The Opinion Page
News and comments about the issues facing today's SCM and Inventory Management professionals.
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.
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.
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.
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.
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.
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.
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.
John Skelton is the Principal Consultant and founder of Strategic Inventory Management.