The Opinion Page
News and comments about the issues facing today's SCM and Inventory Management professionals.
I recently heard a question from one of my colleagues regarding the proper way to compute variance. After a series of cycle counts and comparing his physical inventory count to the count value that showed on his "system" (i.e. the "Book" value), he was trying to arrive at a simple indicator, which we know as percent variance. He encountered a bit of a challenge. Here is his question:
What's the correct formula to calculate the percentage deviation in a stock count, for an individual item? I have seen 3 different formulas suggested: 1. (Book - Actual) / Book x 100% 2. (Actual - Book) / Book x 100% 3. (Actual - Book) / Actual x 100% However all these methods fail when the book or actual value is zero. Borrowing from a statistics text book's formula for variation, we could use: (Actual - Book) / (Actual + Book)/2 x 100% By dividing by the average, we avoid the problem of dividing by zero. But I've never seen this in an Inventory text book. Here was my response: When evaluating variance, I find that it is always useful to ask "what are we measuring, relative to what?". To draw an analogy, imagine that we are measuring sales volume growth this year relative to last year's sales volume. The appropriate formula to measure percent variance is (TY minus LY)/LY. It is NOT: (LY-TY)/TY, or (LY-TY)/LY. I think most would agree with my approach. Always, I think, if we want to measure X's variance relative to Y, then the appropriate formula (within the context that we are discussing) is (X-Y)/Y. Moving on to inventory variance...I now ask, what is X and what is Y? I would argue that X = actual inventory qty and Y = book inventory qty. So the appropriate formula is (Actual - Book) / Book. Why? Well, on an hour-to-hour, day-to-day, month-to-month basis, the "business" (in a broad sense) assumes that the book value is the correct value. Customer Service assumes this, Finance assumes this, and Operations assumes this, until there is compelling evidence (such as a cycle count) to trigger further investigation. The Book Value becomes the critical benchmark variable. If we perform an annual physical inventory, for example, and we find that the actual inventory is a higher value than the physical value, then (after appropriate investigation) we consider this to be positive variance (not a negative.) Further, the accountants will consider this a "gain" in the books: the book value of the inventory is written UP, not down. Conversely, if physical < book, then the business must write-down the financial impact and the variance is a negative (the worst of all worlds!). As such, while I might acknowledge that there may be some circumstances in which one might want to interchange the numerator and denominator of this equation, they ought not be considered interchangeable haphazardly. I would not recommend the "average" approach, as the true variance can, and will be understated...often significantly. To avoid the problem of a zero denominator, I would simply recommend creating an "if" statement - as in Excel - to identify those circumstances where the denominator is zero. One could build other conditions into the variance formula through "if" statements or otherwise to account for the product's value - if, for example, the absolute value of the variance is less than $x.00 or "y" units, then ignore the result.
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In a report released in August, 2011, research firm The Aberdeen Group of Boston, MA found that a formal process of Sales and Operations Planning was a key enabler in companies who were able to achieve best-in-class results in customer service levels, average cash conversion cycles, forecast accuracy at product family levels, and in gross margin rates realized.
Author Nari Viswanathan, Vice President / Principal Analyst, Supply Chain Management at Aberdeen discussed benchmarking survey findings that North American business face three predominant pressures: to reduce supply chain operating costs, to improve the management of increasing demand volatility, and to improve top line revenue. Firms surveyed also reported pressure from customer mandates for faster, more accurate and more unique fulfilment as well as a need for tighter integration between planning and execution. Managing demand forecasts within an S&OP framework, and integrating the financial planning and budgeting processes within the S&OP process were seen to address these pressures. Top performers – those earning best-in-class status – had an average cash conversion cycle of 46.4 days, a perfect order rate of 92.8%, experienced 75.3% forecast accuracy at a product family level, and enjoyed a gross profit margin rate of 43.5%. Put simply, Sales and Operations Planning (S&OP) is a business process that facilitates the balancing of supply and demand. Occurring over a monthly cycle, it is cross-functional, involving the participation of staff from various business units within a company, including Sales, Marketing, Production, Distribution, Finance, and Product Development. S&OP is meant to bring together all the plans for the business into one integrated set of plans. S&OP was first developed by Richard C. Ling in his pioneering work titled Orchestrating Success: Improve Control of the Business with Sales and Operations Planning (1988). Ling devised a process that would improve upon its predecessor, known as “Production Planning.” Production planning is a process that demands that Sales and Marketing devise a forecast and hand it off to Operations, who execute the plan through functions like Master Production Scheduling. S&OP, on the other hand, requires that the barriers between