Poor Scheduling Performance Affecting Customer Value?

University Degree Business and Administrative studies

CONTENTS

I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

I.I Company Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

I.II Scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. Identifying the problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

II.I Root Cause Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

II.II Problem Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

III. Conceptual Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

III.I Approach to SERVQUAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

III.II Gap Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

IV. Diagnosis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

V. Alternatives of Solution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

V.I Closing “The Gap” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

V.II Long-Term Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

VI. Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

VII. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

VIII. References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Poor Scheduling Performance Affecting Customer Value?

I. Introduction

I.I Company Background

TMM Lines is the liner shipping division of CP Ships Group which is one of the largest container carriers in Mexico. Its main goal is to meet Mexican shippers’ export needs by moving their goods or products from one point to another through a sea transportation service.

TMM Lines has won a long-standing reputation for the quality and reliability of its maritime services within the business-to-business sector. “Service Premier” which offers container deliveries to the main trade ports in North Europe had been well recognized among TMM’s customers (shippers) because their convenient frequency and accurate schedule performance.

Shipping Industry is about demanding market therefore, one of the most important variables that shippers take into account in order to select a transportation company is reliability on containers’ delivery, which is the value that they are expecting from the service.

I.II Scenario

“Service Premiere” operates on weekly basis with a fixed route from Veracruz, as a loading port in Mexico to Antwerp, Rotterdam, Le Havre, Bremenhaven and Thamesport as ports of discharge in Europe. Nevertheless, in the last two year the schedule performance on this service has decreased drastically.

Customer Service Department is encouraging customers to ship their cargo with TMM Lines by highlighting the advantages of “Service Premier” whilst Operations Department is evaluating each port call in order to assure that they are profitable for the company and if necessary they will be cancelling the unprofitable stop.

All containers that were loaded to the omitted port have to be addressed to another port call and then transferred to the original requested port of discharge by a feeder barge. As a result there is a delay on the container deliveries at the final port which affects directly the customer.

This situation is not only increasing the operation cost of the voyage in each vessel voyage but also is affecting the company image within the market as far as the service quality is concerned.

In response to the lack of commitment to perform “Service Premiere” route as originally scheduled, shippers have decided not to give their cargo to TMM Lines since they do not find it as a reliable service provider.

II. Identifying the Problem

II.I Root Cause Analysis

Why hasTMM Lines lost customers for the North Europe Service?

Because the customers are not satisfied with TMM Lines’ schedule performance

Why are the customers unsatisfied with schedule performance?

Because containers are not being delivered on the right place at the right time

Why are containers not being delivered on the right place at the right time?

Because some discharge port calls are cancelled

Why does a discharge port cancellation occur?

Because Operation Management decides to omit them

Why does Operation Management decide to cancel ports of discharge?

Because they are focused on business profitability and cost saving rather than customer value.

II.II Problem Definition

Service Premier Schedule performance is failing because the Operation Management are focused on cost saving and profitability instead of delivering customer value.

III. Conceptual Framework

III.I Approach to SERVQUAL

Many researchers have found that Service Quality results are more difficult to evaluate than goods quality. Through the evaluation of the process of the service delivery based on ...

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Because Operation Management decides to omit them

Why does Operation Management decide to cancel ports of discharge?

Because they are focused on business profitability and cost saving rather than customer value.

II.II Problem Definition

Service Premier Schedule performance is failing because the Operation Management are focused on cost saving and profitability instead of delivering customer value.

III. Conceptual Framework

III.I Approach to SERVQUAL

Many researchers have found that Service Quality results are more difficult to evaluate than goods quality. Through the evaluation of the process of the service delivery based on the SERVQUAL Model (Parasuraman, et.al.,1985) it is possible to control and measure the performance of the company related to Delivering Customer Value.

Using the SERVQUAL scale it is also suitable to evaluate the level of service quality performance in the business-to-business sector (Durvarsula, et al., 1999).

