Executive Briefings

The Perfect Order Isn't So Perfect

Evidently the concept of the perfect order isn't quite perfect enough.

Experts have been telling us for years that the so-called perfect order is the highest goal that a supply chain can attain. Boiled down to the basics, it's a simple concept: an order that is shipped complete, on time, damage-free, to the correct destination.

That's a tough enough task for companies to achieve on a consistent basis. But if Procter & Gamble is right - and this $82.6bn consumer-products giant had better know what it's doing - then the "perfect" order is woefully inadequate as a measure of supply-chain success.

It would have been nice if the creators of a better metric had come up with a phrase as snappy as "the perfect order." The best they could do, apparently, was the acronym SAMBC, which stands for Service As Measured By the Customer. However clunky the name may be, it describes a practice that's far more rigorous than any previous framework for scoring supply-chain performance.

For P&G, the perfect-order metric just wasn't getting the job done. "Our view on service had been very internally focused," said Deirdre White, who as associate director of customer service oversees the company's SAMBC process. "We lost a lot of opportunity to create value for our customers and ourselves."

White was joined by Dale S. Rogers, professor of logistics and supply chain management at Rutgers Business School, in a discussion of SAMBC at the annual conference of the Council of Supply Chain Management Professionals in Philadelphia. Rogers pointed out while the perfect order might offer the advantage of simplicity, it's ill-equipped to deal with the complexities of most global supply chains today. The trend toward outsourcing has created a network of independent partners, each of whom plays a critical role in getting a shipment to its destination. By limiting its performance assessment to what goes on within its own plant or distribution center, a company like P&G fails to get the big picture. What looks like a smooth-running operation could easily be considered a failure by the end customer.

Think about all the elements that go into that supposedly simple "perfect order." It starts with order planning, sales forecasting and capacity planning. Then it moves into a series of execution-based processes related to the specific order: generation, cost estimation and pricing, receipt and entry, selection and prioritization, scheduling, fulfillment, billing, receipt of payment, handling of returns and claims, and post-sales service. A high score in one of those areas isn't enough. "If you don't view the whole thing, you can mess up," said Rogers. "You dramatically hurt your relationship with the customer."

Because multiple partners are involved, the actual scoring has to be a joint effort. White cited the example of a 100-case shipment that's five cases short because of space constraints. The supplier puts the missing cases on the next shipment, and considers itself to have fulfilled the order. The customer thinks otherwise. But it's the latter's opinion that really counts. An unhappy buyer means lost sales down the road. Hence the idea of gearing performance to the customer's metrics, not your own.

Collaboration between supplier and buyer is essential to ensuring that both parties are on the same page. In addition, the shipper must be working closely with every logistics partner that touches the shipment on its journey. Additional keys to success, according to White, include an early-warning system for detecting glitches in the process, and a single point of contact for developing action plans geared to each customer.

That last point is especially important. There's no one-size-fits-all solution in an SAMBC process. Each customer has its unique set of metrics and priorities. The supplier must adjust its own to meet them. (At least, I would imagine, for those customers who generate a certain level of business. Suppliers need to prioritize their customers and treat them accordingly - an approach that many companies are loath to take, for fear of losing any business at all in a period of stagnant demand. But tough decisions need to be made even in the worst of times.)

Customers, too, must be brought to account for their role in the success or failure of a supply chain. White spoke of one instance where P&G and its customer disagreed about what constituted an on-time shipment. From P&G's standpoint, the order was going out as scheduled, and being delivered within the appointed time. But the buyer wasn't entering the item into its system until it was formerly received at the distribution center. Closer collaboration between P&G and the customer made it possible to settle on a single metric and determine accountability for failing to meet it.

The early stages of an SAMBC effort can reveal some unpleasant surprises. With one customer, P&G came to realize that it had "missed expectations for several years," said White. The new approach, involving conversations with that account about who controlled each part of the chain, resulted in a performance improvement of better than 50 percent within six months of the time the issue was uncovered.

The long-term result was increased sales, making the effort well worth the time. So how does one define the SAMBC metric? In White's words: "The percentage of measured customers at which we are at or better than expected service targets, where the targets are established by and with each customer."

Maybe it's not such a complicated concept after all. The devil, as always, is in the details - made tougher by the need to adapt to the expectations of each customer. For P&G, White stressed, SAMBC represents a journey that is far from over. "This is new territory for us," she said. For many other companies, which are still struggling to achieve the perfect order, it's an undiscovered country.

