Application of the means-end value hierarchy model to understanding logistics service value.

Introduction

Logistics companies today recognize the importance of high levels of customer service. One of the most difficult tasks of providing that service is often the determination of what the customer truly values. Traditionally, logistics organizations have done an excellent job of managing and moving inventory - the operational aspects of logistics. However, logistics managers often struggle to identify the value-added activities that customers desire - the customer value aspects of logistics. In other words, does the customer value (or even notice) this excellent logistics operational management?

In the pursuit of competitive advantage, it is increasingly important to identify the demands and values of current and potential customers. This study applied a useful methodology from the behavioural sciences to assist logistics managers to determine the appropriate customer service activities, i.e. those the customer truly values. The use of the means-end value hierarchy model (MEVHM) clarifies the needs of the customer and provides a useful method to present relevant customer service information to logistics managers using customer behaviour tools.

The MEVHM has been used to help companies understand final consumers and the value they place on the companies' product/service offerings. However, this study applies its usefulness in a business-to-business logistics context. Understanding the values and needs of channel members is equally important as understanding the end user.

For the purposes of introducing the MEVHM to logistics research, this paper will present literature reviews of logistics service value and the MEVHM, followed by a detailed description of the methodology of the MEVHM. The defense logistics agency (DLA) provides data for a case study example application of this methodology. Example models will be presented for an individual customer, an aggregate for one DLA market segment and an overall DLA MEVHM. Finally, conclusions, managerial implications and future research opportunities will be discussed.

Logistics service value

There are many definitions and descriptions of how logistics creates value. The most traditional are based on the attributes of the creation of time and place utility (Mentzer et al., 1989; Perreault and Russ, 1974). The so called "Seven Rs" describes the attributes of the company's product/service offering that lead to utility creation through logistics value, i.e. part of a product's value is the company's ability to deliver the right product in the right amount at the right place at the right time for the right customer in the right condition at the right price (Coyle et al., 1992; Shapiro and Heskett, 1985; Stock and Lambert, 1987). This definition implies that part of the value of a product is created by logistics service, i.e. the attributes of the process by which the item gets to the end user. Examples of historical, attribute-based measures of logistics customer service are per cent of items in stock, per cent of orders delivered on time, per cent of delivered items undamaged, etc. (For a more complete list of these attribute based measures, see (Mentzer et al., 1989).) These attributes were considered the "value" provided by logistics service's dimensions of availability, timeliness and condition (Mentzer et al., 1989).

As the business environment has changed, the attribute-based definitions of logistics service have evolved. The basic concept of utility creation became inadequate to express fully the value created by logistics. The idea of value has been broadened to include numerous value-added tasks: packaging, third party inventory management, barcoding, information, etc. (Ackerman, 1989; Mentzer, 1993; Mentzer and Firman, 1994; Witt, 1991). The value-added concept has expanded the traditional time and place utilities to include form utility (e.g. final assembly of bulky product at the market) (Ackerman, 1991), but is still an attribute-based concept.

More recent definitions of logistics value focus more on the marketplace, customer service, core competences and competitive advantage. Logistics value is an important component of customer service just to maintain the status quo. Value-added is the extra service that provides competitive advantage in the marketplace (Gordon, 1989). Both the value and value-added concepts contain the basic logistics attributes. However, the more current concepts include the service and financial trade-offs involved to perform the additional services to provide exceptional customer service.

The literature suggests that logistics customer service is often defined as a component of, or used as a substitute for, logistics value (Langley and Holcomb, 1992). However, customer service has been just as difficult to define as value. The meaning of "customer service varies from one company to the next" (Stock and Lambert, 1987). La Londe and Zinszer (1976) provide a good description of how customer service adds logistics value through three components:

(1) an activity to satisfy customers' needs;

(2) performance measures to ensure customer satisfaction; and

(3) a philosophy of firm-wide commitment.

All three …