Perfecting Service Management

Issue #37

Tuesday, February 3, 2004

A Logistics Perspective (Part 2): Characteristics of Preferred Suppliers
by Craig Thompson

When you consider what it takes to be a preferred supplier, the first thing to realize is that this distinction awarded by the customer based upon his perception of the value added to his business by the service you provide. This carries some implications:
  • The perception of the supplier's actual service can be distorted, even wrong, because of a lack of accurate performance data, a mismatch between the actual service received and the service desired.
  • Preferred suppliers are perceived to add value to the customer's business. The least objectionable supplier (the best of a bad lot) will not achieve this status although it is conceivable that a lot of unfavorable characteristics can be outweighed by a single virtue.
  • The awarding of preferred supplier status can be significantly influenced by other tangible or intangible factors which may differ across competing suppliers and which may carry varying degrees of relevance. The lack of uniformity or "fairness" introduces a human element to the competition.

We said earlier that customers view preferred suppliers as being easy to do business with. The word "easy" pretty well matches the implications described above. So, if you add this all up, what can you conclude about preferred suppliers' characteristics that you can put to good use? Try this:

Suppliers are easy to do business with when they do a good job supplying, when they minimize the work and cost involved in supply, when they operate as a partner in the total supply chain and when they communicate to ensure accurate information and common understanding.

The Supply Chain Council identifies 5 attributes that comprise supply chain performance:

1. Reliability - This is the ability of a supplier to deliver the right product, in the right quantity, to the right place, at the right time, in the right condition and packaging and with the right documentation to the right customer. The key metric is Perfect Order Fulfillment and the supplier's additional burden is to correctly understand what is 'right'.

2. Responsiveness How quickly products are provided to customers measured as Order Fulfillment Lead Time.

3. Flexibility How adaptive a supplier is to changed circumstances that render existing capabilities incapable of meeting customer requirements (e.g., plant strike, warehouse fire, new governmental regulations, etc.). Quickness is the measure.

4. Cost All supply chain costs need to be considered, cost shifting does not equal cost reduction. Total cost is the best measure; individual enterprise cost, although easier to obtain and more commonly measured, can be misleading and, worse, poison perception.

5. Capital Asset Management How effectively total supply chain assets are managed and employed in satisfying demand. Return on assets, cash-to-cash cycle time and inventory days of supply are key measures.

Each of these attributes can be measured at several levels of process detail and, being consistently defined, enable benchmarking. This makes it possible to determine not only if a supplier is doing a good job supplying but also if they are doing a better job than their competitors.

So, being a good supplier is a key to being a preferred supplier and being a good partner can provide the added tangible and intangible value that tips the balance toward preferred supplier status. Some best practices that can be adopted to achieve these goals will be discussed in the next issue.

View previous articles in this series.

Rewarding and Incenting Customer Service Representatives (Part 5)
by Craig Bailey

We are pleased to provide the final article in the series on "Rewarding and Incenting Customer Service Representatives." In prior articles we covered prerequisites for putting in place effective rewards and incentive programs, and began discussing the "how to's." We will finish up the series by covering Financial Incentives.

Financial Incentives

Though numerous studies have concluded that money is not the primary factor for motivating personnel to perform at desired levels, financial incentives have their place and should not be left out when designing rewards and incentive programs. We will discuss two approaches for implementing financial incentives:

1. Period performance bonuses
2. Performance reviews / merit increases

Periodic performance bonus

Bonus programs provide the "opportunity" for personnel to achieve a predefined financial reward (above and beyond their base salary) for demonstrating superior levels of customer service. The period of performance may vary depending on the organizational level of the personnel. For example, it may be appropriate to have a monthly or quarterly cycle for individual contributors and team leaders. For senior account managers or customer service managers you may want to implement a quarterly or annual cycle.

You can administer periodic performance bonuses for a team or on an individual basis, or both. A team goal could include ensuring that the customer service function makes the appropriate "advances" in line with your overall service level goals For example, if you have a goal to raise "first touch" resolution rate from 60% to 65% in a given quarter and the team achieves that goal, a predefined bonus is paid to the members of that team.
Bonuses may also be administered based on goals that were established on an individual basis, such as completing a project in an accelerated timeframe or demonstrating exceptional levels of service, above and beyond the normal course of duty.

To achieve the anticipated benefits from a bonus program, you need to ensure that it doesn't become an entitlement program, where each person on the staff achieves the same bonus regardless of his or her performance. There must be a clear distinction between what level of performance is required just to keep the job, and what types of behavior demonstrate superior customer service and might merit a bonus.

Performance reviews / merit increases

The key to a performance review is making it a review / wrap-up of what was already covered throughout the prior period (typically a year). That is, there should be NO surprises to your customer service personnel. You should have previously shared the measures and standards of performance necessary to perform the job, and what it takes to demonstrate superior levels of customer service. You should have "visited" their performance against these goals throughout the year, in conjunction with the bonus cycle (discussed above). The performance review is a time to establish longer-range goals and requirements to enable the employee to advance in his or her career. It also includes the all-important salary merit increase. Use your budget for merit increases on an individual basis relative to each employee's performance against personal and team goals and objectives. Be sure to again acknowledge superior levels of performance demonstrated in the prior period, to help ensure that a similar level of performance occurs in the future.

In closing, rewarding and incenting customer service personnel can be a challenge as you seek to achieve the desired levels of performance, benefits and results. Remember, there is no silver bullet. We have provided a portfolio of approaches that, working together, have proven to be highly effective in achieving the desired behaviors and levels of performance from customer service personnel. For additional ideas, we suggest that you read the book 1001 Ways to Reward Your Employees by Bob Nelson and Kenneth Blanchard. This book is featured on the Additional Resources page of our website.

View previous articles in this series



Characteristics of Preferred Suppliers

Recommended Reading

Rewarding and Incenting Customer Service Representatives

Contest Winner Submission


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Recommended Reading
In this issue, we offer two recommended readings, one article and one book.


In his BusinessWeek commentary "Why High Tech Has To Stay Humble," Steve Hamm reminds high-tech companies of the importance of catering to corporate customers, and provides strategies to help companies put customers first.


To complement our series on rewarding and incenting customer service personnel, we recommend Bob Nelson and Kennth Banchard's book 1001 Ways to Reward Your Employees.


See the Additional Resources section of the Customer Centricity website for more recommended reading selections.

Contest Winner #2:
Pat Killebrew

Pat Killebrew of Digex was one of the winners of our recent "Rewards and Incentives" contest, designed to generate unique ideas for rewarding and incenting customer service personnel.

In her submission, Ms. Killebrew writes:

"Incenting and rewarding customer service is about setting an example for your team - i.e., 'catching them being good' - reinforcing the right behaviors at every turn, and keeping the dialogue open."

The full submission can be viewed on the Customer Centricity website.

About Customer Centricity, Inc.
We strengthen overall company performance through better service delivery and management.

We boost efficiencies in front-line customer service and technical support teams, order processing, fulfillment, field service, logistics and other key operations functions.

In short, we align the resources of your organization to exceed your customers' expectations in the most effective and efficient manner possible.

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