Measure your performance to meet or exceed customers’ expectations.



The primary focus of your company’s operations should be on having uniformly excellent customer service. We define customer service as “doing what you say you will do.” This involves setting customer expectations and then delivering on them.

For the purposes of this article we will consider “customer service” to include all business activities involved with satisfying a customer after he has decided to place an order. These activities are traditionally described as order entry, order processing, fulfillment, warehousing, logistics, customer service, invoicing, etc.

Improving and maintaining good customer service is not an exciting endeavor. It involves detailed study and steadfast execution rather than temporary brilliance or inspiration. Therefore, customer service improvement is fundamentally an effort of continuous improvement. You must develop a basic competency in process improvement to attain and sustain high levels of customer service.



Measuring PERFORMANCE

The first step in any improvement project is to measure current performance. Studies have shown that the mere act of measuring performance can increase efficiency by more than 20% even in the absence of any follow-up activity (Hawthorne Effect). By replacing opinions with facts, you clarify priorities and drastically reduce the amount of management time spent debating alternatives. Without some metric for your current performance it’s difficult to determine where you should focus your improvement methods. Finally, if you don’t measure performance over time, you can’t be sure whether your actions are really making things better.

Yet, despite all these seemingly obvious truths, many small- and medium-sized distributors fail to adequately measure basic operational performance. Most companies have reams of data but very little real information. The challenge in performance, measurement is usually not collecting enough data but in ensuring that the resulting metrics are simple, clear and accurate. It’s often much harder to get a single value for, say, inventory performance, than to have 10 pages of statistics.



The Management “DASHBOARD”

When you’re driving in a car, your passengers rarely argue about how fast you’re moving or how much gas is left. This important information is communicated to everyone by a set of simple and accurate gauges on the dashboard. You should have an equally simple set of measurements for your company’s operations. See the chart on this page for some typical “dashboard” values that you should consider for measuring performance. These metrics should be communicated monthly to everyone in your company. You will need detailed measurements within specific departments, but you should try to limit the number of these broadcasted measurements to three or four detailing the “big picture.”

“Dashboard” Metric / Used For

Order fill rate / Overall customer service level, inventory management performance, warehouse and shipping performance

Order cycle time / Order processing, warehouse and shipping performance

Shipping accuracy / Order processing and warehouse performance

Reasons for customer returns / Overall customer service, vendor performance, order processing, warehouse and shipping performance

Physical inventory accuracy / Warehouse and inventory management performance

Inventory turns / Inventory management performance

Sales lost to stock outs / Inventory management performance

Receipt discrepancies / Purchasing and vendor performance
E-mail rick@ceostrategist.com for additional information on the metrics shown.



Customer SATISFACTION Surveys

Ultimately, only your customers can tell you what your true level of customer satisfaction is. Properly designed and executed customer satisfaction surveys are therefore critical in guiding your operational improvement efforts. However, customer surveys suffer from two key limitations:

  • Frequency. Realistically, you can only conduct comprehensive surveys annually. Aside from the cost of collecting the information, your customers will typically balk at more frequent requests. However, operational problems can easily surface in much less time.

     

  • Causality. Customers’ responses may not be sufficient to point you toward the specific deficiency within your company. For example, are their complaints about late shipments due to poor inventory management or slow warehouse response?

    For these reasons, you should augment regular customer satisfaction surveys with basic operational metrics. E-mail rick@ceostrategist.com for a sample customer survey.



  • IDENTIFYING Core Problems

    The general information you get from the management “dashboard” and customer surveys may identify a specific issue within your organization. More commonly, though, these tools will point you to an area of concern in which you must perform additional investigation. If practical, create a more focused set of “dashboard” type measurements for the area of concern.

    It is strongly recommended that you create a detailed, documented process flow of what really happens in this area. This requires “walking through” the actual processes and asking a lot of questions. It’s common for direct managers to have an idea about how a process should work without really understanding how it actually works. Often, a clear description of the real process makes the problem (or solution) almost obvious.