Operations, Sales, and Finance families be removed – that a single comprehensive plan is developed in a collaborative manner. Forecasts are articulated at aggregate (product family) levels, rather than at item levels of detail. Differences that frequently arise between various functional areas within the business are reconciled before the plan is set to execution. In other words, in a “Production Planning” environment, sales plans and operations plans are sequential; in the S&OP case, sales planning and operations planning occur jointly. While S&OP was initially targeted to improving business processes in manufacturing firms, the principles apply equally to any firm engaged in forecasting future needs: wholesalers, retailers, and service industries can all benefit from what S&OP has to offer. Thomas F. Wallace of Cincinnati, Ohio has worked feverishly to promote the benefits of S&OP since 1999. His book, Sales & Operations Planning: The How-To Handbook provides a concise and practical summary of the process. Wallace explains that the monthly S&OP process occurs essentially in five stages, with Steps 2, 3, and 4 being characterized as the “heavy lifting” activities:
I have been corresponding recently with a colleague who is striving to improve inventory management practices in his business. We had been discussing the importance of inventory record accuracy, which led us to two separate but related issues: stocks-outs and inventory turnover. Here was my friend's question:
So I've been tracking my inventory record accuracy (for the end of month counts and cycle counts) and my suppliers delivery accuracy % with the method you outlined. I was thinking about another one and wondered about your feedback. I think it would be worthwhile to track "Out of Stocks". For example, I'm out of [Product X] until Friday because I didn't keep enough inventory and my supplier short shipped me. I know I'm out of stock because our Shipping Manager sends a report anytime it happens - but nothing is ever tracked. Wouldn't it be worthwhile to track, by vendor, the # of times I ran out of stock on a sku every month and possible how long it lasted? If so, what is a common method to track it? Let me know if you have any ideas. It just got my brain stirring and I think it would fall nicely as a "Customer Service KPI" on my KPI Board. Here was my initial response: I have often used % Out-of-Stock as a KPI. Often, you can use this to communicate good news, as well as to identify area(s) that need improvement. (Sales guys are always complaining, "we ain't got nuttin' to sell." Well, if you whack them with a preponderance of evidence over time, they'll stop complaining and start selling.) I have usually taken the statistic one step further. I categorize the sku's A,B, and C using Pareto analysis. I also filter out any items that are in out-of-season or discontinued that might pollute the findings. It is usually easy to run a stock status report daily, and pull it into Excel - maybe using vlookup. Others might criticize this effort, saying that "service level" measurements or other indicators are better...fair comment, I guess, but out-of-stock stats are easy for others to understand. And it is a simple, easy to compute tool. I like the process of having your shipping manager flag stock-outs when they happen. I am not familiar enough with your processes to properly comment, but when I worked in wholesale, we would run any customer orders through a predisposition file before the orders hit the warehouse floor - if the computer system identified an item as "out-of-stock" the system would pull that line item order aside and hold it in the order bank. The order would never be released to the warehouse until the goods became available. So, the shipping manager would only be identifying errors in inventory record accuracy (i.e. the system thinks you have 10 on hand, but the order pickers could not find the product.) If this is the case with you, then you would need to run the stock status report to capture all of the stock-outs. I recommend that you publish the stats over time. Publish the stats daily, and you can even graph the results. Once you gather a few months of data, you can reveal some really cool trends. It is important to go beyond just reporting the stats - I know that you know this - to identify root causes. You could do a little brainstorming with a fishbone diagram to identify what the root causes might be - then tarcj the actual causes. You might be able to show that 90% of your stock-outs are caused by vendor compliance problems, and another 5% are caused by forecast error...bla bla bla... Hope this helps. Any more questions, give me a shout. To which my colleague responded: Looks good. Just to keep it simple (I can look into sorting by ABC etc once I get it all figured out) how do you measure % Out of Stock? For example. Let's say in October I only had 2 things run out of stock. [Product X] and [Product Y]. Out of the 40 items I order from that supplier, those 2 items were out of stock for 2 days once during the month. How do I measure that? Is that the right example? To which I responded: My view is that your total potential stock outs for a month is 40 items x (31 days minus 5 Saturdays minus 5 Sundays = 21 "working days") = 840. In other words, there are 840 potential working item-day combination where you could suffer a stock out in that month. Your daily % in stock for October 1 is (40-2)/40 = 95% You were stocked out for 2 days, so: Your daily % in stock for October 2 is (40-2)/40 = 95% Your month-to-date % in stock as at October 2 = (38+38)/(40+40) = 95% Assuming that you were back in stock on October 3 (obviously, your daily % in stock = 100%), Your month-to-date % in stock as at October 3 = (38+38+40)/(40+40+40) = 96.7% Your month-to-date % in stock as at October 4 = (38+38+40+40)/(40+40+40+40) = 97.5% and so on. At the end of the month, Your month-to-date % in stock as at October 31 = (838)/(840) = 99.8% As I mentioned, someone with a PhD in Statistics will poke holes in this approach as it fails to account for other issues such as sales missed, ability to recoup lost sales, service levels, and so forth. If, for example, you were running a very important and time-sensitive promotion on October 1st and you stocked out at that time, you should punch yourself in the face for making the mistake. The approach that I have shown is simple, but I think it is effective. Using this method, you can approach your boss with hand-on-heart and say, "Yes, our % in stock in October was not perfect, but it was pretty damn good - "world class," in fact - and when a mistake was made we identified it, found out what caused it, and recovered fast." One last hint - I like using "% in stock" rather than "% out-of-stock" as it tends to impart a more positive perspective on things. And I was pleased when my colleague responded: Ok - let me work on this for a bit and stew over it. I think I'll get back to you but it makes PERFECT sense. BTW - our shipping supervisor does this report based on what his people tell him. "Were out of this!". That's how I'll know. We can often get something down from our warehouse to fix it. So I need to setup something in Excel and track it daily by the sounds of it because I can't assume I'll be out of stock until the vendor arrives. Making KPI's too technical and running your business solely off "the numbers" is a poor mistake to make. "Profit is the inevitable conclusion of work well done", as Mr. Ford said - not metrics well done! I love this one. It's easy to understand and easy to improve on. I'll get back to you in a bit after I try getting it setup! Thanks, Our conversation later led to the topic of computing inventory turnover. More on that later. Cheers John My article as shown below was published in the November 2011 edition of Durham Business Times:
Realizing sustainable business practices continues to be a key objective amongst progressive retail business enterprises. What is it that drives leading companies to implement green practices? What results might a firm expect to achieve by following a sustainable path? Precisely what are industry leaders doing to achieve superior results? In June 2010, Industry Canada, in cooperation with Supply Chain & Logistics Canada (SCL) and the Retail Council of Canada (RCC) released a report titled “Green Supply Chain Management: Retail Chains and Consumer Product Goods – A Canadian Perspective.” The report reveals the findings from an exhaustive survey conducted by SCL of over 1,165 business entities, including Canadian retail chains, Consumer Product Goods (CPG) suppliers and so-called third-party providers of logistics and transportation services. A key finding in the report was that while contributing firms were virtually unanimous in their feeling that Green Supply Chain Management (GSCM) practices were strategically important, less than 60% of retail chains reported having GSCM practices already in place. Three important drivers emerge: the high cost of inbound/outbound transportation, high costs of energy and fuel, and the desire to achieve competitive advantage. Green initiatives are further motivated by executives who feel that a commitment to sustainability will enhance brand equity, create a positive image with customers, and satisfy new and emerging government regulations. Best-in-Class (BiC) companies cite numerous tangible business benefits arising from GSCM, including improvement in compliance and conformity to recycling and packaging regulations, reduced energy consumption, decreased waste, decreased packaging, improved customer retention, reduced distribution cost, greater distribution efficiency, and increased service differentiation. Training on green practices, investment in green initiatives in the community, joint process improvement initiatives with supply chain partners, establishment of third party green certification for major suppliers, purchasing renewable energy, adopting an internationally recognized reporting framework (performance on green metrics), and rewarding supplier practices are all listed as effective GSCM facilitators. BiC retail chains concentrate green efforts on activities within distribution centres: energy management control, employment of reusable/sustainable pallets, installation and maintenance of dock seals and canopies, paperless DC processes, motion detector lights, recycling of waste, optimized space utilization, and use of reusable/sustainable shipping platforms or containers are all common initiatives. Retail giant Walmart Canada has achieved tangible results through sustainability initiatives. In May 2011, Toronto-based trade group PAC-The Packaging Association held its fifth annual Packaging Sustainability Conference. Walmart Canada’s President and Chief Executive Officer, David Cheesewright, was a keynote speaker. While it seems that some businesses have not yet made the connection between sustainable practices and cost savings, it is certainly understood at Walmart. “For 49 years and from the word ‘go’, Walmart has always been about selling for less and saving people money,” commented Cheesewright. “To do that, you have to be passionate about reducing costs, about eliminating waste and about being efficient – many of the things we now call sustainability.” Walmart identified packaging as an important area of focus. Its Sustainable Packaging Scorecard tracks over 240,000 products. Greenhouse gases emitted per ton of production, material value, product/package