the impact of customer orientation of service

7th

International Conference on Operations and Supply Chain Management, Phuket, 2016

THE IMPACT OF CUSTOMER ORIENTATION OF SERVICE EMPLOYEES ON CUSTOMER SATISFACTION, COMMITMENT AND RETENTION IN LOGISTICS SERVICE PROVIDERS Imam Baihaqi Department of Business and Management, Institut Teknologi Sepuluh Nopember Surabaya email: [email protected] Berto Mulia Wibawa Department of Business and Management, Institut Teknologi Sepuluh Nopember Surabaya email: [email protected]

ABSTRACTS The quality of service in service industry is highly contributed by the interaction between customers and service employees. Customer orientation of service employees plays a significant role in the success of service firms such as logistics service providers. Using data from 272 logistics service provider firms, this research tests the relationship of customer orientation practices and customer satisfaction, customer commitment and retention. The results indicate that high customer orientation of service employee has a positive direct relationship with customer satisfaction and commitment, but does not directly related to customer retention. Keywords: customer orientation, logistics service providers, service employee

1. Introduction Nowadays, logistics plays a tremendous role in ensuring smooth movement of products across a supply chain. The scope of logistics services has broadened from isolated services such as transport or warehouse to integrated services, providing coordinated the whole bundle of logistics activities, managing entire flow of product and information to the entire supply chain (Kersten & Koh, 2010) as shown in Table 1. This wide range of services provided by logistics service providers (LSP) has contributed to the growing interest of companies to outsource their logistics functions to LSP (Sahay & Mohan, 2006). A large number of LSP companies also emerge as business getting globalize and a supply chain can be scattered across the globe. The use of LSP by companies have been prevalent in today’s business (Sahay & Mohan, 2006). LSP can provide logistics services cheaper than performed in-house by companies due to specialization and economic of scale (Kersten & Koh, 2010). Outsourcing logistics activities to LSP allows companies to focus more on their core activities to sustain their competitiveness (Sohail & Sohal, 2003). Approximately, 60% of the Fortune 500 companies in US reported using at least one logistics service provider, and that the market for logistics providers continues to grow (Aguezzoul, 2014). Logistics services plays a key role in the companies’ competitiveness, especially in the time-based competition nowadays (Domingue & Macario, 2015).

7th


Table 1. Logistics Services (Aguezzoul, 2014) Logistics processes Transportation

Outbound (Distribution) Warehousing Inventory management Packaging Reverse logistics

Activities Road rail air sea, intermodality management, shipping, forwarding, package express carrier, customs brokering, (de) consolidation, perishable/hazardous goods management, freight bill payment/audit. Merge in transit, order fulfilment/processing, picking, sorting, dispatching, post-production configuration, installation of products at the customer’s site. Storage, receiving, cross-docking, (de) consolidation, perishable/hazardous goods. Forecasting, slotting/lay out design, location analysis, storage/retrieval management. Design, labeling, assembly/packaging, palletizing. Pallets flows management, recycling, reuse, remanufacturing disposal management, repair, testing/products serving, return shipment management.