    When you identify a bottleneck, try to trace back from it to find the underlying or “core” problem. This simple technique helps you avoid treating symptoms instead of causes. For example, slow payments by your customers may be traced to invoicing errors, which in turn may be caused by incorrect pricing when the order is taken, which, finally, is the result of poor pricing guidelines.

    Often, the most fundamental cause of an operational problem involves organizational or emotional barriers rather than technical or procedural ones. It may be helpful to use consultants or others outside your organization in the search for root causes. They will probably be less familiar with your business processes than internal managers, but their “fresh eyes” may save you time and frustration.



    Executing IMPROVEMENTS

    Prioritizing Improvements: After you’ve identified a set of candidates for improvement, it is tempting to attack many of them at once. However, experience shows that attempting to address more than a few major problem areas at the same time can be ineffective and even counterproductive. Most organizations don’t have extra staff just waiting around for more work, especially the very talented people that you need to tackle a new initiative. This means that any new initiative will detract from your day-to-day business or other concurrent initiatives. Finally, companies often find that, after correcting primary problems, the secondary problems are completely different from those identified in the original analysis.

    Designing Solutions: There are a variety of sound methods for designing solutions to operational problems. As stated earlier, the single most important element of solution design is to clearly define the underlying problem. It usually helps to state the problem or issue in a single sentence so that your entire project team has the same level of clarity on the issue. Three of the most useful methods are: brainstorming, best practices and streamlining principles.

    Brainstorming is a way of leveraging the creativity of a team to get better ideas. It is most powerful when the following guidelines are followed:

  • Use a knowledgeable facilitator who is not directly involved in the process being discussed.

     

  • Create a list of different considerations or aspects of the problem to stimulate thinking.

     

  • Allow no criticism (even mild or joking) of any input. There are no bad ideas.

     

  • Let ideas build on each other - this is the power of the team participation.

     

  • Take a short break after the idea generation session before proceeding with qualifying the ideas. But be sure to qualify ideas during the same meeting into those that are clearly ineffective or undesirable, those that are clearly effective and desirable, and those that require further investigation.


  • Simply stated, “best practices” are business operations that are commonly used by financially successful companies. The identification and study of best practices is now widespread and has contributed to significant operational improvements in many industries. This powerful tool originated from a simple, almost obvious premise: At some level, most business organizations do the same things.

    Therefore, by examining those organizations that do these common processes extremely well, we can quickly find ways to improve our own business. Significantly, best practices offer a way to learn from any organization in any industry, provided that both organizations share a “common process.” Here are some guidelines to using best practices effectively:

  • Remember that they are only correlated with good performance - be sure to use them as ideas for solutions rather than relying on them to fix problems that are specific to your company.

     

  • Good sources for best practices include the industry press, trade associations, peers in other markets, information from suppliers and customers and general business literature.

     

  • Never blindly adopt a practice, even from a direct competitor, until you know exactly how it will work in your organization.

    Finally, the principles of streamlining (process reengineering) can often help you discover process improvements. Streamlining refers to the act of removing steps and time from business processes. Because time usually equates to money, streamlining can often lead to significant bottom-line improvements. The following summarizes these principles:

     

  • Document the way the process really happens, not the way it should happen.

     

  • Evaluate every step in a process to see if it is really necessary.

     

  • Avoid unnecessary hand-offs between people. This is typically a large source of error.

     

  • When in doubt, choose error reduction over speed. It is estimated that more than 25% of the labor cost in the distribution industry is involved in correcting errors.

     

  • Attempt to do steps in parallel (at the same time) rather than sequentially.

     

  • Reduce variability processing time - even if all steps have the same average processing time, variability will always reduce overall throughput.

    Executive level management must understand the changing role and importance of customer service operations to achieve the core mission of the business, i.e., customer retention, acquisition, satisfaction and profitability.

    When managers do not envision the relationship between management practices and front-line actions, the business is not focused on meeting today’s customer demands for service excellence. Further, management cannot take appropriate steps to support and train personnel when they do not understand the need for the right support and training; thus, core measures of business success can suffer.