I have met with hundreds of companies that became customer and others who didn’t while working selling and installing inventory management software in the US and in Europe. One of the questions that we always ask when doing a discovery session — What is your customer service level? A pretty straight forward question.
I am always surprised when I hear this response, “I don’t really know what my customer service is.” Like everything else in this world, the tracking of customer service (or order fill rate, Or Ordered – Shipped = Lost Sales) varies across a very wide spectrum from company to company. If you asked those same people about their inventory investment, how many active SKUs, or their inventory turns they have those numbers at the tip of their tongues, but not customer service.
About half of our customers were not tracking customer service at all before HIMPACT was installed. Most of those were retailers that were not using systems that tracked lost sales. The other group was made up of wholesale distributors that had a variety of methods that ranged from some basic tracking to more complicated methods. One customer tracked this key metric 8 different ways: in units, in dollars, including vs excluding orders for discontinued items, other invalid orders, etc.
Retailers are at a disadvantage in that they do not have a good way to measure customer service or lost sales. They can only look at in-stock or out-of-stock percentages. Some retailers have systems that estimate Lost Sales by tracking the number of days out of stock and assigning a simulated lost sales. An example would be, if you are out of an item that sells 3 a day and you are out of 2 days, you lost 6 sales.
When retailers install HIMPACT the management team and the buyers receive daily customer service feedback. This daily score-carding dramatically changes how and where time and effort is being spent. One example of this is that since HIMPACT simulates lost sales, keeping your perpetual inventory correct is more critical. This really motivates retail staffs to keep their inventory counts more accurate and restock products regularly after seeing customer service numbers on a daily basis.
At the store if you forget to receive against a PO and the product just shows up on the store floor, the stock status in your POS eventually goes negative. HIMPACT treats that a zero on hand two different ways: If the POS system reports are no sales that day, HIMPACT simulates lost sales causing the daily service level attained to drop. If you have zero on hand BUT your POS system reports sales, we don’t simulate lost sales for that day. In order, to help our retail customers manage their perpetual inventories, we highlight these items in a “sold when out” online report.
Wholesalers, on the other hand, never knew how lucky they were. They get real customer demand, that is to say Order Entry information. Customers transmit orders and the warehouse ships that out. Any difference between ordered and shipped is used to calculate customer service attainment. Easy right?
Well perhaps not…today’s biggest hurdle to keeping order entry information “real” is that today, many companies track out of stocks closely and manage the order entry process based on their own rules. Customer service or the sales person might be incented to maintain high service levels and either doesn’t enter the order for the out of stock item or suggests an alternative item.
Your customer service statistics should be customer service statistics. The order should reflect what the customer wants. Only after that quantity of an out of stock item is entered should the system allow the order taker to suggest an alternative or substitute.
Getting back to why wholesalers are lucky. HIMPACT takes their customer order entry information and not only calculates daily service attainment but uses this demand as its basis for all item forecasts. We don’t need to “simulate” lost sales like the poor retailers, we have it. They also have the benefit of actually knowing what each customer wanted and when. To learn more about the benefits of our approach, read about SALSA on our website.
The good news is that the installation of new systems often change the way organizations function. One of the key benefits of HIMPACT’s daily customer service metrics is that it changes the dialog within an organization. People speak in terms of customer service and what is the right target for marketing or what is the most profitable service target, (see Service Level Analysis).
This is only the start of the conversation. To find out more about HIMPACT’s potential benefits to your organization click here