Purpose of the lesson

Measure actual customer service against agreed service levels, determine the extent of backorders, and identify the root causes of service-level failures.

Practical outcome

By the end of this lesson, you must be able to:

• Extract measurable service requirements from an SLA.
• Validate customer-service performance data.
• Measure service compliance across quality, quantity, time, place and cost.
• Calculate customer back-order levels.
• Identify repeated service failures and trends.
• Determine the root causes of non-achievement.
• Recommend, report and monitor appropriate improvements.

1. Gather the required information

Obtain:

• Customer contracts and SLAs
• Customer-priority classifications
• Service-level targets
• Customer-order records
• Delivery schedules
• Proof-of-delivery records
• Quality and rejection reports
• Back-order register
• Complaints and returns
• Customer-service records
• Transport and warehouse reports
• Cost reports
• Approved contract amendments
• Previous performance reports

Use information from the same reporting period.

2. Create a service-level register

Extract each measurable service commitment.

Confirm that the target and calculation method agree with the SLA.

3. Validate the performance data

Before calculating performance:

• Confirm the reporting period.
• Remove duplicate transactions.
• Check that all applicable orders are included.
• Confirm order and customer references.
• Verify delivery dates and locations.
• Identify cancelled orders.
• Check whether approved exclusions apply.
• Reconcile delivery records with system data.
• Confirm the accuracy of cost information.
• Retain an audit trail of corrections.

Do not exclude poor results unless the SLA permits the exclusion.

4. Measure quality service levels

Quality performance considers whether the customer received:

• The correct product
• The required specification
• Undamaged goods
• Correct packaging
• Accurate documentation
• An acceptable service outcome

Use:

Order accuracy = Correct orders ÷ Total delivered orders × 100

Damage-free delivery rate = Undamaged deliveries ÷ Total deliveries × 100

Example:

• Total delivered orders: 200
• Correct orders: 190

Order accuracy = 190 ÷ 200 × 100 = 95%

If the target is 98%, performance is three percentage points below target.

5. Measure quantity service levels

Quantity measures determine whether the customer received the complete order.

Use:

In-full delivery rate = Orders delivered in full ÷ Total delivered orders × 100

or:

Unit fill rate = Units supplied ÷ Units ordered × 100

Use the calculation specified in the SLA because the two measures do not necessarily produce the same result.

6. Measure time service levels

Time measures may include:

• On-time delivery
• Order cycle time
• Response time
• Complaint-resolution time
• Back-order age
• Lead-time compliance

Use:

On-time delivery rate = Orders delivered on time ÷ Total delivered orders × 100

Determine “on time” according to the agreed delivery date and time window.

7. Measure place service levels

Confirm whether delivery occurred at the correct:

• Customer
• Branch
• Site
• Receiving point
• Delivery address

Use:

Correct-place rate = Correct-location deliveries ÷ Total deliveries × 100

A delivery redirected after arriving at the wrong site should still be recorded as a service failure for the original transaction.

8. Measure cost service levels

Cost performance may include:

• Cost per order
• Transport cost per delivery
• Expedited-delivery cost
• Redelivery cost
• Return cost
• Credit or penalty cost
• Cost of resolving complaints

Use:

Cost per fulfilled order = Total fulfilment cost ÷ Number of fulfilled orders

Compare the result with the agreed target or operational budget.

9. Measure combined service performance

A common combined measure is On-Time In-Full (OTIF).

OTIF = Orders delivered on time and in full ÷ Total orders due × 100

If 180 of 200 orders were delivered both on time and in full:

OTIF = 180 ÷ 200 × 100 = 90%

Do not add the on-time percentage to the in-full percentage. An order must meet both conditions to count as OTIF.

10. Prepare the service-level scorecard

Classify each result consistently as:

• Achieved
• Below target
• At risk
• Not measured because valid information is unavailable

11. Determine customer back orders

Calculate:

Back-order quantity = Quantity ordered − Quantity delivered

Also measure:

Back-order rate = Orders with outstanding quantities ÷ Total orders due × 100

Back-order unit rate = Outstanding units ÷ Total units ordered × 100

Back-order analysis

Analyse back orders by:

• Customer
• Product
• Quantity
• Age
• Value
• Reason
• Priority
• Expected resolution date

12. Identify service-level failures

Record failures such as:

• Incorrect product
• Damaged product
• Short delivery
• Late delivery
• Wrong-location delivery
• Excessive order-cycle time
• Delayed complaint response
• Unresolved back order
• Excessive fulfilment cost
• Missing delivery information

Failure register

13. Identify trends and recurring failures

Compare performance across:

• Reporting periods
• Customers
• SKUs
• Warehouses
• Routes
• Suppliers
• Production lines
• Order types

Use a trend table or graph to determine whether performance is:

• Improving
• Stable
• Declining
• Seasonal
• Concentrated in one operational area

Repeated failures require deeper investigation than an isolated event.

14. Determine root causes

Investigate the complete order flow.

Customer order
      ↓
Stock allocation
      ↓
Production or procurement
      ↓
Picking and packing
      ↓
Transport
      ↓
Delivery and customer acceptance

Potential causes include:

Use evidence and a recognised method such as the Five Whys. Avoid stopping at symptoms such as “delivery was late.”

15. Develop corrective actions

For every material performance gap:

1. Confirm the root cause.
2. Determine the customer and operational effect.
3. Recommend immediate containment.
4. Develop permanent corrective action.
5. Assign responsibility.
6. Set a completion date.
7. Define a success measure.
8. Monitor subsequent performance.

Improvement plan

16. Report customer-service performance

Prepare a report containing:

• Reporting period
• SLA targets
• Actual results
• Variances
• Back-order volume and age
• Customer complaints
• Trends
• Root causes
• Corrective actions
• Responsible persons
• Completion dates
• Remaining risks

Provide the report to authorised customer-service and operational stakeholders.

17. Monitor improvement

Track the improvement plan until:

• Actions are completed.
• Evidence is received.
• Performance meets the target.
• Back orders are resolved.
• Customers receive required communication.
• Recurring problems are controlled.
• Management accepts the outcome.

Retain the original data, calculations, reports and approvals.

Practical task

You are provided with customer SLAs, performance reports and operational criteria.

Complete the following:

1. Extract the service-level requirements.
2. Validate the supplied performance data.
3. Measure actual service against the SLA.
4. Calculate quality, quantity, time, place and cost results.
5. Calculate OTIF where the information permits.
6. Determine the number, quantity and age of back orders.
7. Identify service-level failures and trends.
8. Conduct root-cause analysis.
9. Develop corrective actions.
10. Prepare a customer-service performance report.

Required evidence

Include the following in your Portfolio of Evidence:

• Source SLA and performance criteria
• Service-level register
• Data-validation record
• KPI calculations
• Customer-service scorecard
• OTIF calculation
• Back-order analysis
• Service-failure register
• Performance trend analysis
• Root-cause analysis
• Corrective-action plan
• Customer-service performance report
• Communication and approval records
• Completed observation checklist
• Learner declaration of authenticity

Competence checklist

Lesson Summary

To monitor customer service levels, extract measurable SLA requirements and validate the underlying performance data. Calculate service compliance across quality, quantity, time, place and cost, including OTIF where applicable. Determine the number, quantity and age of back orders and analyse results for recurring failures. Trace each material failure through the order process to identify its root cause, then assign corrective actions with deadlines and measurable outcomes. Report the results and monitor improvements until service targets and customer commitments are achieved.