ratio, cube utilization, transportation, recycled content, recovery value, renewable energy, and innovation are detailed for each item. Collaboration is critical. “When it comes to sustainability,” said Cheesewright, “we’ll even work with our competitors. We’ll share everything we have with anybody. If we work together on sustainability, and work on it across boundaries in a way that perhaps we haven’t done in the past, we can make progress at a rate that I don’t think the industry has seen before.” Walmart’s Director of Sustainability, Jeff Rice, pointed out that for a large majority of companies with whom the retailer works, most of their environmental impact can be found in their supply chain. “In fact, we found that for 50 percent of companies, 90 per cent of their environmental impact occurs either in their supply chain or in their downstream value chain – in the way that their customers use and dispose of their products,” said Rice. “This underscores the importance of collaboration.” To support broad sustainability, Walmart uses a Life-Cycle Assessment (LCA) measurement system for new packaging, meant to measure true cradle-to-grave cumulative carbon footprint impact. “Don’t just say this is too hard to do,” said Cheesewright, because there are a lot of things that seem ‘too hard to do’ that can get done – with the right creativity. Further to my comment on October 20, 2011 titled "The Cost of Poor Management", please read the article at the following link:
http://finance.sympatico.ca/home/contentposting_reuters/steve_jobs_bio_says_apple_ceo_abhorred_corrupt_execs/32b6e2d7 I have pasted the entire article here, for your amusement. CBC News The late Apple CEO Steve Jobs - in an upcoming authorized biography - calls the crop of executives brought in to run Apple after his ouster in 1985 "corrupt people" with "corrupt values" who cared only about making money. Jobs was often bullied in school and stopped going to church at age 13, according to Steve Jobs, by Walter Isaacson, which will be published Monday by Simon & Schuster. The Associated Press purchased a copy Thursday. Advance sales of the biography have topped bestseller lists since Jobs died Oct. 5 after a long battle with cancer at age 56. According to the book, Jobs never went back to church after he saw a photo of starving children on the cover of Life Magazine. Later, he spent years studying Zen Buddhism. As a teenager, he exhibited some odd behaviours - he began to try various diets, eating just fruits and vegetables for a time, and perfected staring at others without blinking. Apple named after 'fruitarian' diet phase Later, on the naming of Apple, Jobs told Isaacson he was "on one of my fruitarian diets." He'd just come back from an apple orchard, and he thought the name sounded "fun, spirited and not intimidating." Jobs reveals in the book that he didn't want to go to college, and the only school he applied to was costly private college Reed in Portland, Ore. Once accepted, his parents tried to talk him out of attending Reed, but he told them he wouldn't go to college at all if they didn't let him go there. Though he ended up attending, Jobs dropped out of the school after less than a year and never went back. His pre-Apple job as a technician at Atari paid $5 per hour. He saw a classified ad in the San Jose Mercury News, went to visit the company and informed them he wouldn't leave unless they hired him. Jobs's eye for simple, clean design was evident from early on. The case of the Apple II computer had originally included a Plexiglas cover, metal straps and a roll-top door. Jobs, though, wanted something elegant that would make Apple stand out. Computer case inspired by kitchenware He told Isaacson he was struck by Cuisinart food processors while browsing at a department store and decided he wanted a case made of moulded plastic. He called Jonathan Ive, Apple's design chief, his "spiritual partner" at Apple. He told Isaacson that Ive had "more operation power" at Apple than anyone besides Jobs himself - that there was no one at the company who could tell Ive what to do. That, says Jobs, is "the way I set it up." Jobs was never a typical CEO. Apple's first president, Mike Scott, was hired mainly to manage Jobs, then 22. One of his first projects: getting Jobs to bathe more often. It didn't really work. Jobs's dabbling in LSD and other aspects of 1960s counterculture has been well documented. In the book, Jobs says LSD "reinforced my sense of what was important - creating great things instead of making money, putting things back into the stream of history and of human consciousness as much as I could." In the early 1990s, after Jobs was ousted from Apple, he watched the company's gradual decline from afar. He was angered by the new crop of people brought in to run Apple, and he called them "corrupt." Dream to get the Beatles on iTunes He told Issacson they cared only about making money "for themselves mainly, and also for Apple - rather than making great products." He also revealed that the Beatles is one of his favourite bands, and one of his wishes was to get the band on iTunes before he died. He got them available for sale on iTunes in late 2010. Until then, the biggest-selling, most influential group in rock history had been glaringly absent from iTunes and other legal online music services. The book was originally called "iSteve" and scheduled to come out in March 2012. The release date was moved up to November, then, after Jobs's death, to this coming Monday. Isaacson interviewed Jobs more than 40 times, including just a few weeks before his death. The book says Jobs put no subject off limits and had no control over its contents. Achieving great customer service is the concern of every progressive supplier.
