Customer Fulfillment Strategy: Importance and Implementation

The High Service Sponge

On September 26th, Diane Clair, Director of Logistics at Dynamic World Corporation (DWC), a leading consumer packaged goods (CPG) company, had been running non-stop all morning. Now, as she sat down to put the finishing touches on the logistics team’s five-year technology plan, she was running behind. Tomorrow morning, she would be arguing for some big dollar investments in new demand management planning systems.

No sooner had she clicked open her PowerPoint presentation, than sh heard an agitated knock at her door. Doug Hassle, DWC’s North American Vice-President of marketing stood there - and he wasn’t smiling. Diane responded, “Good Morning Doug, come in and sit down.” As Doug entered, he said “Diane, the wheels just came off. Deb Gale, General Merchandising Manager (GMM) over at Monster, Inc., just called. She was ticked. Your team missed a delivery window at their Denver cross-dock facility. Worse, this is twice in one week we have failed to deliver as promised. Monster is our largest, most demanding customer. Deb made sure I remembered that little detail. She didn’t hesitate to share her feelings about our recent fulfillment failures.”

“Sound like you’ve had a tough morning, Doug. Sorry about that brutal call. Let’s find out what happened.” Diane said as she picked up her phone. She dialed David England, a senior transportation manager to find out what happened. Dave responded quickly, “the shipment left our Distribution Centre (DC) on time. Our tracking system says the truck should arrive in about an hour. I’ll make sure it does and shoot you a text when it is docked.” David hesitated, and then expressed disbelief at Deb Gale’s negative perceptions of DWC’s delivery record, noting “I can’t imagine why Deb Gale is so upset. We’re an industry leader. Our on-time delivery and complete orders performance is outstanding. We’ve never performed better.”

Confident Dave would resolve the immediate crisis, Diane hung up. Doug, however wasn’t placated, and said as much. “Diane, for someone who just dropped the ball with our most important account, David sounded a bit overconfident. He might not really grasp the situation.” 

Inwardly, Diane scowled, she trusted Dave. “Well, let’s double check and see how we are really performing”. Diane picked up the phone again, this time calling Paul Osterhaus, Vice President of Information Technology, to verify DWC’s delivery performance. With just a few clicks of the mouse, Paul pulled up the key stats, confirming that DWC had dramatically improved its on-time delivery over the past year. He said “You guys have really done a nice job. You’ve bumped your performance from 95% to 98 percent on-time delivery over the past twelve months, and your shipping 97 percent complete orders. It seems you’re hitting on all cylinders and achieving best-in-class standards.” Paul added, “With service levels looking so good, you should be able to justify those new IT investments.”

Why Logistics managers should worry about customer service

Doug still wasn’t convinced, saying “I’m sure you like what you’re hearing, but those stats don’t change the fact that Deb Gale just chewed me out. We’re clearly not delivering to Monster’s expectations. And though the chargebacks for late deliveries make these failures expensive, the real cost is relational. We can’t afford for Monster to drop us as a supplier or to reduce the number of facings they allot us. Deb drove this point home, saying “You can’t afford not to meet our needs.” She’s right! Our other key accounts are just as demanding. If we are dropping the ball with Monster, we are likely disappointing the others as well. Come January, Monster is tightening its delivery time windows and Deb informed me that they will expect us to take on more value-added service.”

As Doug stood up to leave, he added, “By the way, they are lengthening payment terms – effectively paying less for what we do. I hope your team can raise the performance bar.” Diane acknowledged that DWC needed to step up service even higher, concluding “You’re right, today’s market is a tough place to do business. Our best customers are more than happy to soak up every ounce of service we can provide – and then they squeeze us a little more.”

Still unsettled after Doug left her office, Diane called David to begin a new conversation on DWC’s customer fulfillment capabilities. After her initial greeting, Diane said “David, despite all the customer-oriented initiatives we have pursued over the past two years, we dropped the ball today – and not just any ball.” She smiled as she continued, “IF we are going to drop a ball, let’s make sure doesn’t belong to Monster. Today’s experience reiterates our need to rethink our service strategy. Not all customers are created equal; yet, we still measure and manage to averages. Across-the-board excellence is a great goal, but maybe our one-size fits-all approach is outdated. We just don’t have the resources to be perfect all the time. So, what are we going to do about it? What service experience should we promise? What infrastructure do we need to put in place to deliver to promise? David, this is a big deal. I don’t want to have this same conversation with Doug again. I need you to put a team together and get this figured out.”

Questions to Consider:

1.Why should Logistics managers worry about customer service

The relationship between customer expectations, a firm’s service capabilities, and ultimate satisfaction

2.Keeping you answer from question 1 in mind, what is the relationship between customer expectations, a firm’s service capabilities, and ultimate satisfaction?

