value value for 2015 value for 2016 value for 2017
Turnover rate, %
Employee satisfaction index, %
Actual productivity, volume of production/time
Coefficient of staff development, % Capacity utilization rate, % Performance of supply chain, % Percentage of perfect order, % Duration of the logistics cycle, days
Fig. 5. Key performance indicators.
31
The strategic goals of the company (Figure 4) are closely related to the key performance indicators (Figure 5). For example, in the financing perspective, so as to ensure profitable growth, the concrete measures, such as profitability of sales and increase in sales revenue are proposed. At the same time, the growth in the profitability of services can be controlled by the return on services. Meanwhile, the increase in the volume of sales services for the delivery, as well as storage and the decrease of the logistics cost can be monitored by the respective indicators, as can be seen from Figure 5.
In the customer perspective, the key performance indicators have been proposed for the several strategic goals: the increase of the client base, the provision of a high level of service, the increase of the degree of the company recognition, and the expansion of the business’s market share within the sphere logistics services.
The specific measures for the internal business processes & learning and growth perspective, which are presented in Figure 5, are intend to progress the realization of the following strategic goals: reduction of the lead time of logistics operations; improvement of the quality of services; increase of productivity across the supply chain; development of the skills of employees; growth of the efficiency of labor; increase of motivation and employee satisfaction; and reduction of employee turnover.
It should be noted that one of the critical success factors in the implementation of the company’s strategy is the allocation of responsibilities in the achievement of the goals and targets (Figures 4, 5). Besides, the strategic objectives can be achieved if appropriate vital activities are implemented. Having this in mind, Table 2 has been formed.
Table 2
Strategic actions.
Research and selection of consumer preferences in the target market and their further development
3 weeks -1 year
Logistics
Department
PR-Department
32
Learning and growth perspective
Training of personnel to work with new technologies and techniques 7 days 1 month Staff training department
To improve the skills of employees Organization of special courses, seminars earmarked for education and training of employees 7 days 1 month Staff training department
To increase the Effectiveness of labor Implementation of special software to reduce the amount of manual labor 1 - 1.5 years IT-Department
Usage of a system of positive motivation (awards and praise) 1 month -1 year Human Resources Department
To reduce employee turnover The one-time rewards for employees for results of the year 1 year Accounting Department
Development and application of ‘social package’ for employees 1 - 1.5 years Human Resources Department
33
Strategy maps are arming the organization to understand the logic of doing business, in the long run, which are required for the creation of the company competitiveness and achievement of the advantages of market success. One of the recommendations for the Logistics department, responsible for the implementation of the several actions (e.g. purchase or lease/warehouse development, in the future, a distribution center), as shown in Table 2, can be the following proposals. By the use of the theoretical method of search of the equilibrium center of transport costs, the location of the distribution center was determined. When choosing the location of the warehouse (distribution center in the future), the focus was on transport costs. The most profitable is the location of the warehouse with the smallest total transport costs for the transportation of products.
The main destinations of cargo flows that were taken into consideration include United States (Portsmouth), Mexico (Frontera), Germany (Hamburg), China (Shanghai). Based on the calculations, the coordinates of the location of the distribution center was found. However, coordinates [49.28; 85.41] have corresponded to the town Ridder, which is located in Kazakhstan. Since the company ‘Orbis’ plans to open a distribution center in Russia, the best-suggested city can be Novosibirsk with coordinates [55.04; 82.55]. This city is considered a major logistics hub in Siberia, through which transport corridors were going to the European part of Russia, Central Asia, and the Far East. Moreover, it is as an important industrial center in the region, which ensures its investment appeal.
Thus, new and changing needs of consumers can be satisfied based on the proposal of high-quality services in cargo handling. The success of the new services realization within the competitive market depends on the several factors, e.g., advertisement and the effect of ‘word of mouth’. To assess the market saturation, as well as the activities of the company towards promotion of new services, a simulation can be used based on the model of F.Bass (Solomina, 2009).
The simulation application extends the range of tasks related to the development and decision-making under conditions of uncertainty and lack of information. The purpose of a simulation model is to mimic the real system so that its behavior can be studied. There are different approaches to simulation: Discrete Event, Agent Based, and System Dynamics Simulation. Critical current simulation environments include Vensim, STELLA and iThink, PowerSim, and AnyLogic. In the present research, the system dynamics (SD) approach for the simulation is proposed with the help of Vensim (2015). Nowadays, almost all SD programs use a graphical interface where the model can be build by connecting different elements and writing the actual equations inside the individual components (Lattila and Saranen, 2010).
To build the model, two main quantitative characteristics have been considered: potential clients (Number of companies) and customers who already
34
use the services of the enterprise (Adapters). They are modeled as stocks (Figure 6).
Fig. 6. System dynamics model, simulating the diffusion of services to consumers.
As Figure 6 shows, the stocks are accumulations, which are defined by the in- and out-flows of the model. Also known as levels, they are signified by rectangles in system dynamics diagrams. In general, both stocks (levels) and the flows (rates) that affect them are essential components of network structure (Karpov, 2015; Lattila, 2012).
Hence, to determine the quantitative relationship between the characteristics (potential and real clients) the flow from potential customers to real was introduced. The intensity of this flow was naturally characterized as the intensity of use of the service. But the intensity of services is not constant. People use the service under the influence of advertising or learning about it from friends/colleagues, by the ‘word of mouth’. The effectiveness of publicity is proportional to the number of people for which it is targeted, i.e. the number of potential buyers. Similarly, the effectiveness of ‘word of mouth’ depends on the number of individuals who have used the services.
