“You just don’t get it. And I need to find someone who does.” I’m not talking about a significant other; I’m talking about your customers. And when they say this—not with these words, but with their dollars and their loyalty—they won’t be the ones betraying you, you’ll be the one who has been betraying them.
Here’s a question for you: what did you bonus your operations team on this year? I’m willing to bet it was on cost savings. In other words, your entire operations were geared towards pinching pennies. How does that help your customer experience? Hint: it doesn’t. Your brand promise depends on the experience you provide your customers. And that experience depends on your products being available whenever and wherever customers may want them. Selfish companies are quickly losing their customers to companies who are focused on driving customer happiness through the convenience of immediate fulfillment.
So what should your operations teams be bonused on? Product Availability. The ability to get products to customers so that they are never left wanting. CEOs, COOs, and CSCOs who are interested in keeping their company in business must begin to shift gears from crunching costs towards gaining the ability to deliver on time, reallocate inventory flexibly, and find material alternatives in case of shortages.
Your operations team needs to shift from minimizing costs to minimizing potential gaps in availability. The moment a new demand signal is received, the clock is ticking. Your team needs to quickly triage the request against availability of finished goods, production capacity, and logistics options. The speed with which you can do so cross-functionally will determine how many options you have—if it takes 4 weeks to identify and verify a potential material availability shortfall with suppliers, and 2 weeks to ramp up production, you’ll always be stuck re-allocating limited finished goods inventories and deciding which customers you care about the least. On the other hand, if you organize around maximizing availability, it will drive investments in technology and process to better analyze demand and supply trends, for example recognizing early on that customer A will wildly overshoot their open order, while customer B will dramatically under-consume theirs. A myopic focus on cost would have your team supporting customer B pushing hard to drive down inventories and upstream supplier orders, leaving customer A empty-handed and leaving revenue and customer goodwill on the table.
Instead of bonusing your team primarily on metrics like cost per unit, asset and labor utilization, and carrying costs, you need to realign around a metric that drives customer experience. The new KPI to measure your company’s success should be based on Product Availability. For example, the metric could represent the percent chance a new order for a given product or SKU will be delivered on time to a customer. That SKU-level score can then be cascaded up to derive scores for product lines, business units, regions, and entire companies. Unlike cost savings, the product availability KPI puts your customers and their happiness at the epicenter of your operation and will be a much better indicator of your success.
The truth is, most companies know they are off. But the reason they haven’t articulated exactly how off they are is because their operations are fundamentally designed to make such a transition incredibly painful. Currently, supply chains are disconnected, fragmented, and technologically archaic, impeding companies’ ability to forecast demand at anything more granular than a six-to-twelve month planning cycle, and making it impossible for companies to readjust fast enough when actual demand is inevitably mismatched to planned supply. By the time companies catch up to what customers wanted months ago, their customers have already found someone new.
Instead of facing the hard truth about how the landscape has changed, complacent companies and idle executives stay their course. Because the truth is, making customers happy and ensuring product availability is a massive undertaking. It will demand unrelenting focus throughout the organization and it will require change in deeply rooted habits that have been ingrained for decades. And so, most companies prefer denial.
But we are starting a New Year, and new years are the time to set new goals and face new challenges. Make 2018 the year of your customers and make product availability the metric by which you measure your company’s success. It won’t be easy. And it won’t happen in a day. But keep your eyes on the big picture; if you get stuck in the nitty gritty, you will become overwhelmed by the size of the undertaking and likely will never get started.