Measuring Supply Chain Success using Customer Service Level

5 minread

Tags: Blog, Demand forecasting, Inventory management, Inventory management, Tips & Tricks

Peter Drakeley, Head of Global Customer Success, EazyStock

Peter Drakeley   19 April 2018

Servicegrad messen für eine erfolgreiche Supply Chain


  1. What are Key Performance Indicators?
  2. Example KPI: Customer Service Level 
  3. Measuring Customer Service Level
  4. How to Improve Customer Service Level
  5. What comes next?

What are Key Performance Indicators?

Key Performance Indicators (KPIs) act as a set of quantifiable measurable values that demonstrate how effectively your business is performing in relation to your strategic objectives. Businesses often track multiple KPIs to evaluate their success towards reaching targets. KPIs also allow you to compare your company’s financial data and performance against similar businesses within your industry.

Choosing the right KPIs for your company to monitor depends on what areas of your company you’d like to prioritise; for example, monitoring customer service level to keep satisfaction high. Higher level KPIs often focus on the overall performance of your company while lower level KPIs will focus on certain elements of your business, such as assessing your customer loyalty and retention, and these can be used as an important decision-making tool to help improve your future business performance.

KPIs are critical to a successful business because they identify the gaps between your current and desired performance and help you identify how to close these gaps. Closely monitored KPIs identify precisely where to act to improve performance. Businesses need a method of assessing where they are in terms of performance and whether they are on course with their strategy. They need to be able to quickly adapt to changing market conditions. If your business is not succeeding in a fiercely competitive market, you need a way to measure your progress in real time and adapt your actions according to what your KPIs are telling you.

Example KPI: Customer Service Level 

One example of a KPI that businesses often monitor is customer service level. Offering the best customer service level is essential for organisational success and means that you ensure your warehouse has accurate and timely order fulfillment. Ensuring high customer service levels is a necessity to make your mark and stay ahead of the competition.

Customers in the Digital Age can Make or Break your Business

Maintaining a high customer service level is imperative to not only the present but also to the future success of your business. Companies are now more visible than ever: 88% of customers look at company reviews online and have been influenced by them before they decide on the purchase of a product or service. This can mean that poor reviews can negatively affect your sales and stump your business growth. It is estimated that a single negative review can drive away 22% of customers.

Negative reviews can also be damaging to prestige, profitability, and trustworthiness of your business. Customer service level KPI can be used to measure the overall customer satisfaction and track any changes in customer satisfaction over time. Customers are likely to spend 31% more if your business has good reviews so reviews have been an integral metric. If your level of customer satisfaction is staying high or rising, your business will know you’re on the right track.

Not only can customers leave damaging reviews if they are dissatisfied with the level of service, but they can seek and find a new supplier to fulfill their needs. Making sure that your customer service level is high ensures customer retention and reduces negative backlash.

Measuring Customer Service Level

Net Promoter Score (NPS) is a KPI that acts as a simple and standardised metric that your business can use to determine customer satisfaction, loyalty and creates a commercially meaningful score. NPS places your customers into three categories:  promoters, passives, and detractors. It acts as a scale from a range of -100 to 100 and measures how willing your customers would be to recommend your services.  This allows you to determine how well you are performing through the eyes of your customers and helps you predict the future organic growth of your company to improve future business performance.

Customer Retention

According to the Harvard Business Review, it costs around 5 times more for your business to acquire new customers than it does to retain an existing customer. NPS can be used to effectively increase customer experience, resulting in an increase in acquisition and retention. Customer loyalty can be viewed via a simplified framework called the loyalty funnel, with each stage representing a deeper level of loyalty and a higher-value customer.  When your customer makes the first purchase, they are at the first stage of the funnel; they can then move further down the funnel by making repeat purchasing and again a more valuable customer status. By measuring your performance, you can pinpoint challenges and opportunities for your customer retention.

Successful Order Fulfillment

To keep customers coming back, they need to know that you have the right products in stock to be able to meet expectations on delivery times. Your business needs to be constantly analysing your operations to ensure you’re hitting goals and identifying what needs to be improved. To ensure a comprehensive view of your logistics, it is important to evaluate all KPIs including Customer Metrics, Inbound Metrics, Outbound Metrics and Financial Metrics. It is not enough just to choose a few metrics to measure because this can create a bias image of your strengths and weaknesses.

How to Improve Customer Service Level

Now that you have all this data on your customer service level and other KPIs, how can you use these measurements to improve your operations?

Increase Supply Chain Efficiency

Fork Lift in WarehouseMost wholesalers must balance increased costs and an increasingly complex supply chain. An inefficient supply chain will mean increased costs and poor customer service levels that will drive your customers away. Nowadays it’s a necessity to automate your supply chain management to improve efficiency, accuracy and remain competitive. By receiving real-time data about your supply chain efficiency, you will be able to make informed management decisions and better adapt to changing customer demands.

Accurate Forecasting and Procurement

Accurate demand forecasting, including demand and supply forecasting, is key when considering how your business can improve its customer service level. Being able to accurately predict product demand is necessary to keep your customers satisfied so you can provide them with the products they want when they want them. For this you need to ensure that you have enough product in your warehouse so that you can fulfill customer orders with the shortest possible lead time and within a time that corresponds to their needs. If you underestimate the demand for a product, then you run the risk of losing your customers to competitors.

ABC Analysis

It is now necessary to rely on modern classification methods of inventory control such as ABC analysis that can be used to improve your current customer service levels.  Using this method, you can classify products that you have in your warehouse based on turnover rate and value. Combine ABC analysis with your target service level and you’ll be able to forecast what SKUs you need in your warehouse to fulfill customer demand.

What comes next?

Customer service levels are just one of the many KPIs you can monitor. Before you choose which KPIs would best suit your need, you first need to decide what to prioritise in your business. Are you focused mainly on cutting costs? Driving sales? Serving customers? Some combination of areas? Deciding where to focus your efforts will help you determine what KPIs to monitor so you can reach your goals. For distributors, a common area that needs attention is inventory management. Take a look at our guide “The Inventory Heath Self-Assessment” to see if your inventory needs some work.

eBook - 12 Questions Inventory Health Self-Assessment