In the model, the structure of dependencies of services diffusion from a variety of factors is present. The intensity of use of the services depends on several factors. The first is advertising. This parameter depends on two factors: the effectiveness of advertising and the number of potential customers. Naturally, the more the value of ‘advertising’, the greater the number of potential buyers is reduced, and, therefore, diminish the effect of publicity.
35
The second factor, which forces the customer to buy the service, is the opinion of others on this product, i.e. ‘word of mouth’. The sales due to the ‘word of mouth’ effect dependent on many factors. The first is the number of potential customers. Naturally, the greater the parameter sales due to ‘word of mouth’ advertising, the more people get the service; the number of potential customers is reduced.
The next factor that influences the intensity of use of the services is the number of people already using the service ‘company clients’. The higher the value sales due to ‘word of mouth’ advertising, the more customers, and, therefore, this option is increasing as more people will spread their opinion about the product.
Another factor is the emergence of a competitive service-analogue during the period of the spread of services of the ‘Orbis’ company. The probability of such an event naturally reduces the number of potential customers. The outcome of the model revealed that the appearance of service-analogue on 7th month and 2nd month, since the beginning of the spread of services by the considered company, may reduce the number of the potential clients (Adapters) by 11% and 1%, respectively (Figure 7).
Fig. 7. The outcome of the model, depicting the effect of the emergence of a competitive service-analogue: a) on the 2nd month and b) on the 7th month.
The experiments showed that by investing in the advertisement, the market saturation can be reached at the 16th month. The effect of the advertisement is more significant at the beginning of the period of the services provisions. The company also can increase the number of the potential clients by expanding the assortment of the services. Further on, the company can continue
36
to enhance the effect of ‘word of mouth’ by the improvement in the quality of services.
In the current environment, the quality of the services should be improved continuously. That is why the aforementioned development of the so-called strategic maps should go into the process of using them in daily activities. For that to happen, several tailored programs can be applied. One of them is the ARIS BSC. This program is designed for rapid prototyping of strategic management of the company. In other words, ARIS BSC should simplify the process of the implementation of the proposed balanced scorecard by the enterprise.
4 Conclusions
The problem of assessing the quality of services under the constant pressure of financial objectives related to the reduction of logistics costs and increase profits is one of the main for the ‘Orbis’ company. In order to maximize the customer satisfaction, the introduction of the balanced scorecard (BSC) is considered for this freight forwarding company. To achieve this goal, the analysis of the main stages of the BCS implementation was performed. The strategy of the company was represented in four positions (customer relationships, finances, business processes, training and staff development). Additionally, the key performance indicators (KPI) were systematized. The achievement of these indicators was determined by the allocation of the responsibilities to the units of the company. The strategy map was added by planned activities and the period for their realization.
The activities related to the Logistics Department have been analyzed more precisely. In particular, the question of the selection of the location for the warehouse (or distribution center in future) was solved by the method of ‘search of the equilibrium center of transport costs’. While the simulation was applied to the analysis of the factors that can be controlled company, which is interested in promoting the additional services. The created model can be used for the sensitivity analysis. With the help of the model, the company can estimate, in which sphere the investments are more efficient:
- In any public notice of services (to amplify the effect of advertisement);
- In the expansion of the functionality of products (to enhance the number of potential customers);
- In the product quality (to increase the impact of ‘word of mouth’ advertising).
Thus, the application of the proposals by the company can create preconditions for the successful realization of its strategy. It should be noted that the generated strategy map allows expanding the field of view of managers, which improves the handling and control of the organization in the future.
37
Furthermore, the selected software equipment (ARIS BSC) can provide a link from strategy to operational activities and cost factors, i.e. allow the use of a balanced scorecard in practice.
References
Fadeeva, N.V. (2012). Methodology of assessment of the quality of services. Transactions TSTU. 18(2), 484-492.
Gorbashko, E.A. (2012). Quality Management. Textbook for Bachelor’s with the Stamp of the Council of Association for Management Education. St.Petersburg: Publishing Yurayt, Russia.
Grigoriev, M.N., Tkach, V.V. & Uvarov, S. (2012). Commercial Logistics: Theory and
Practice: a Textbook for Undergraduate. 2nd ed. St.Petersburg: Publishing Yurayt, Russia, 490.
Kaplan, R. S., & Norton, D. P. (1996). The Balanced Scorecard: Translating Strategy into Action. Harvard Business Press, USA.
Karpov, Y.G. (2005). Simulation modeling systems. Introduction to modeling with AnyLogic 5. St. Petersburg, 400 p.
Lattila, L. & Saranen, J. (2010). Cross country co-operation in Emergency Situations. Conference in Estonian Maritime Academy, 20.5.2010, Tallinn, Estonia.
Lattila, L. (2012). Improving Transportation and Warehousing Efficiency with Simulation-Based Decision Support Systems. Thesis for the Degree of Doctor of Science (Technology): Lappeenranta University of Technology, Lappeenranta, Finland, 214.
Solomina, A.N. (2009). Diffuse distribution model innovation. Proceedings of XIII
International conference EM2009’. Ed. Oleg Vorobyov. Krasnoyarsk: Siberian Federal University Press, 165 - 167.
Vensim (2015). About the program https://vensim.com. Accessed 14.05.2015.
38