In the global market place, logistics services plays a significant role in the economy, representing 8.5% of gross domestics product (GDP) in USA and 10% in European countries (Council of Supply Chain Management Professionals, 2012). In Indonesia, the logistics services have been growing steadily since 2011 at the rate of 14-15%. Indonesian logistics services account for above 4% of the total GPD (Frost & Sullivan, 2014). This trend is contributed by the establishment of Asean Economic Community and increased consumption and the growth of international trade. It is expected that the market of logistics services will continue to grow. However, increased number of LSP companies has tightened the competition amongst LSP. Kersten and Koh (2010) argue that service quality could be one source of competitiveness for LSP. Increasing logistics service quality could enable LSP to expand their portfolio by high-revenue services. A number of studies has been conducted in regard to logistics service quality (e.g. Kersten & Koh, 2010; Rafiq & Jafar, 2007; Saura et al., 2008; Thai, 2013). As a service business, the quality of logistics services is largely influenced by the behavior of service employees (Hennig-Thurau and Thurau, 2003; Hennig-Thurau, 2004). Hennig-Thurau (2004) argues that the employee’s level of customer service orientation (COSE) is an importance leverage the success of service firms such as logistics service providers. While majority of research focus on conceptualize and measuring logistics service quality, few researches have been conducted to address the antecedences of this service quality such as employees. Drawing upon the work of Hennig-Thurau and Thurau (2003) and Hennig-Thurau (2004), this paper will fill the gap by analyzing the role COSE in logistics industry. Using the framework developed by Hennig-Thurau (2004), the objective of this paper is to test the relationship of COSE to business success measured by customer satisfaction, commitment and customer retention. The rest of the paper is structured as follows: the next section will explain the theoretical framework used in this study. Subsequently, we outline the research methodology which is then followed by the results, based on data analysis. Finally, the discussion and conclusion are then presented.

7th


2. Theoretical Framework It is well acknowledged in marketing theories that the behavior of firms’ employees toward their customer differentiate contribute strongly to the customer satisfaction that lead to the success of the firm. Service quality theories such as SERVQUAL (Parasuraman et al., 1988) have identified employee behavior is one of the factors in the service quality. Therefore, it is strongly importance to identify factors that contribute to the behavior of employee toward customers’ requirement. Understanding those factors would allow manager to take appropriate actions to improve the logistics service quality. Drawing upon Hennig-Thurau dan Thurau (2003), Hennig-Thurau (2004) conceptualize model to measure COSE. It is defined that COSE is the degree to which the employees behave toward meeting customers’ needs. COSE comprises four dimensions, entitled: (a) Technical skills Knowledge and technical skills required to fulfill customers’ need during the interaction. (b) Social skills Ability to understand customers’ perspective during interactions. (c) Motivation The extent to which service employees feel motivated to serve customers. (d) Decision making authority The extent to which service employee authorized to decide on the issues that concern customers’ interest and needs.

Customer Satisfaction

Technical Skills

H5 H1 H3

Social Skills

H4

Customer Retention

COSE

Motivation

H6

H2 DecisionMaking Authority

Commitment

Figure 1. The conceptual model In order to test the concept, four predictors were proposed as consequences of having high degree of COSE. As shown in Figure 1, COSE is modelled to have positive impact on customer satisfaction, commitment and customer retention. High degree of COSE may directly impact the retention of customer. This relationship is also tested through indirect relationship between COSE and customer retention through customer satisfaction and commitment. Four hypotheses were developed as follows: H1 The customer orientation of service employees has a positive influence on

7th

H2 H3 H4 H5 H6


customer satisfaction The customer orientation of service employees has a positive influence on emotional commitment. Customer satisfaction has a positive influence on emotional commitment. The customer orientation of service employees has a positive direct influence on customer retention. Customer satisfaction has a positive direct influence on customer retention. Emotional commitment has a positive direct influence on customer retention.

3. Methodology We first approached the LSP firms to provide list of their customers. The questionnaires were then sent out to the managers and senior executive of those companies. From a total of 300 questionnaires, a total of 272 valid responses were used for further analysis. All measurement scale were adopted from Hennigh-Thurau (2004), except for commitment scale which was measured using scale developed by Dimitriades (2006). All scale were measured using 7-point Likert scale. Following Ahire and Devaraj (2001), confirmatory Factor analysis were performed to test the validity of all measurements. The reliability was tested using Chronbach Alpha. The results of these procedure are presented in the Appendix. Having met the requirements of the validity and reliability tests, the composite measure of each construct was then computed using their mean values (Bobko et al. 2007). The bi-variate correlations amongst composite measures are presented in Table 2. Table 2. Means, standard deviation and bi-variate correlation coefficient amongst construct. Mean Std. Dev. TS TS 5.5807 0.90448 1.000 SS 5.4474 1.06098 .696 MO 5.5182 1.06531 .693 DM 4.4108 1.61254 .473 ST 5.4485 0.92606 .327 RE 5.2286 1.04286 .317 CO 5.6903 0.88648 .433 *all correlations significant at p < 0,01

