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Joel Sutherland and co-author Kate Vitasek, managing partner, Supply Chain Visions
Increasing Customer Value by Applying the Perfect Order
Forward thinking companies continually strive to add value for their customers. As companies drill down into their customer satisfaction metrics, they often find that they are measuring the wrong things or missing quantifiable measures that accurately reflect customer satisfaction.
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Many suppliers have relied solely on fill rates as a measure of delivery performance and have worked hard to improve
their fill rates--only to find that customers are still not satisfied. How can this be? The answer is simple: Just because a supplier shipped product on time does not mean that it got to the customer when they wanted it, that the customer received what they wanted, or that the order was delivered how they wanted. In essence, fill rate is just one part of the overall customer satisfaction equation. Companies should be utilizing the “Perfect Order”—a measure of an on-time, complete, damage-free shipment supported with accurate documentation.
What makes the perfect order unique is that it encapsulates the total impact of an incorrect order in a single metric.
The Perfect Order Index (POI) is established by multiplying each component of the perfect order to one another.
The Perfect Order Index (POI) |
% On Time ´ % Complete ´ % Damage Free ´ % Accurate Documentation = POI |
A Perfect Order is characterized as being on time, complete, damage free, and having accurate documentation. The Perfect Order Index (POI) is a measure of these four performance attributes. The POI strives to
capture the needs of the customer from their perspective and is a better measure of customer
satisfaction
than order fill rate alone. |
For example, if a firm is experiencing a measure of 96% across all 4 metrics of the perfect order (on time, complete,
damage free and accurate documentation), the resulting perfect order index would be 84.9%, clearly below the 96% for
each metric alone. The traditional approach of looking at each KPI separately often lulls organizations into a false sense
of good performance. By utilizing the holistic POI, the total effect of a supplier’s performance can be measured.
Following are some relevant findings that researchers have captured through working with suppliers. Top performing suppliers:
- Understand performance from the customer’s perspective.
- Work with transportation providers that provide Proof of Delivery. If you don’t know that your carrier is not
delivering on time, then how can you work with them to improve their performance?
- Are zealous about performance management, aligning metrics within their organizations to the attributes of
the perfect order.
- Communicate the importance of the perfect order strategy throughout the organization, consistently
and frequently.
It is also important to note that top-performing suppliers form a collaborative relationship with their customers to emphasize the importance of working together to achieve a perfect order index objective.
How can companies apply a perfect order philosophy to their suppliers? The good news is that many companies are already collecting data for many of the components involved in a perfect order. To start the process, here are six recommended steps:
- Find out what metrics are currently being employed within your organization.
- Determine the definition of the metrics and communicate across the organization.
- Determine how often the metric will be calculated (by week, month, customer, etc).
- Put someone in charge who will be responsible for the measure.
- Develop a collaborative relationship between the company and the supplier.
- Set a realistic goal.
Many companies, whether supplier or customer, are embracing the perfect order philosophy and are committed to incorporating each attribute within their business processes to arrive at a more complete measure of supplier performance and customer satisfaction.
Summary
The satisfaction of the customer is the paramount goal of any successful business. Traditional metrics for gauging this satisfaction often prove inadequate and misleading. Many operational metrics such as traditional fill rate simply are not
aimed at linking customer requirements to quantifiable operational measures. Suppliers have fallen into the fill rate trap
and often believe they are achieving high service levels when, in fact, they are not. Many leading companies are starting
to look at their suppliers from the Perfect Order point of view. It helps them focus on the big picture of their entire supply chain and to better understand the impact of poor performance.
What really matters in today‘s customer-driven economy is “Did the customer get what they wanted, when they wanted it, how they wanted it?” and not how well a supplier ships. Achieving the Perfect Order is an important step in improving
overall customer satisfaction and increasing customer value.
Joel Sutherland is managing director for the Center of Value Chain Research at Lehigh University.
He’s also vice president of marketing and strategy for Priority Distribution, Inc. a New Jersey-based transportation 3PL.
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Thought Leader