A major operational challenge to manufacturers as they grow in complexity—be it due to increases in the number of products, the addition of new categories, increased client portfolios and/or covering new channels and client formats—is to become more efficient in their customer service as their market evolves, understanding client needs and tailoring their service processes to address such needs.
Why do companies increase in complexity? Precisely, due to their objective of profitable growth. However, a paradox exists between increasing their complexity to achieve such objective and finding it difficult to achieve profitable growth because a manufacturer’s complexity has increased.
As clients evolve in terms of their needs (and evolve at different paces), the relevant issue is to understand how such needs impact the service processes and costs of the manufacturers. Understanding client needs means that a manufacturer has to translate new service variables into the way it operates. A very common example is when it is stated that products must be delivered 100% overnight, but an understanding of the way the client operates reveals that the client maintains a 3-week stock of the manufacturer’s products and the way the client places its orders is based more on the empirical experience of the individuals that place orders than on restocking algorithms based on the achievement of business goals. In this case, does it make sense for the manufacturer to increase service costs in order to serve that client? But on another hand, there is this other client whose objective is to have an average 1-week inventory, and has designed processes and algorithms to achieve such goal; doesn’t it make more sense that servicing the needs of this latter client does indeed require overnight deliveries at a very high percentage of fulfillment? A way to depict why understanding client needs and establishing reasonable service parameters, instead of merely offering maximum services, is shown on the graph below (Figure 1), which charts inventory costs in terms of the service that should be offered.
Another necessary ingredient of serving clients efficiently is for the manufacturer to have a clear idea of the service intentions it wants to achieve for each segment or group of clients. Such intention is a strategic attitude connected to what the manufacturer wants to achieve with each of the clients, and therefore the goals that its service processes must meet. In defining such intentions, manufacturers should ponder the business potential signified by each of the clients. An example of the definition of service intentions is given in Figure 2.
Service intentions can be as diverse as the ideas a manufacturer may have regarding how it needs to serve its clients. Some examples of this include:
- Maximize product availability at the point of sale: Executing service processes in such a way that meeting client needs ensures maximum product availability at the point of sale (inventory goals, percent of sold-out product, etc.).
- Balance services and costs: Executing the service in such a way that the cost of service does not exceed a certain level of cost per unit
of volume. - Minimal delivery cost: Executing the service at minimum cost conditions, even if it means sacrificing levels of service.
- Stop serving: To serve a given client indirectly, given the cost and investment implications that serving this segment may involve.
Having an understanding of the process for the client segments (and thus, of their needs) and of the intentions of service for each of those segments, the next step is to adjust or design the service processes that must be executed.
In this document we will discuss the service processes involved in a request for products or services on the part of clients, and the processes that must be executed to deliver such products and services; but we will not address service-related processes that are actually more related to marketing or merchandising at points of sale (Trade marketing).
Among the possible service-process variables, we must identify those that can be viably executed with each of the client segments, and the implications that such variables may have. An example is the process of taking orders via telephone: in order to execute this, the first condition is that the client have a telephone, and the second factor is to evaluate whether taking orders this way could result in decreased sales momentum (whether the client requires—or not—help at the time he places the order, and/or how relevant the manufacturer’s category may be to the client’s business).
Here are some of the variables that may be considered for each of the service processes:
- Demand Planning – With or without client collaboration
- Order input – Frequency, order volume minimum sizes, electronic input, phone input, face to face calls, or manufacturer-driven replenishment
- Order management – Client priorities in the allocation of inventories, level of picking (by piece, layer or pallet), type of picking (stack per product, layer per product, or no specialization)
- Order delivery – Delivery times, type of transportation, full delivery or route-driven, waiting times at reception site
- Indirect process – Quit addressing client directly, outsourcing them to a distributor or wholesaler
- Process to collaborate with clients on one or more of the processes described above
Taking due account of such variables, the next step is to chart a matrix of business potential vs. cost of serving (Figure 3) in order to map the type of considerations that must be given to each of the client segments.
Additionally, one must evaluate whether these definitions of service processes could involve increasing or decreasing overheads and/or investments, for instance:
- Whether initiating phone-based order-taking involves acquiring callcenter technology and the organizational capabilities to manage it all
- Whether serving clients indirectly, additional to lowering variable costs via secondary distribution, may lead to the shutdown of distribution centers and no more need for a manufacturer-owned distribution fleet
- Whether implementing a replenishment process with a client while meeting their inventory goals would involve an organizational capability hat the manufacturer doesn’t currently have, and a need to evaluate the benefits involved in balancing inventories and lowering transportation costs by making deliveries more efficient
In order to achieve adequate deployment of these new definitions, it would be valuable to have prior knowledge before attempting full launch, thus minimizing the risk of implementation failures and considering that even with a prior analysis we may run into trouble due to deficient communication of the change (internal, or external to the clients). This learning process should be conducted along two stages:
- During the design process, using concept testing that should be limited in scope and very short in duration, in which the target is, for instance, to prove whether it is possible to achieve the productive potential of the proposed attention schema, or to gather more information regarding client reaction to a new service process.
- After the design process, via a pilot test within a limited geography or client group, which may help to tune the design and lead to a full test. But it is crucial here to define the duration and the critical success factors to be used in measuring the process.
CONCLUSIONS
As clients evolve and manufacturers increase their complexity, the need arises to redefine the ways to serve the market efficiently, which makes it
crucial to develop the organizational capabilities required to execute this process in a dynamic fashion. It is a complicated issue to assign this task to the individuals responsible for the operation because it is a process that involves analyzing the process from points of view that differ from
customary operations, as well as understanding the clients’ operating processes, defining intentions of service, designing service processes, and setting up operational tests.
About Sintec
Sintec is the leading consulting firm focused on generating profitable growth and developing competitive advantages through the design and execution of holistic and innovative Customer and Operations Strategies. Sintec provides a thorough and unique methodology for the development of organizational competencies, based on three key elements: Organization, Processes and IT. Furthermore, Sintec has successfully carried out more than 300 projects on Commercial Strategies, Operations and IT issues with more than 100 companies in 14 countries throughout Latin America. Our track record of more than 25 years makes Sintec the most experienced consulting firm in this area of expertise in the region.
Ciudad de México: +52 (55) 5002 5444
Monterrey: +52 (81) 1001 8570 / 01 800 112 8570
Bogotá: +57 (1) 379 4343
Sao Paulo: +55 11 3443 7433