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Evidently the concept of the perfect order isn't quite perfect enough.

Experts have been telling us for years that the so-called perfect order is the highest goal that a supply chain can attain. Boiled down to the basics, it's a simple concept: an order that is shipped complete, on time, damage-free, to the correct destination.

That's a tough enough task for companies to achieve on a consistent basis. But if Procter & Gamble is right - and this $82.6bn consumer-products giant had better know what it's doing - then the "perfect" order is woefully inadequate as a measure of supply-chain success.

It would have been nice if the creators of a better metric had come up with a phrase as snappy as "the perfect order." The best they could do, apparently, was the acronym SAMBC, which stands for Service As Measured By the Customer. However clunky the name may be, it describes a practice that's far more rigorous than any previous framework for scoring supply-chain performance.

For P&G, the perfect-order metric just wasn't getting the job done. "Our view on service had been very internally focused," said Deirdre White, who as associate director of customer service oversees the company's SAMBC process. "We lost a lot of opportunity to create value for our customers and ourselves."

White was joined by Dale S. Rogers, professor of logistics and supply chain management at Rutgers Business School, in a discussion of SAMBC at the annual conference of the Council of Supply Chain Management Professionals in Philadelphia. Rogers pointed out while the perfect order might offer the advantage of simplicity, it's ill-equipped to deal with the complexities of most global supply chains today. The trend toward outsourcing has created a network of independent partners, each of whom plays a critical role in getting a shipment to its destination. By limiting its performance assessment to what goes on within its own plant or distribution center, a company like P&G fails to get the big picture. What looks like a smooth-running operation could easily be considered a failure by the end customer.

Think about all the elements that go into that supposedly simple "perfect order." It starts with order planning, sales forecasting and capacity planning. Then it moves into a series of execution-based processes related to the specific order: generation, cost estimation and pricing, receipt and entry, selection and prioritization, scheduling, fulfillment, billing, receipt of payment, handling of returns and claims, and post-sales service. A high score in one of those areas isn't enough. "If you don't view the whole thing, you can mess up," said Rogers. "You dramatically hurt your relationship with the customer."

Because multiple partners are involved, the actual scoring has to be a joint effort. White cited the example of a 100-case shipment that's five cases short because of space constraints. The supplier puts the missing cases on the next shipment, and considers itself to have fulfilled the order. The customer thinks otherwise. But it's the latter's opinion that really counts. An unhappy buyer means lost sales down the road. Hence the idea of gearing performance to the customer's metrics, not your own.

Collaboration between supplier and buyer is essential to ensuring that both parties are on the same page. In addition, the shipper must be working closely with every logistics partner that touches the shipment on its journey. Additional keys to success, according to White, include an early-warning system for detecting glitches in the process, and a single point of contact for developing action plans geared to each customer.

That last point is especially important. There's no one-size-fits-all solution in an SAMBC process. Each customer has its unique set of metrics and priorities. The supplier must adjust its own to meet them. (At least, I would imagine, for those customers who generate a certain level of business. Suppliers need to prioritize their customers and treat them accordingly - an approach that many companies are loath to take, for fear of losing any business at all in a period of stagnant demand. But tough decisions need to be made even in the worst of times.)

Customers, too, must be brought to account for their role in the success or failure of a supply chain. White spoke of one instance where P&G and its customer disagreed about what constituted an on-time shipment. From P&G's standpoint, the order was going out as scheduled, and being delivered within the appointed time. But the buyer wasn't entering the item into its system until it was formerly received at the distribution center. Closer collaboration between P&G and the customer made it possible to settle on a single metric and determine accountability for failing to meet it.

The early stages of an SAMBC effort can reveal some unpleasant surprises. With one customer, P&G came to realize that it had "missed expectations for several years," said White. The new approach, involving conversations with that account about who controlled each part of the chain, resulted in a performance improvement of better than 50 percent within six months of the time the issue was uncovered.

The long-term result was increased sales, making the effort well worth the time. So how does one define the SAMBC metric? In White's words: "The percentage of measured customers at which we are at or better than expected service targets, where the targets are established by and with each customer."

Maybe it's not such a complicated concept after all. The devil, as always, is in the details - made tougher by the need to adapt to the expectations of each customer. For P&G, White stressed, SAMBC represents a journey that is far from over. "This is new territory for us," she said. For many other companies, which are still struggling to achieve the perfect order, it's an undiscovered country.

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