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materials No sales No
money
No
business
Customer service in procurement organizations
By Miguel Salcedo
miguel.salcedoramirez@siu.edu
I. Introduction
Customer Service has been widely defined in business literature. Some authors have
defined it as “An organization’s ability to supply their customers’ needs and wants" (1),
“the process of ensuring customer satisfaction with a product or service." (2), or “the ability
to provide a service or product in the way that it has been promised” (3). In a previous
study, I had defined Customer Service in procurement organizations as “a Key Performance
Indicator (KPI) that describes the general perception internal clients have about the
Procurement department and the quality of its service” (4). However, in this paper a new
definition of customer service and a new way to measure and calculate this KPI are
proposed, taking into consideration new elements previously omitted.
Unlike a commercial business serving the public where customer attention impacts
customer growth and retention, in a procurement organization such element is not as
decisive, as internal customers have in theory nowhere else to go to procure goods and
services. Other elements besides customer attention impact customer service indicator
significantly in Procurement organizations as they deal with internal company customers,
impacting nothing less than production itself and therefore business performance. For this
reason Customer Service indicator in a procurement process has that rare capacity to
predict the potential success of the business as a whole. A poor measure of internal
customer satisfaction alerts that the company is poorly prepared to supply the materials
needed for production. In other words it could be said that No materials means No
production, No sales, No money and No business.
Figure 1 – No materials no business
II. Problem Description
Customer service in procurement organizations cannot be properly measured simply by
conducting customer satisfaction surveys among their users. Customer satisfaction surveys
only measure clients’ perceptions about your service. Other hard data facts and realities of
the procurement process need to be measured such as procurement processing times, in
order to properly calculate a customer service indicator. So far only customer satisfaction
surveys are used to measure customer service. In procurement organizations this approach
produces inaccurate results because only part of the equation is calculated. With the new
approach presented in this work not only customer satisfaction is measured but all other
relevant elements as well. Before beginning to explain how to measure and calculate
customer service indicator in procurement organizations, a new definition of customer
service is proposed as a result of this new vision:
Customer service – A new definition
A new definition of customer service is proposed in this study taking into consideration
new elements not previously considered. Thus, Customer Service is the perception
customers have about the treatment and service received under expectations clearly set by
the service provider.
The idea is very simple: If you treat your customers with courtesy and respect and deliver at
the same time your procurement services within the promised time fame, your customer
service indicator will be high. But in order for this to happen, internal clients need to not
only be treated right but they also need to be told about procurement processing times. If
these two ingredients are in place, you are in the right path to customer service excellence.
As you will see in another section of this work, achieving high grades in procurement
customer service represents a real challenge as only 50% of tasks (according to this author)
are under the control of the procurement organization itself, the other 50% is under the
control of suppliers. However, achieving that 50% that is under the control of the
procurement organization plus informing your internal customers about suppliers expected
delivery dates, will take the procurement organization very close to excellent customer
service grades. In other words, if you provide great customer attention and give your
internal clients an expected delivery date, you won’t see your client complaining in your
office unless that promised date isn’t kept.
Principles to measure and improve Customer Service
Customer service satisfaction like any other kind of satisfaction is closely related to the
expectations people have about such service. Having this in mind, this new approach to
measuring and improving customer service is based in three major principles:
1. Customer attention. This principle has to do with how good you treat your
customers in terms of personal interactions.
2. Customer Expectations. Setting customer expectations straight first of all.
Customer need to be informed about what to expect when they request our services.
Expectations need to be known and pre-determined to standards that can be
compared against.
Supplier
Management
Customer
Expectations
Customer
Attention
3. Supplier Management. Making sure suppliers deliver on time as promised is a key
principle.
Figure 2 – Principles to measure and improve Customer Service
Measuring Customer service
In order to measure customer service, we first need to determine what it is that customers
want and what it is that they expect to receive from the procurement department.
Based on analysis of procurement processes performed in large size procurement
organizations (3), it can be implied that customers want and expect to obtain the following:
Courteous attention
Fast treatment of purchase requests
Information about Lead time / Expected Delivery date
Information about Purchase request status
Information about Purchase order status
Compliance with lead time and expected delivery date
Courteous
attention
Fast treatment of
Purchase Requests
Information about
lead time and
expected delivery
dates
Information about
Purchase request
status
Information about
Purchase order
status
Compliance with
lead time and
expected delivery
date
Figure 3 – What customers want and expect to obtain
Courteous Attention.