There are five perceptual dimensions associated to the SERVQUAL Model: Reliability, Assurance, Tangibles, Empathy and Responsiveness (Zeithalm, et.al., 1988). Regarding the current situation of TMM Lines they are identified as follow:

Reliability: Shippers expect that TMM performs accurately and dependably with the service schedule in order to deliver containers in the right port of destination at the right time as originally offered.
Assurance: Shippers need to feel confident while doing business with TMM Lines. They expect that the operation staff as well as the ship crew are capable to handle their cargo (containers) safely from the loading port to the port of discharge.
Tangibles: Containers are stuffed with customers goods or products thereby, they need them to be in good conditions: free of holes, safe and clean. On the other hand, since containers will be on board of the ships, they also will be aware about vessel conditions. For all shippers, it is very important that both tangibles have acceptable visible appearance.
Empathy: TMM Lines has basically organizational customers which are more demanding in the sense that they want to have special treatment in according to their business requirements. Thus, shippers do like to have an assigned Customer Service Representative who gives them full follow up and tracking to their shipments.
Responsiveness: Shippers choose TMM Lines as carrier because it is capable to respond positively to their export “spot shipments”. Their vast container fleet enable the organization to provide equipment availability to the customers virtually at the same time that they are requesting it.

III.II GAP Analysis

Continuing with the development of the SERVQUAL Model it is imperative to identify the factors as well as the specific variables for each gap (Parasuraman, et.al., 1990) in order to determinate which is the main gap affecting service quality on TMM Lines case.

GAP 1: Customers’ Expectations vs Management’s Perceptions of Customers’ Expectations

Marketing Research Orientation: TMM Lines’ marketing research is focused on the shippers’ export needs. Through their regular basis surveys (applied every six months) and competition benchmarking the company knows exactly what customers are looking for regarding North Europe service schedule.

Upward Communication: Since TMM Lines is engaged in the business-to-business market, top managers recognize the importance of shippers’ feedback about service performance. They encourage Sales and Customer Service personnel to maintain continuous contact with shippers either through their call center tool or through the appointment program to customers’ facilities.

Levels of Management: Top managers organize meetings with the contact personnel in order to realize which the main complaints about service are. It is important to mention that their organizational structure have let them know about the main complaints received by Customer Service Representatives.

GAP 2: Management’s Perceptions of Customers’ Expectations vs Service Quality Specifications

Management Commitment to Service Quality: Top managers are committed to improve service quality but they are also focused on business profitability. As a result, some firm areas such as Operations and Logistics have their Key Performance Indicators based on profitability and cost saving instead of service quality improvement.

Perception of Feasibility: The existing cost saving policy is not helping TMM Lines to meet the customers’ expectations. Currently, the North Europe Service aims a number of port calls that are not affordable for the Operation Department due to high cost, budget constraints and the low volume of containers for this service.

Task Standardization: There is a lack of standardization on service delivery which is being well perceived by the customers when their containers are not delivered on the right place at the right time. As far as the soft technology is concerned we found that TMM Lines is not delivering a good performance on “Service Premiere” since its original schedule and route are changed by the Operation Department on every vessel voyage.

Goal Setting: Due to the shipping business dynamic TMM Lines has faced a lot of troubles to match goals between two of their main departments: Operations and Customer Service. Middle Operation Managers are responsible for increasing the profitability of each vessel voyage through a cost saving approach whilst Customer Service department is focused on offering a convenient service schedule to shippers that enables them to deliver their cargo timely at the final port.

GAP 3: Service Quality Specifications vs Service Actually Delivered

Regarding the Service-Performance Gap, it can be assumed that TMM Lines does not have any substantial problem with the variables related to this gap that can be affecting service delivery to the customers in the evaluated scenario.

GAP 4: Service Delivery vs External Communications to Customer

Horizontal Communication: There is clearly an internal conflict affecting service quality. Whenever Operations Management decides to cancel a discharge port or change the route in the vessel voyage, the personnel in charge is not notifying this decision to the contact personnel. Hence, Customer Service is not able to communicate the changes to customers who are expecting different service delivery specifications.

This internal conflict is affecting the performance of the company and consequently the shippers’ perception about TMM Lines’ reliability.

Propensity to over promise: While Operations Department works under the premise that every schedule is subject to changes without previous advice, the Sales and Customer Service Department insists to highlight the service features as the most reliable schedule based on the assumption that original schedule is already a fact. Even more, the online queries as well as the service advertising include service dates and routes as if they were on fixed basis.

IV. Diagnosis

After the assessment of the five perceptual dimensions of SERVQUAL Model (Parasuraman, et.at., 1985) it can be conclude that TMM Lines is failing on delivering Reliability to its customers.

Considering also that perceived quality is governed by the magnitude of the gap between the customers’ expectations and their perception of the service (Slack, et.al., 2001), we denote that quality shortfall perceived by customers as Gap 5 (Parasuraman, 1990; Zeithalm 1988) is driven basically by the shortfall on Gaps 2 and 4.

