Nearly every business will tell you that the customer is king. And nearly every one of them is lying.
"Please hold on. Your call is important to us." Anyone who has heard those robotically intoned words, only to hang up in frustration after an interminable wait, knows how much he is valued as a customer. And to an extent, I can understand the business's position. It costs a lot of money to staff a help line with knowledgeable human beings. Organizations are under relentless pressure from investors to cut costs, and customer service is often the first place they look. Better to keep churning out product and hope that frustrated buyers either can't or won't flee to the competition.
From time to time we hear talk of how supply-chain managers can play an important role in boosting customer satisfaction. Mostly it takes the form of after-sales strategies. These typically involve some kind of service contract for which the customer must pay a premium - then keep renewing, if it wants to retain the vendor's attention. For any business struggling to survive in tough times, the plan seems like a win-win proposition: keep the customer happy, and make a healthy profit doing it.
Chuck Franzetta isn't happy with that approach. The chief executive officer of Franzetta & Associates, Inc. sums it up in this way: "After you've made your best efforts toward optimizing your supply chain, take a look at how you might mitigate any adverse impact on your customers or get your customers to pay a fee to get the service desired, preferably under a long-term agreement."
Such a philosophy, argues Franzetta, "is, to say the least, baffling and incredibly shortsighted."
So what's the alternative? Spend tons of money on well-staffed customer-support centers and erase an already-thin profit margin? Franzetta has another idea.
Cost-cutting is important, he says, but it's a finite exercise. Revenue generation isn't. Sometimes it's necessary to spend more on some aspect of the supply chain in order to retain loyal customers and boost sales.
What a concept. But companies won't get their arms around it until they bring together parts of the organization that rarely speak at any time other than the office Christmas party: supply chain, marketing and finance.
Supply chain, says Franzetta, needs to sit down with marketing on a regular basis and figure out how the two can work together to enhance the experience of key customers. The chief financial officer should be involved because that individual has a keen appreciation for the higher revenues that will result.
Take the example of the heavy-industry client that approached Franzetta some years back with the mission of cutting a couple of million dollars from its logistics expenditures. He was perfectly willing to deliver that result - but he also suggested that multiple disciplines within the company come together to discuss a deeper opportunity.
The client was looking to slash logistics overhead on a product that was selling for about a dollar a pound. The margin on that item was perilously thin; a variance of a couple of pennies per pound could mean the difference between profit and loss. Not surprisingly, says Franzetta, "their focus was on optimization of manufacturing capacity." Transportation expense and headcount were additional targets for cost-cutting.
While helping the client to realize the desired savings on that delicate commodity, Franzetta steered it to another product, which was selling for around $3.50 a pound and yielding much healthier margins. For that item, he said, the company should be boosting availability to buyers, even if the effort costs more.
The client was reluctant to comply, but after the price of the originally targeted item dropped to around 96 cents a pound, it went along with Franzetta's suggestion. In the process, it was able to "substantially" increase sales and overall profitability.
Similar opportunities exist in the warehouse, where companies are forever striving to minimize inventory. By working closely with the marketing department, supply-chain managers can better understand which products are in greatest demand and yield the best margins. In certain cases, inventory will need to be increased and positioned for quick turnaround, even if high-priced expedited delivery is required.
Business experts talk about the need to calculate cost to serve, an exercise that reveals which customers are worthy of more attention, and which should be de-emphasized or jettisoned altogether. Franzetta doesn't oppose the notion, but he stresses the need for supply chain to fully understand the organization's marketing plan before making any rash decisions.
A well-oiled supply chain can even alter the cost-to-serve equation. For that to happen, however, planners need to be in on every aspect of operations, from factory management to raw materials, procurement and warehousing. And they need to share their expertise with marketing. It's not enough, says Franzetta, to wait for a forecast to be handed down from on high, then scramble to react to real-world events.
He doesn't downplay the potential for conflict between supply-chain and marketing executives. The latter can be resentful over what they view as threats to their position. Yet separation between the disciplines fosters ignorance and squanders opportunities for constructive partnerships. "Marketing people for the most part have absolutely no idea how much of a contribution to their product offering supply-chain management can be," Franzetta says.
It's entirely possible that an idea put forth by supply chain won't be tenable from a marketing perspective, or vice versa. But that's no reason to shy away from bold initiatives. "From those goofy ideas," says Franzetta, "you tend to come up with some things that are actually workable." The only real error is keeping the disciplines walled off from one another.
Franzetta believes the last decade has produced a crop of executives who are timid and risk-aversive, fearful of disturbing the organizational status quo. Meanwhile, they pay lip service to the notion of customer satisfaction. But talk alone won't foster customer loyalty or boost revenues. It's up to the supply chain to make things happen.
"As supply-chain managers, we have allowed ourselves to be something of a secondary consideration, after everybody else makes their plans," says Franzetta. "We should be part of those plans, even if it's just listening. And one of the first places we should be involved is the marketing area. "That's where the greatest growth opportunity is."
Now if businesses would just put actual people on the other end of the line...
- Robert J. Bowman, SupplyChainBrain
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