Courteous attention has to do with the way customers are addressed, responded and treated
by procurement department personnel. In order to measure Courteous attention, a customer
survey is necessary. Designate a person from the procurement department to design and
execute this survey or request an expert to design it for you. The end result should provide
with an indicator in the form of a number or factor expressed as a percentage of people who
considered themselves satisfied with procurement attention. This will be a number from 0
to 100.
Fast treatment of purchase requests.
Treatment of a purchase request does not refer to the actual purchasing time of the request.
It has to do rather with how fast a buyer from the procurement department begins looking
into a purchase request. Customers want their requests taken care of quickly, fast. How do
you determine what is a reasonable Treatment Time?. The procurement department will
arbitrarily set an average treatment time based on its Historic Average Processing Time and
inform clients about it. This number is a percentage that indicates how many times the
procurement department complies with the promise to treat purchase request within the
established acceptable time frame.
Information about Lead time / Expected Delivery date
Here is where customer expectations begin to straighten out. Once a purchase request is
finally looked into, analyzed or otherwise treated, you must inform your customers about
how long they should expect to wait for their materials to be purchased and delivered to
them. In order to maintain or improve customer service, Lead Time and Expected delivery
time frame information needs to be calculated and timely informed to your customers. Lead
Time and expected delivery dates can be obtained from procurement historic data.
Information about Purchase request status
This is another piece of information that levels out customer expectations. The processing
status of a purchase requisition indicates how far you are in the road to source materials for
your customers. In SAP®’s Material Management (SAP-MM) system, a purchase
requisition can be in any of the following three processing status codes (5): N (Not Edited),
A (RFQ created - Request For Quote created) and B (Purchase order created). Not Edited
means nothing has been done to that purchase requisition. RFQ created means the
requisition has been treated, requests for quotes have been issued to suppliers and it’s in the
process to be purchased. And Purchase order created means the PO has been awarded to a
supplier.
When the status of purchase requisitions is not informed to internal customers or if their
request is in the N (Not edited) status code, your customer service grade is zero. The longer
the delay, the worst your customer service grade will be. The goal is to minimize the Not
Edited (N) status which is the essence of customer dissatisfaction along with poor status
reporting. Assuring the treatment of all Purchase requests and informing clients with
purchase requests processing status is the key to ensure positive customer service
perception. The status information is obtained from a computer program that reports the
status of each purchase request item. Once you have the status for each item requested, you
send your customers an email or a text message informing them about the current status of
their requisitions. The number calculated here is the percentage of times the procurement
department effectively informs its customers about their purchase requisition status. Since
this task can be automated to a great degree, the number obtained here should always be
close to 100.
Information about Purchase order status
Again, to continue maintaining customer expectations at ease, this information must be sent
out to customers. As it was mentioned above, In (SAP-MM) a purchase order is coded as a
status B requisition. This means that a purchase order has been issued to suppliers and at
this point it is necessary to inform internal customers that such purchase order has been
issued. This can be accomplished by sending your users an email with all relevant
information about their purchase order, including the expected deliver date. The
procurement department should run daily or request the daily execution of the appropriate
computer program that will obtain this information which will then be sent to each
customer. The number calculated here is the percentage of times the procurement
department effectively informs its customers about their purchase order status. Since this
task can be automated to a great degree, the number obtained here should always be close
to 100.
Compliance with lead time and expected delivery date
Finally, the procurement department will follow up with suppliers to make sure they deliver
on time as promised. Daily, weekly or monthly reports can be run to determine how often
our suppliers deliver as promised. This number is obtained by running a computer program
that calculates the percentage of times a purchase ordered is delivered on time as promised
by suppliers. Unfortunately this number is usually low. Designing and implementing a
good supplier management program is a topic for a future article.
Customer Service Indicator model
Figure 4 – Customer Service Indicator Model
Calculating Customer Service Indicator– a new approach
A new approach is proposed to calculate customer service indicator in procurement
organizations.
Let’s define all variables involved and assign arbitrary weight numbers (*) to calculate
customer service:
Figure 5 – Variables and weights table
(*) these are weight number arbitrarily assigned to each variable. It reflects a percentage in the scale of relevance each
variable has in determining a customer service indicator. In the opinion of the author these weight numbers represent a
good rule of thumb based in his own experience. Each organization however, may assign its own weight numbers.
Customer Service Indicator (CSI) formula:
The formula to calculate a Customer Service Indicator (CSI) in procurement organizations
would be as follows:
CSI = [(CA x weightca)/100) + (FT x weightft)/100) + (EDD x weightedd)/100)
+ (PRS x weightprs)/100) + (POS x weightpos)/100) + (LT x weightlt)/100)]
Where subscripts ca, ft, edd, prs, pos, and lt represent the weights assigned to their
corresponding variable CA, FT, EDD, PRS, POS and LT.
