An examination of the cost of service in the motor carrier industry

Shippers demand constantly improving service levels from their carriers in order to minimize increases to shipment lead times and safety stock levels caused by late shipments and damage to shipments while in transit. That is to say there is a fairly clear understanding of the relationship between cost and quality to the shipper, yet little or no prior empirical research has been conducted to understand the relationship between cost and quality to the motor carrier. In regards to a general relationship between cost and quality, there are two opposing viewpoints. The traditional view is that quality is costly and that the cost of quality increases at an increasing rate as service quality increases. However, the "Quality is Free" view maintains that higher quality can actually be realized at a reduced cost by "doing it right the first time" (Crosby 1979). This study incorporates both of these viewpoints into an examination of the cost of service quality in the motor carrier industry.This study theorizes that service quality is a two dimensional construct that is defined as the adherence to measurable standards that result in the superiority of service. The two dimensions are physical/capacity and human performance. The physical/capacity dimension represents aspects of service quality that can be improved by investing in equipment (e.g. number of tractors or more rigorous maintenance schedule) or other areas. The human performance dimension represents aspects of service quality that can be improved by having employees who are well trained and motivated to provide higher quality service. This study proposes that the physical/capacity dimension of service can be described using the traditional view that quality is costly, and the human performance dimension can be described using the view that "Quality is Free." Specifically, this study proposes that costs associated with the physical/capacity dimension of quality increase as service quality increases while costs associated with the human performance dimension decrease or remain constant. To improve the physical/capacity dimension of quality, a company would need to invest in capital, and to improve the human performance dimension of quality, a company would need to invest in training or incentive programs.The results of the statistical analysis support the proposals of this study. There is a positive relationship between operating costs and the physical/capacity dimension of quality. If a company invests in additional capital to improve their service quality, costs should increase. This is consistent with the traditional view of the cost of quality. There is also a negative relationship between operating costs and the human performance dimension of quality. If employees do their job right the first time, there will be no need to correct mistakes, and costs should decrease. This is consistent with the "Quality is Free" view of the cost of quality.This study further verifies the two dimensional model of service, first proposed by Sen (1998), that incorporates two differing theories as to the cost of quality. This serves to strengthen the theories related to quality, specifically service quality. The managerial implications are to provide managers a better understanding of the cost of quality and another tool that can be used to effectively and efficiently manage quality. The results of this study will also help with the development of cost benefit analyses of potential quality improvement initiatives.