SS

MO

DM

ST

RE

CO

1.000 .757 .375 .357 .346 .473

1.000 .514 .356 .344 .471

1.000 .243 .235 .321

1.000 .607 .541

1.000 .599

1.000

4. Results Following Anderson and Gerbing (1988), confirmatory factor analysis were performed to test the validity of the conceptual model of COSE before full structural model run. The test showed a good of fit of the model. The full structural model as presented in Figure 1 is tested using structural equation modeling using AMOS software. The results exhibit that all of the measurement have significant loading to their corresponding construct. Overall the model shows a satisfactory fit as shown in Figure 2.

7th


Figure 2. Full Structural Model Table 3 summarizes the test of hypotheses based on the results of structural model. All hypotheses are supported except the direct relationship between COSE and customer retention. The result shows that the relationship between COSE and customer retention is mediated through customer satisfaction and commitment. It is also interesting to note that customer satisfaction positively influence commitment which in turn will also positively influence customer retention. Table 3. Test of Hypotheses COSE COSE Customer Satisfaction COSE Customer Satisfaction Commitment

Relationship ---> Customer Satisfaction ---> Commitment

Estimate 0,410 0,385

St. Dev. 0,055 0,059

P 0,000 0,000

Hypotheses Supported Supported

--->

Commitment

0,383

0,061

0,000

Supported

--->

Customer Retention

0,037

0,048

0,517

Not supported

--->

Customer Retention

0,394

0,050

0,000

Supported

--->

Customer Retention

0,366

0,047

0,000

Supported

5. Conclusion This study has employed the concept of COSE (Hennig-Thurau, 2003) in the LSP industry. The results indicate that COSE directly impact customer satisfaction and commitment. The findings of this study are consistent with Hennigh-Thuray (2003). Developing and maintaining technical skills, social skills, motivation and decision making authority of service employees are crucial steps for LSP to achieving business success. While the customer retention is not directly impacted by COSE, its relationship is mediated through customer satisfaction and commitment. Customer service orientation skills must receive a larger attention when it comes to budget allocation for employee training. It would be interesting to see in the further research how COSE contribute to the logistics service quality.