Figure 6 – Customer Service Indicator Formula
CSI = [(CA x weightca)/100) + (FT x weightft)/100) + (EDD x weightedd)/100)
+ (PRS x weightprs)/100) + (POS x weightpos)/100) + (LT x weightlt)/100)]
Customer Service Indicator (CSI) formula in excel format:
The formula in excel format for CSI would be:
=((C3*D3/100) + (C4*D4/100) + (C5*D5/100) + (C6*D6/100) + (C7*D7/100)
+(C8*D8/100))
Where C3, C4, C5, C6, C7 AND C8 are respectively the values of CA, FT, EDD, PRS,
POS, and LT
Customer Service Indicator (CSI) calculation example:
1. Data
Let’s assume that a procurement organization completed measuring each variable in a given
period of time and the results were the following:
Courteous attention (CA) = 60
Fast treatment of purchase requests (FT) = 30
Information about Lead time / Expected Delivery date (EDD) = 100
Information about Purchase request status (PRS) = 100
Information about Purchase order status (POS) = 100
Compliance with lead time and expected delivery date (LT) = 30
2. Interpreting data
The above data is interpreted in the following manner:
For Courteous attention (CA) = 60, This procurement organization is declaring that 60%
of its customers think the attention they get from the procurement department is courteous.
Now, there could be various degrees of courteousness depending on how you design your
survey. Therefore you decide what degree of courteousness will be considered acceptable.
For example, If your survey sets degrees of courteousness 1 to 5 (low to high) then you
could decide that for instance grades 1,2 and 3 are considered acceptable. In this case
CA=60 means that 60% of customers surveyed graded you 1,2 or 3. If your survey only had
2 choices Yes or No for courteousness, then of course you would only consider YES
answers in which case CA=60 means that 60% of customers surveyed voted YES. Please
note that this is the only item that is calculated through a customer survey.
For Fast treatment of purchase requests (FT) = 30, this procurement organization is saying
that 30% of its purchase requests were looked into, analyzed or otherwise taken out of the
pending purchase request list, in a fast manner. “Fast” is a figure that your organization
must define. Some organizations believe that treatment of purchase request within 28 days
of their reception in the procurement department is acceptable. You decide what an
acceptable number of days to treat a request is. The point is that this variable measures how
often you treat purchase request within the acceptable time frame. The faster you start
working in your customers’ requests, the better your customer service grade will be.
Customers resent when their requests aren’t looked into fast enough. This number is
calculated automatically by a computer program that reports the age of each purchase
requisition not yet treated.
For Information about Lead time / Expected Delivery date (EDD) = 100, this procurement
organization is saying that 100% of its customers received this information by email, text
message or any other form, as soon as their purchase requests were looked into. This
information should be given to your customers as soon as you receive a purchase request.
When you do this, you are setting your customers’ expectations to a more realistic time
frame and therefore reducing the possibilities for future conflict with them. This
information is calculated automatically by a computer program that obtains from the
procurement system, lead time or expected deliver dates. Hopefully, if your procurement
department sets up an automatic program and procedure to give out this information, this
number should be always close to 100. If you do this manually, then it is possible that this
number could fluctuate a lot.
For Information about Purchase request status (PRS) = 100, the procurement department is
saying that 100% of its customers receive an update of their requisition status. Hopefully, if
your procurement department sets up an automatic program and procedure to give out this
information periodically, this number should be always close to 100. If you do this
manually, then it is possible that this number could fluctuate a lot.
For Information about Purchase order status (POS) = 100, the procurement department is
saying that once a purchase order is awarded to a supplier, 100% of its customers receive
an update of their purchase orders. Hopefully, if your procurement department sets up an
automatic program and procedure to give out this information periodically, this number
should be always close to 100. If you do this manually, then it is possible that this number
could fluctuate a lot.
For Compliance with lead time and expected delivery date (LT) = 30, the procurement
department is indicating what percentage of items ordered, are delivered on time as
promised by suppliers. This number is calculated by a program that calculates this indicator
periodically, usually every month. As it has been mentioned above, this number
unfortunately is usually low.
3. Calculating CSI
Using the formula to calculate Customer Service Indicator (CSI):
CSI = [(CA x weightca)/100) + (FT x weightft)/100) + (EDD x weightedd)/100)
+ (PRS x weightprs)/100) + (POS x weightpos)/100) + (LT x weightlt)/100)]
Substituting values in formula:
CSI = [(60*5/100) + (30*30/100) + (100*5/100) + (100*5/100) + (100*5/100) +
(30*50/100)
We get the following result:
CSI = 42
This would be the Customer Service Indicator for this particular procurement department
for a particular period of time. It also means that customer service level is 42%.