3.What questions would you include on a customer-satisfaction checklist to make sure you had a comprehensive, well-thought out customer fulfillment strategy in place?

October 17

As David settled in for the long flight home, he pulled out his laptop. It had been three weeks since he Diane had tasked him with reviewing and reimaging DWC’s customer fulfillment capabilities. She had e-mailed him the previous day, asking him to put together a quick update by the end of the week. David sighed deeply – his “day” job didn’t leave much time for setting up and running a new task force. 

He began to review the steps he had undertaken so far. His notes were organized using three questions to guide the re-imagination efforts:

Where are we?

Documented current performance vis-à-vis standards. 

DWC was hitting its targets

Benchmarked current performance against rivals.

DWC was doing well.

He had not been guilty of false advertising when he told Diane that DWC was an industry leader

Where do we want to be?

Identified Order Fulfillment benchmarks

The Supply Chain Council’s SCOR model documented the standard order cycle

Anecdotal cases showed how other companies had addressed fulfillment crises.

Anecdotal is a report based on or consisting of reports or observations of usually unscientific observers. It uses contains anecdotes.

Put together a list of key customers to meet with.

He wanted to know what they expected from DWC

He wanted to know how they perceived DWC’s current performance

He wanted to know how they measured DWC

How are we going to get there?

Put together a four-person team to work on the task force.

Team included

Paul Osterhaus – Information Technology

Trina Cody – Direct report to Doug Hassle and lead for account management team responsible for Monster Inc. relationship

Lise Johnson – financial analysist who had worked on a variety of supply chain projects in the past 

As tired as he was, David’s gaze settled on the anecdotes. One in particular caught his attention: Sony de Mexico. On his third call to investigate order cycle best practices, a colleague had joked “just be grateful you’re not Sony de Mexico. Poor order fulfillment raised their costs and just about shut them down. Only SCM saved them” That statement had caught his attention, David had never heard the term SCM before. He had asked his friend to tell him more. David reviewed his notes form the discussion:

Creating a comprehensive customer fulfillment strategy checklist

Sony’s corporate headquarters had decided to shift capacity in Asia where labour costs were a fraction of those in Mexico. Low labour rates, minimal tariffs, and geographic proximity had not been strong enough reasons to justify Sony de Mexico’s continued existence Note to self: What do we do at DWC to justify our existence?

While others scoffed at the idea that Sony de Mexico could survive, Rey, Sony de Mexico’s CEO, had made a final attempt to save the operation. Out of desperation, Rey and his team had adopted the Six Sigma mantra of “forget what you think you know and let the data prove it to you”. He reasoned a blank-slate approach was the only way to change the destiny of Sony de Mexico.

The breakthrough insight came from the voice of the customer. What could Sony de Mexico offer that Sony in Asia couldn’t? When asked, customers repeated two facts

Based on existing performance levels – not much. 

Despite the close location – just across the US/Mexico border – Sony de Mexico’s order fulfillment cycle was eight weeks. Asian operations could meet or beat that!

Dealers were clearly baffled and frustrated

Dealer costs were high!

Because they couldn’t anticipate customer demand across Sony’s broad product line, dealers carried huge, expensive inventories

Note to Self: Talk to DWC’s customers. Find out what they value, what were their pain points

As Rey had processed the customer complaints, he had realized that his team also griped frequently about poor dealer forecasts. Note to Self: we do the same thing

As a result, Sony de Mexico carried a lot of inventory – 60 days of sales. The common denominator driving frustration for both Sony and its customers was long order delivery cycles. Rey had adopted the mantra “Instead of complaining about forecast accuracy, lets’ build a supply chain robust enough to meet customer needs despite poor forecasts” Note to Self: That’s our challenge. Rey’s team had to find out why lead times were eight weeks.

Ultimately, Sony de Mexico had reduced lead times to two weeks – a 75% improvement. Both dealers and Sony de Mexico were able to slash inventories. Most important, Asian operations couldn’t match the shorter lead times that enabled vastly improved customer performance. This fact – That Speed Could Make Money – had saved Sony de Mexico.

Almost imperceptibly, David realized the insight he was looking for was contained in that acronym: SCM. He now knew what the next step and quickly typed “map out our actual order cycle. What derives our lead time? What drives the variability that causes us the drop the ball?

With that epiphany, David tucked away his laptop and leaned his seat back, he wouldn’t arrive home till almost 10:30, so a short nap wouldn’t hurt.

Questions to Consider:

1.What do you think of David’s approach to evaluating the “as-is” and “to-be” states of DWC’s order cycle

a.What performance should a well-designed order cycle deliver?

2.What are the key activities/steps that must be managed to achieve world-class order fulfillment?

a.What causes order cycles (and other processes) to become inefficient or unreliable?

3.What are the trade-offs David and his team can expect as they reimage DWC’s order fulfillment capabilities?