7th


6. Reference: Aguezzoul, A. (2014) Third-party logistics selection problem: A literature review on criteria and methods, Omega, 49, pp. 69-78 Anderson, J. C. & Gerbing, D. W. (1988). Structural Equation Modeling in Practice: A Review and Recommended Two-Step Approach. Psychological Bulletin, Vol. 103, No. 3, pp. 411-423. Bobko, P., Roth, P.L., and Buster, M.A., 2007. The usefulness of unit weights in creating composite scores: a literature review, application to content validity, and metaanalysis. Organizational Research Methods, 10 (4), 689–709. Council of Supply Chain Management Professionals(2012). 23rd Annual State of Logistics Report - The Long and Winding Recovery (Vol. 23). Washington, D.C Dimitriades, Z.S (2006), Customer satisfaction, loyalty and commitment in service organizations: Some evidence from Greece, Management Research News, Vol. 29 Iss: 12, pp.782 – 800 Frost & Sullivan. (2014). Indonesia Logistics Industry: The Way Forward. (online). (http://supplychainindonesia.com/new/wpcontent/files/04._Indonesia_Logistics_Industry_The_Way_Forward_-Gopal_R.pdf accessed at 10 october 2015). Gopal, R. (2015). Frost & Sullivan Expects Indonesia’s Logistics Industry to Grow at 15.2% in 2015. (online). (http://ww2.frost.com/news/press-releases/frost-sullivanexpects-indonesias-logistics-industry-grow-152-2015/ retrived at 2 Oct 2015). Hennig-Thurau, T. & Thurau, C. (2003). Customer Orientation of Service Employees: Toward a Conceptual Framework of a Key Relationship Marketing Construct. Journal of Relationship Marketing, Vol. 2, No. 1/2, pp. 23-41. Rafiq, M., Jaafar, H. S. (2007) Measuring Customers' Perceptions of Logistics Service Quality Of 3pl Service, Journal of Business Logistics; 28 (2) pp 159 Sahay, B.S., Mohan, R. (2006). 3PL practices: an Indian perspective, International Journal of Physical Distribution & Logistics Management, Vol. 36 No. 9, pp. 666689  Saura, I.G., Francés, D.S., Contrí, G.B., Blasco, M.F (2008), Logistics service quality: a new way to loyalty, Industrial Management & Data Systems, 108 (5) pp. 650 - 668 Sohail, M.S., Sohal, A.S. (2003), The use of third party logistics services: a Malaysian perspective, Technovation, 23, pp. 401-408 Thai, V. V. 2013, ‘Logistics Service Quality: Conceptual Model and Empirical Evidence’, International Journal of Logistics: Research and Applications, Vol. 16, No. 2, pp. 114 - 131 Thurau, T. H. (2004). Customer Orientation of Service Employees: Its Impact on Customer Satisfaction, Commitment, and Retention. International Journal of Service Industry Management, Vol. 15, No. 5, pp. 460-478.

7th


Appendix. Mean, Standard Deviation, Factor Loading and Cronbach Alpha for measurements. Item Description Technical Skills (TS) The employees of this LSP have high level of knowledge The LSP’s employees are expert in their jobs The employees of this LSP are highly competence Social Skills (SS) The employees of this LSP have extensive social skills The employees of this LSP are able to consider their customers’ perspective.   The employees of this LSP know how to treat customers well Motivation (MO) The employees of this LSP have strong motivation to their job The employees of this LSP do their best to fulfill customers’ needs The employees of this LSP are always highly motivated Decision Making Authority (DM) The employees of this LSP are allowed to decide autonomously in customer matters The employees of this LSP have enough freedom in solving customer problem. The employees of this LSP do not need to ask their superior in handling customer request Customer Satisfaction (ST) I am fully satisfied with this LSP This LSP always fulfill my expectation So far, this LSP has never disappointed me My experiences with this LSP are excellent Customer Commitment (CO) We have emotional attachment with this LSP This LSP play significant role to our company We can easily identify this LSP Our relationship with this LSP is importance If this LSP no longer exist, it will significantly impact our company Our relationship with this LSP has significant meaning for our company Customer Retention (RE) In the future, we will use most of the services provided by this LSP In the next purchase of logistics services, we will buy the service provided by this SLP We are the loyal customer of this LSP This LSP is our first choice for logistics service providers

Mean

St. Dev

Factor Loading

Cronbach Alpha

5,81 5,44 5,49

1,07 1,01 1,06

0.77 0,72 0.84

0.818

5,31

1,06

5,42

1,21

0.82 0.96 0.92 0.89

5,62

1,15

5,49

1,07

5,47

1,22

5,60

1,13

4,30

1,87

4,89

1,51

4,04

1,97

5,56 5,27 5,41 5,56

0,96 1,18 1,24 0,95

0.75 0.82 0.79 0.81

4,99 5,26 5,27 5,42

1,28 1,24 1,15 1,22

5,11

1,45

0.73 0.87 0.86 0.83 0.64

5,32

1,21

5,64

0,94

5,63

1,00

5,79

1,02

5,70

1,03

0.91 0.88

0.93

0.93 0.93 0.69

0.88

0.94

0.864

0.907

0.83

0.91 0.92 0.864 0.69 0.82