Using Excel to calculate CSI:
Given The formula in excel format for CSI:
=((C3*D3/100) + (C4*D4/100) + (C5*D5/100) + (C6*D6/100) + (C7*D7/100)
+(C8*D8/100))
Where C3, C4, C5, C6, C7 AND C8 are respectively CA, FT, EDD, PRS, POS, LT, the
excel worksheet will look like this:
Figure 7 – Customer Service Indicator excel calculation
Customer service improvement
The whole idea is to improve your numbers every time. Improving an indicator means
taking the necessary actions to make that number better next time. Let’s use the numbers in
our example above to explain possible actions that can be taken to improve our indicator. In
the first month, notice that the lowest scores were given for “Courteous attention = 60”,
“Fast treatment of purchase requests = 30” and “Compliance with lead time and expected
delivery dates = 30)”:
First Month measurement
Figure 8 – Lowest scores table
Fact findings:
These three variables adding up to 27 points make up for 64.2% of overall CSI
calculated at 42
These three variables make up for 85% of customer service weight. That is why our
first month’s measurement was so low (42)
The first two low score variables: Courteous attention and Fast treatment of
purchase requests, are variables fully controllable within the procurement
organization
The last low score variable: Compliance with lead time and expected delivery dates,
it is mostly out of the control of the procurement organization.
Possible actions:
Design and plan a training program to improve courtesy treatment by procurement
staff
Find out why procurement staff is not treating purchase requisitions on time
Begin a Supplier management program to improve on time delivery.
This is just a small sample of facts and actions to take in order to improve your indicator.
Team work, data analysis and management involvement are some sure ingredients for
success. If your procurement department works and measures CSI every month, and take
appropriate actions, hopefully your customer service improvements will show an ascending
trend line, like in the following charts:
Figure 9 – Customer Service indicator – sample data month by month
Figure 10 – Customer Service indicator ascending trend line improvement chart
III. Conclusion
Customer Service is the perception customers have about the treatment and service received
under expectations clearly set by the service provider. If customers are treated with
courtesy and respect and procurement services are delivered within the promised time
fame, your customer service indicator will be high. Customer service in procurement
organizations cannot be measured simply by conducting customer satisfaction surveys
among their users. Customer satisfaction surveys only measure clients’ perceptions about
your service. Other hard data facts and realities of the procurement process need to be
measured such as procurement processing times, in order to properly calculate a customer
service indicator. So far only customer satisfaction surveys are used to measure customer
service. In procurement organizations this approach produces inaccurate results because
only part of the equation is calculated. With the new approach presented in this work, an
integral more complete and accurate Customer Service indicator can be calculated by
including not just customer satisfaction data but all other relevant elements that comprise
this Key performance indicator (KPI).
Courteous attention, Fast treatment of purchase requests, Information about Lead time /
Expected Delivery date, Information about Purchase request status, Information about
Purchase order status and Compliance with lead time and expected delivery dates, are the
key elements used to calculate Customer Service Indicator (CSI). These elements are
derived from principles of customer attention, customer expectations clearly established
and Supply management programs. The formula to calculate CSI is presented and examples
are shown to learn how to calculate this indicator.
REFERENCES
(1) Hanson, W (2000). Principles of Internet Marketing, Cincinnati, Ohio: South-
Western
(2) Staff, I. (2015, May 16). Customer Service. Retrieved March 20, 2017, from
http://www.investopedia.com/terms/c/customer-service.asp
(3) Rai, A. K. (2013). Customer relationship management: Concepts and cases. New
Delhi: PHI Learning.
(4) Salcedo, Miguel, Methodology for Fast Processing of Purchase Requisitions,
Elimination of Backlog and Improvement of Customer Service in Procurement
Organizations (December 8, 2016). Available at SSRN:
https://ssrn.com/abstract=2918601
(5) SAP ABAP Domain BANST (Processing status of purchase requisition) - SAP
Datasheet - The Best Online SAP Object Repository. (n.d.). Retrieved December
14, 2016, from https://www.sapdatasheet.org/abap/doma/banst.html
(6) (SAP®) SAP and other SAP products and services mentioned herein as well as their
respective logos are trademarks or registered trademarks of SAP SE (or an SAP
affiliate company) in Germany and other countries.
Microsoft, Windows, Excel, Word, PowerPoint, and Project are registered
trademarks of Microsoft Corporation in the United States and other countries.
All other product and service names mentioned are the trademarks of their
respective companies.