Through the Importance-Performance matrix it is possible to summarize and identify the main factors causing service quality failures under consideration of their importance to customers and the performance of the organization on them (Hooley, et.al., 1998)

Importance

High

Low

Low High

Performance

It is important to highlight that Goal Setting followed by Management Commitment to Service Quality are the major organizational factors responsible for the size on Gap 2 which is actually the main gap that affects quality variations. On the other hand, the size on Gap 4 is determined by the Horizontal Communication factor.

In order to accomplish a high service quality performance, it is imperative that the organization focus their efforts on closing Gap 2. TMM Lines should work basically on the improvement of formal process for setting service quality goals at the middle management level and also in the internal communication improvement. (Zeithaml, et.al., 1990)

V. Alternatives of Solution

V.I Closing “The Gap”

Parasuraman , Zeithaml and Berry (1990) suggest that companies have to set their goals based on customers’ requirement and expectations rather than internal company standards whose features in some cases are not delivering any value to the customers.

The effectiveness of the new goal approach will depend on the level of accomplishment in each of their characteristics: focus to customers’ expectation, specific, accepted, cover important job dimension, reviewed with appropriate feedback, measurable, challenging but realistic (Zeithaml, et.al., 1988).

Designed to Meet Customers’ expectations: It is recommended that Operations Department change its cost saving approach and move it to a customer-oriented one. Since the major complaint identified among shippers is that their cargo is not being delivered on time at the discharge port, Operations should focus its new strategic goal on delivering schedule performance reliability to them.
Specific: Operation Departments should clearly understand the new goal in terms of what they are being asked to deliver to the shippers. In this case it could be to perform vessel voyage route including all port calls as originally scheduled and without variations.
Accepted by Employees: Operations’ and Customer Service’s Managements should work together in order to assure that customers will be satisfied by delivering an accurate and timely schedule performance.
Important Job Dimension: Managers should also provide to their staff a clear guidance about task priorities which in this case are related to Reliability. Thus, employees’ efforts should be addressed to perform the service schedule properly at the first time.
Measured and Reviewed with Appropriate Feedback: This factor will enable managers to measure performance of the goal and identify any service quality problem can be arisen from the failure on it. The measurement has to be attached to NO port cancellation and the performance will be assessed on every single vessel voyage.
Challenging but Realistic: The goal reset results feasible and realistic; it will be challenging operations personnel to increase the level customer satisfaction by delivering the value they are looking for. That way they will be also able to increase the volume of loading containers on each vessel voyage.

As exposed by Hooley (1998) TMM Lines can also settle a continuous program of complaints and suggestion that can enable Operations Manager to assess how schedule performance is perceived by customers in terms of its reliability.

As soon as TMM Lines can accomplish setting the formal goals related to service quality the size on Gap 2 will be considerably reduced. Operation Department will be delivering reliability on schedule performance fulfilling with customers’ requirements. Thereby, the company will be also able to achieve its task standardization by offering a fixed route voyage on regular basis.

Regarding the Horizontal Communication factor, it can be also improved by setting similar objectives to both, Operations and Customer Service departments. They will be offering the same service specifications to the shippers assuming that the service route or schedule is not going to change.

V.II Long-Term Relationships

Creating long-term relationships with the shippers can be also suitable to increase market share and profits on shipping industry based on commitment to delivery a high quality service (Wagner and Frankel, 1999).

“... Carrier service quality is becoming increasingly critical to a larger number and wider variety of shippers. Consequently, shippers need to spend additional time and effort to study the impact of such carrier performance...” (Wagner and Frankel, 2000)

While recognition of this approach it is also important that TMM Lines reinforce the commercial links within their customers. By having the highest overall performance and delivery accuracy TMM Lines can assure shippers’ repurchase the service and therefore start to build a strong long-term relationship or even a partnership with them. As a result, the organization will be able to increase their competitive advantage attracting more business at the time that they reduce their operation costs and create economies of scales (Kleinsorge, et.al., 1991; Leland, et.al., 1996).

According to the Carrier Commitment to Relationship Building Model (Wagner and Frankel, 2000) we can identify the five variables affecting Long-term Relationship Development:

In their article Wagner and Frankel (1999) pointed out that delivery errors are becoming costlier for the companies, therefore an accurate performance on the time-definite services can not only help to enhance customer satisfaction but also it can help to reduce operations’ costs arisen from delays on cargo delivery (claims and compensations).

