|
Wanted: Happy Customers! by Dave Garwood Here's a thought-provoking question that is guaranteed to stimulate a lively discussion -- "Is the business objective to make money or to satisfy customers?" While speaking to audiences over the past 25 years, I have posed this question to thousands of people. The quick answer is almost always "make money." This may be the very reason the company is in trouble! This really isn't an either or question. Certainly, the business must make money to survive long term. However, without customers, the revenue will be zero and profits will be zero ..... at best. Therefore, satisfying customers and simultaneously managing costs to turn a respectable profit should be the objective. While this may sound obvious, my experience, especially with publicly-traded companies, clearly shows that behaviors are more often biased to making money than meeting customer's expectations. Ask any entrepreneur who turned his idea into a business success what his business objective was. He will quickly tell you that customer satisfaction was at the top of the list. They understood that survival depended on happy customers. Beware: "Make Money" Could Be a Path to Chapter 11 The quick "make money" response to the question is alarming. This single focus can quickly encourage "creative" tactics to meet financial goals at the customer's expense. Here are a few typical actions I have witnessed when a company adopts a "bottom line only" focus: 1. Purchase large quantities from suppliers to get the lowest purchase costs -- often measured by purchase price variance (PPV). The suppliers are selected and encouraged to drive purchase costs (invoice prices) down as low as possible without serious consideration of their lead times, product quality, on-time delivery and available technical help to improve future product designs. The result is slow to respond to demand changes, late delivery of defective material or parts that are about to be technically inferior ... and eventually not cost competitive. 2. Pull sales from future periods into the current Quarter to make the revenue goals even if the customers don't want it . As we near the end of the Quarter, they offer customers discounts to take product early. They extend payment terms. In some cases, they may even offer to accept returned product later at no cost. The result is erosion of gross margins and future invisible liabilities. But they made the "Quarter!" 3. Make more than needed to absorb overhead to get a favorable variance which creates a false illusion of additional profit on the income statement. The focus is on volume produced .... of anything! The mix of product, parts and material does not become the prime driver. The result is paper profit, excess inventory and unhappy customers waiting for the product they ordered. 4. Ship defective product or use marginal quality parts or materials. A quality manager once told me, "we have material that isn't good enough to use and isn't bad enough to throw out. -- so we use it anyway if we need the revenue." When the pressure is on to make the numbers, it can be tempting to wink, ship it and fix it in the field. This is not reassuring to the customer, it is expensive to fix the problem in the field and feedback of root causes is poor, assuring the problem will likely be repeated. 5. Use a scarce part to build a new unit rather than use it to repair a customer's product. Sale of the spare part may be $1.50, but if installed in a new unit, we generate $50,000 revenue. However, the delay to repair an installed product could cause loss of sales on future new products. Creative accounting that drains valuable resources, substituting more expensive material to make a shipment and a long list of other tactics are often used to "make the numbers," not benefit the customer. These tactics are also expensive. In fact, they will eventually drain the cash register. Making
Happy Customers! Notice the actions to "make the numbers" are not supportive of meeting these customer needs. In fact, many times, they insure the needs will not be met! Proper Focus At the start of your next meeting, take a few minutes and pose the question .... $$$ or happy customers? The responses and discussion may help plot a better path to profitable growth in your company. |