Firms involved in manufacturing, wholesale, and other similar commercial activities encounter customer service challenges that are distinct from those one might find in business-to-consumer relationships. Ultimately it is the consumer that drives demand up through the chain, although complex sets of linkages exist within B2B commercial markets that impair realization of great customer service. In their June 2011 benchmarking report titled “Demand Management,” the Aberdeen Group (Boston) identified key criteria that distinguish Best-in-Class from Industry Average and Laggard organizations. Among the metrics was “Perfect orders delivered to customers (complete and on time),” with best-in-class meeting or exceeding a 94.6% success rate. Leading organizations share several common characteristics. They are two times as likely as other firms to measure lead time from inquiry to order, twice as likely as laggards to include promotions and other demand shaping activities into demand forecasts, and twice as likely as laggards to be able to segment demand forecasts based on key product and customer characteristics. Fundamentally, business customers such as wholesalers and retailers want to have their purchase orders delivered on time, in full, and defect-free. How might the caring enterprise work to improve its service performance? Right People, Right Place: William Blake said that “execution is the chariot of genius.” Properly align your business with your customers by assembling a team whereby employees’ skills are matched to the requirements of the job. This is particularly important in the supply chain. For example, order input accuracy – improved by web-enabled customer-supplier interfaces and EDI (electronic data interchange) – is essential. Customer Collaboration: Effective communication between supplier and customer is critical. Understand how the customer determines value. Service attributes such as speed of delivery, order accuracy, selection, packaging, security, or appearance may rank differently in the eyes of the customer. Craft an unambiguous service level contract with customers, detailing mutual expectations. Document agreeable order lead times, planning time fences, appropriate communication channels, parameters that define exceptional demand from normal fluctuations, applicable quality standards, prices, and payment terms. Develop forecasts of future demand cooperatively, across time frames that are realistic, relevant and promote realization of excellent service levels. Proactively manage orders that are at risk. Analyze customer backorder files daily, allocate inventory fairly, and disseminate future availability information efficiently. Inventory Management: Having the right product in the right place at the right time in the right quantities facilitates great customer service. Inventory management must support sales while balancing tactical investment against financial constraints and physical distribution realities. Costs of stocking out can be great, and the cost of losing a major customer catastrophic. Close the loop between supply and demand. Effective enablers include the establishment of a formalized Sales and Operations Planning (S&OP) process. S&OP reconciles supply, demand and new product plans, tying them to the business plan. Key stakeholders such as marketing, sales, manufacturing, procurement, and finance work collaboratively to produce of one integrated set of plans. Balanced Scorecard: The “balanced scorecard” has grown from a simple performance measurement framework to a full strategic planning and management system. The firm becomes viewed from four different perspectives: customers, learning and growth, financial, and internal business processes, with a set of metrics developed for each within a matrix. The importance of customer satisfaction is acknowledged. Inventory Control: Lack of inventory control inhibits great service. Control implies excellent inventory record accuracy, visibility, and saleability. Customer service operatives need to be confident that availability data is accurate, in “real time,” in order to make realistic order promises. One process enabler called “cycle counting” demands that variances between physical counts and inventory records are analyzed daily, root causes of variances are identified, and process gaps are repaired. Periodic “batch processing” of sales and operations transactions is now considered to be a substandard process, as inherent delays and inaccuracies are intolerable. Risk Management Best in class customer service providers will have well-articulated plans in place to mitigate risk in the event of natural disasters, health pandemics, political upheaval or economic disruption to ensure continued supply of critical parts to valued customers. Project Management: Seasonality can have profound impact on product demand, and focus on time lines becomes intensified. Project management skills are exceedingly beneficial in securing supply for goods that are linked to specific seasonal events or where demand varies with weather conditions. Establish appropriate milestones and monitor progress with vigilance. The following is a sidebar to my previous post about C/S, published in the September 2011 edition of Durham Business Times.
