Clearly Define Customer Service

 

Is your inventory balanced?

Unfortunately most companies do not have a balanced inventory.  They either have too much of a SKU or not enough.  This imbalance can cause customer complaints, lost sales, and higher operating costs.

If you recall from previous Articles, a buyer made the major mistake of overbuying a large amount of computer cables from the supplier. An initial forecast started at 100,000, quickly moved to 600,000, then dropped to 200,000. We all know that forecasts ebb and flow. So what’s the problem? The main problem is that the 10 Principles were not followed:

The 10 Principles are:

  1. Get the Left & Right Hand Working Together -
  2. Clearly Define Customer Service (This Article)
  3. Tighten Your PLM Practices
  4. Know Your Products
  5. Look Forward, Not Backward
  6. Get Your Lead Times Right
  7. Manage Your Partners, Don't Let Them Manage You
  8. Manage By Exceptions
  9. Use Integrated Metrics to Drive Improvement
  10. Conduct Periodic Tune Ups

In this article, we explore Principle 2, Clearly Define Customer Service, and how that Principle directly applies to this case study and what it can mean to you.

In our case study, the Buyer set the SKU up as a new SKU but didn’t have a review plan. As we know, new SKUs are highly volatile and here the buyer set a reorder plan based on an unmanaged forecast.

Some creative, yet practical solutions for this problem are:

Establish Customer Service Targets

Establishing formal customer service levels are important for all companies. The best companies use it as a mechanism to communicate throughout the organization what the standards are so that everyone has a common understanding and works to a common goal. Poorly run companies don’t have formal policies or worse have formal policies but don’t adhere to them.

Customer service level policies can provide a competitive advantage if they are managed properly and if they are affordable. Next day delivery as an example may look good on paper but may not be practical logistically and it may not be something the customer even wants. For instance, if something has to be delivered to a customer, convenience trumps speed in many cases. The opposite may be true for something needed in an epidemic situation.

In our case study, the Buyer took the “set it and forget it” policy where he should have been carefully watching the performance of this cable. There is considerable volatility when new SKUs are added as we discussed in the previous article. Trends can quickly change and be very inaccurate.

Don’t Treat Everything the Same

Customer service level targets can be done at many levels for many reasons. For example, you can establish levels by company, product line, channel, specific customer, or SKU. The best companies have a multi-faceted customer service plan so they can consider their top customers and their top SKUs.

Think about key customers that you need to treat with a higher degree of customer service. You may decide this based on contractual agreements that are tied to order fill rates or in stock positions. You may want a higher customer service target for new customers. Certain channels can be managed differently. As an example, in retail it is easier to trade a customer to a different item but an online order has a higher criticality. Therefore, you may choose to fulfill online orders before retail orders.

In our case study, the new cable should have been ranked as an “A” SKU so that it was reviewed frequently. That would have caught the change in sales trend and allowed the Buyer to adjust what was being purchased. After, let’s say a 3 month period that SKU could be re-classified and assigned a classification value appropriate to its adjusted sales trend.

An effective way to ensure you are clearly defining customer service levels is to make it part of your PLM process so that before any new customer is set up in your ERP system, you establish what the policy for that customer is moving forward. The policy can then be validated with your customer and put into place internally.

Assess the Corporate Customer Service Level Targets Periodically

 Situations change and so should your customer service level targets. Reassessing your customer service strategy at least once a year will help you determine inventory investment and space needs.

Let’s say you want to increase your customer service level targets for all you’re “A” SKUs and for 2 new customers. You can simulate how much inventory you will need and how much space you will need. Doing this will ensure that you know exactly what is expected and that the CFO understands the implications on required inventory.

Another key reason to periodically validate your customer service strategy is based on your competition. Your competitors are looking for ways to get more customers and so should you.  As an example, some retailers were slow to adopt a free delivery policy (over a certain dollar purchase threshold) and online retailers took market share from them because that was part of their customer service strategy.

As you can see from this article, there can be many overlaps between the 10 Principles and how they can impact one another. Clearly defining customer service is impacted by or impacts:

  • Tighten Your PLM Practices
  • Know Your Products
  • Manage Your Partners, Don't Let Them Manage You

We will discuss those impacts and identify the overlaps in each article.

If you are interested in achieving a balanced inventory, we offer a No-Charge Starter Stage.  During this Stage, we will help you assess your current inventory management practices, develop a preliminary business case, and start working your Balanced Inventory Blueprint.

If you have not read the previous articles, they can be found at www.supplychainsystems.com/biparticles

In 2 weeks, we will address Principle 3 – Tighten Your PLM Practices.

For more information, contact us at info@supplychainsystems.com or information call 905.454.8529.

 

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