Kleinsorge, Scharry and Tanner (1991) also suggest that being focused on long-term commitment and teamwork between carriers and shippers may result in a competitive advantage for parts, delivering high-quality and cost effective delivery system.

Another important aspect related to Long-term Relationship is Customer Loyalty. Buttle and Burton (2001) recognize that customer loyalty is an attitudinal state that is related to the level of customer satisfaction or dissatisfaction.

The challenge on cultivating long-term relationships is to increase customer loyalty through the improvement of processes’ efficiency and without sacrifying quality of service (Javalgi and Morberg, 1997)

VI. Recommendations

After much consideration it is recommended that TMM Lines undertake immediate action in order to review and reset the overall goal of its Operations Department which is actually the main responsible of the failure on delivering Reliability to the customers.

On the first stage it will be helpful that top managers reinforce the commitment to service quality within the middle operations management and its personnel which are directly involved with discharge port cancellation. The employees should be persuaded by the managers to evaluate the service quality impact of each port omission.

Creating a Service Quality Culture (Mehta, 1998) driven through interdepartmental key performance indicators between Operations and Customer Service will be a useful to the alignment of efforts focused to deliver timely and accurate schedule performance to the shippers.

Having recognized the variables of the Long-term Relationship Development Model (Wagner and Frankel, 2000) and its implications within carriers and shippers relationship, it can be conclude that TMM Lines has to pursue the efficiency of the integrating-time definite service variable. Based on the premise “time is money” TMM Lines can take advantage of the accurate performance on schedules in order to make its service more attractive to shippers, thus shipper will find in TMM not only a container carrier but also a partner in which they can rely on.

The combination of both suggested alternatives can be summarized through the following statement:

More Schedule Reliability = More Satisfied Customers and Long-term Relationship = More Containers on Board and Economies of Scales = Low Operation Costs, More Profitability and More Market Share for TMM Lines.

VII. Conclusion

If TMM Lines wants to keep its leadership as a container carrier in Mexico, it has to assure that the overall goal of the company is indeed focused on delivering high service quality to the customers. Top managers should be able to recognize that a good business strategy focus on delivering service quality can generate undoubtedly, benefits in profit, cost savings and market share.

As well as in the current problem of poor schedule performance, the SERVQUAL Model suggested by Parasuraman, Zeithaml and Berry can be applied to other major problems that are affecting TMM Lines’ service performance in order to enable it to expand their business through a competitive advantage based on Delivering Customer Value.

Nowadays, the level of quality in the way that companies deliver service to industrial customers is a must within the business-to-business sector. Since TMM Lines is involved in this market it is necessary that it builds strong relationships with shippers and considers customer loyalty as an important part of its overall strategy.

VIII. References

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CULLIANE, K., TAE-WOO, L., 2002. “ Maritime Policy & Management, 29 (3), pp 203-208.

DURVASULA, S., LYSONSKI, S. and MEHTA, S., 1999. “ Testing SERVQUAL scale in the business-to-business sector: The case of ocean freight shipping service”. The Journal of Services Marketing, 13 (2), pp 132-150.

HOOLEY, G., SAUNDERS, J. And PIERCY N., 1998. Marketing Strategy and Competitive Positioning. 2nd ed. Essex, England: Prentice Hall Europe.

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PARASURAMAN, A., ZEITHAML, V. and BERRY, L., 1985. “A conceptual Model of Service Quality and Its Implicatios for Further Research”. Journal of Marketing, 49 (4), pp 41-50.

SLACK, N., CHAMBERS, S. and JOHNSTON, R., 2001. Operation Management. 3rd ed. Essex, England: Prentice Hall Europe.

STEVEN, H., 2001. “Keeping the Client Happy”. Security Management, 45 (11), pp 26-29.

WAGNER, W., FRANKEL, R., 1999. “Carrier Service: Shipper Hedge Against Supply Chain Competition”. International Journal of Logistics: Research and Applications, 2 (1), pp 75-85.

WAGNER, W., FRANKEL, R., 2000. “Quality Carriers: Critical Link in the Supply Chain Relationship Development”. International Journal of Logistics: Research and Applications, 3 (3), pp 245-258.

ZEITHAML, V., BERRY, L. and PARASURAMAN, A., 1988. “Communication and Control Processes in Delivery of Service Quality”. Journal of Marketing, 52 (2), pp 35-48.

ZEITHAML, V., PARASURAMAN, A. and BERRY, L., 1990. Delivering Quality Service. U.S.A.: The Free Press.