Seven Best Practices in Customer Service: Use the Strategic Plan Great service starts with the vision, and is driven throughout the firm via the mission, the statement of core values, and the strategic objectives. Simplify Replace hundreds of weekly reports, emails, directives, and advisories with a single balanced weekly scorecard. Marvin Ellis, Executive Vice President at Home Depot US contends: “reports don’t buy hardware; customers do, so I want our associates focused on customers.” Focus Make the consumer a priority. Customer-facing retail store employees should focus on three top fundamentals: merchandise in stock, store appearance, and serving customers. Treat customers as friends and guests. Invite them into your home. Work Force Management In their June 2010 benchmarking report, the Aberdeen Research Group found that Best-in-Class retailers adopt formalized Workforce Management (WFM) techniques to drive the notion of customer centricity throughout the enterprise, increase staff productivity, centralize task management, and decrease overall labour costs. Measure Develop appropriate metrics to track improvement over time, results relative to plan, and results relative to Best-in-Class performers. Performance indicators might include percent in stock, percent positive feedback, complaints registered by category, or sales improvement. Customer feedback can be directed into aspects which might include store ambience, issue resolution, friendliness, ease of communication, or product knowledge. Help customers complain Each complaint is a learning opportunity. Ensure complaints are promptly recorded and categorized for root cause analysis. Open friendly lines of communication via telephone, a web site, or in person. Acknowledge complaints quickly. A customer who is frustrated when trying to lodge a complaint may be lost forever. Customers might not always be right, but they always deserve a response. Have a recovery plan Mistakes happen. Design and articulate a plan to recover. Retaining customers is critical, and turning a disgruntled one into happy one can accelerate sales. Act with the highest sense of urgency when the system fails. Understand the problem, and ask the customer what can be done to make the situation right. My submission, as follows, was published in the September 2011 edition of the Durham Business Times, for your enjoyment!
The challenge of customer service is as old as trade itself. With thousands of years to perfect it, it might be a mystery why many suppliers appear to ignore it, take it for granted, or otherwise allow service quality to atrophy to levels that threaten their viability. How can a business enterprise begin to improve its service quality from being merely adequate to being truly great? Businesses often struggle to find balance between conflicting objectives. Delivering higher service levels to customers might involve greater investment in inventories, systems, staff, or merchandising which in turn may dampen short-term financial performance. Cultivating soft service skills may distract the business from other pressing concerns. No single objective can be pursued in isolation, and total resources available are always finite. The business-to-consumer commercial environment, where the customer and end-user are effectively synonymous, poses challenges that differ somewhat from those in a business-to-business context. With thousands of customers - rather than dozens in B2B - understanding the Voice of the Customer and developing performance metrics can be tricky. Consumer advocacy enjoyed its renaissance in the late 1960’s and 1970’s largely due to the efforts of Ralph Nader (Unsafe at Any Speed, 1965) and his “Raiders”. Pressure on firms to deliver products and services of acceptable quality continued with heightened levels of competition, technological advances, business process improvements, Total Quality Management, and economic globalization. Further, the internet and social networking has allowed the Voice of the Customer to boom like thunder through cyberspace. Service industries must pay attention. CustomerServiceScoreboard.com is a web-based service that invites customer feedback for over 430 companies in a variety of industries. In overall customer service ratings, only 32 companies out of the 436 companies rated currently rank as acceptable or better. This is only 7%! Author and small business advisor Alice Bredin commented recently in Bloomberg Businessweek that recent surveys of 12,000 consumers around the globe revealed that while over 60 percent of US respondents ranked great customer service as important, “a majority of Americans feel companies either haven't changed their attitude toward customer service or are paying even less attention [than in the past]. Just 37 percent [of people surveyed] believe companies have increased their focus on providing quality service in the current economy”. She added that “business owners, despite their best intentions, don't always know what it is that will most satisfy their customers. They might think it's price, when really it's personalized service, like customers being able to quickly find what they need in the store. I think a second reason is that business owners haven't put in place the systems and processes to ensure that they can provide ongoing service easily. Business owners in these challenging economic times are working more hours and having to lay people off. They're not as focused on things like service.” Improving customer service starts with leadership. Whatever the catalyst, change must be championed by senior management. Through its vision, statement of core values, and strategic objectives, ownership and management must infuse the passion for service into the company’s culture. Leaders must then construct a customer service framework, along with the impetus and tools to drive the service culture forward. Management must actively engage in the process, leading by example. Great service companies develop a structure that supports informed decision-making. There's no excuse now for not knowing what your customers are thinking about you. Web-enabled customer feedback tools, such as SuggestionBox or IdeaScale, are examples of how current technologies can help. Services such as Google Alerts or TweetBeep will alert you when someone online is mentioning your company. Encourage satisfied customers to share their experiences with friends or on sites like Angie's List or Yelp. Renewing a service culture requires placing the right people in the right place. Hire people who will serve customers as if their lives depend upon it. Renewal is fostered by a belief in the capacity of people to rise to new heights, to care about excellence, and to become role models and teachers. Great service demands integrity in keeping the service promise: a commitment to fair play, and doing the right thing – even when no one is looking. Let’s face it: delivering great service is a lot more fun than being simply average. It is dull and mundane work that deadens the workplace. It is through a culture of achievement that work becomes truly rewarding. JDS We had a discussion on Linkedin recently on the topic of why the average average employee tenure with North American companies these days is 2.5 years. There appears to be little or no loyalty on either side of the employee/employer relationship. Today, I was reminded of a classic Country and Western song that might shed some light on the subject. (Tompall Glaser lyrics):
Put another log on the fire. Cook me up some bacon and some beans. And go out to the car and change the tyre. Wash my socks and sew my old blue jeans. Come on, baby, you can fill my pipe, And then go fetch my slippers. And boil me up another pot of tea. Then put another log on the fire, babe, And come and tell me why you're leaving me. Now don't I let you wash the car on Sunday? Don't I warn you when you're gettin fat? Ain't I a-gonna take you fishin' with me someday? Well, a man can't love a woman more than that. Ain't I always nice to your kid sister? Don't I take her driving every night? So, sit here at my feet 'cos I like you when you're sweet, And you know it ain't feminine to fight. So, put another log on the fire. Cook me up some bacon and some beans. Go out to the car and lift it up and change the tyre. Wash my socks and sew my old blue jeans. Come on, baby, you can fill my pipe, And then go fetch my slippers. And boil me up another pot of tea. Then put another log on the fire, babe, And come and tell me why you're leaving me. In other words, treat employees like human beings, ethically, and with respect. If you don't, you get what you deserve. A colleague of mine put it very succinctly: "employees don't leave jobs....they leave bosses." How true. JDS Recently, one of my colleagues on Linkedin posed the following question:
Do customers know what they really want? One of the beautiful things about a free enterprise system is that an appropriate value becomes associated with a product or service, along with its features and benefits, over time. This is how consumers express their needs and wants, even if it is subconscious. Customers frequently know what they want in a well-established marketplace. But when new markets, products, services and features arise, consumers might not be aware of their wants and needs. Price becomes a mechanism to articulate those wants. If features and benefits are "free", consumers will often overstate their needs and wants, and overconsume (witness, for example, the environmental issues that we confront every day - or indeed the vagaries of the Canadian Health Care system), So, if a price is set on a particular product, feature or benefit, the customer becomes obliged to make a decision and evaluate that product in terms of its value: does this product meet or surpass my needs or wants given that I have to part with some of my hard-earned cash to obtain it? An adjunct to this occurs when marketing comes into play: through advertising or other forms of promotion or endorsement, demand is actually created (marketers will deny to outsiders that demand can be created, but it can be). Consumers had no idea that they actually wanted or needed a product until the Paris Hiltons of the world told them that they need it. If the marketing effort is compelling enough, the need-want cycle starts to spin and a high price can be set. Would teenagers collapse 'en masse' in the streets if we confiscated their cell phones? Some behave as if they will. But thirty years ago, the human race was quite happy to do without. So, my answer to your great question, is an unambiguous "yes, and no." And in that lies one of the great beauties and wonderful challenges of life in a free market system! |
AuthorJohn Skelton is the Principal Consultant and founder of Strategic Inventory Management. Archives
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