BrainTrust Query: Are Perfect Orders the Holy Grail or a Dead End Trail?
By Deck P. Murray, Managing Director, Dechert-Hampe & Co.
The perfect order…sounds so simple. Just deliver a product order to a customer that is complete, accurate, on time and undamaged. However, perfect orders are quite elusive for
many companies. And when used as a metric, high perfect order scores require the kind of effective coordination and communication across departments that are unattainable by most
companies.
Nevertheless, the benefits of a perfect order are clear and compelling. Perfect orders can drive down inventories, eliminate rework, reduce deductions and improve customer satisfaction.
They can foster enhanced collaboration among supply chain, IT, finance, sales, marketing and customer service. Further, AMR Research reports that a three percent improvement in
perfect order fulfillment can translate to a one percent increase in profits.
So why aren’t more companies working to ensure that more perfect orders are delivered? And why aren’t more companies tracking their results?
The 2005 Customer Service Benchmarking Study conducted by Dechert-Hampe & Co. revealed that only 34 percent of companies track perfect orders, and yet 77 percent of these same companies rate perfect orders as a valuable metric.
Why the disconnect? Is it because perfect orders require an unrealistic level of cooperation between customer service, supply chain and sales departments? Is it the need to have effective monitoring systems in place? Is it just too hard to achieve high results?
Discussion Questions: Are perfect orders a meaningful metric to track and measure? Is the prize worth the effort? Or is the perfect order like a perfect
10: an ideal that we dream of but rarely achieve?
Perfect Orders can be a very meaningful metric that are definitely “worth their salt.” In an era of increasing technological sophistication and with all the focus on data synchronization, the Perfect Order is not only an ideal goal, it’s a realistic goal and one that is economically worthwhile.
Over the last year we have done a lot of work that has involved tracking the “re-work” associated with less-than-perfect orders. And the cost of that re-work is much greater than anyone had imagined. Clearly it’s important to understand the full costs of an imperfect order as part of the justification for spending the extra effort to get to a more perfect one.
I chose “other” as the reason. All of the above reasons are symptoms of the cause which is lack of senior management vision.
Doing it right the first time is sometimes new to employees who have never before been compelled to perform at this level. It takes time, effort and lot of aggravation but the rewards are truly inspiring once achieved.
While many claim they are working towards a perfect order, they are not. The only way to look at a perfect order is through the eyes of the customer. The definition of a perfect order is simply the customer’s order vs. receipts on the day and time specified on the purchase order. Just because it leaves the DC on the planned date means nothing. Achieving a perfect order does not take extra effort, time or cost. Nor does it require great involvement by all areas of the company. What is required is a clean process and flow designed to incorporate customer specific requirements. The mistake most companies make is to implement exception processes by customers. This is where failure begins.
Our data shows that an often overlooked problem in all organizations is that processes are poorly designed — they are wasteful, weak, error-prone, duplicative, non-adaptive, and poorly coordinated. Perfect orders are the result of robust processes, and very few organizations even really design their processes — instead, organizations use the same process-templates that were first devised nearly 300 years ago. When these processes fail, organizations then add more control to the process, which produces longer cycle times and lower motivation, and solves few problems because the causes of the failures have not been analyzed and fed back into redesigning the process.
A good example is the approach many organizations use to try to improve order accuracy. When they find orders do not often enough match what is in the box, many organizations put a person on the fulfillment lines to re-check orders. This is costly and time consuming, and is merely a way of sort-of-patching deeper problems. The deeper problems have to do with incorrect item labeling and categorization, packing errors from the manufacturer, restocking errors, bin mis-designs, picking-process weakness, bin-labeling weakness, etc.
Our data shows that overall, organizations put some of the least time and resources into process design. I suspect it is because we are stuck in the concepts from the 1700s that people in organizations are essentially flesh-clad robots that the company owns; that the most “obvious” way to do a task is the best way; and that processes don’t need to be designed, you just need to note what the outputs need to be and give people procedures for doing the sub-tasks that result in those outputs. We don’t design clothes this way, we don’t design cars this way. Few executives we have studied even know what the term, “process design” means beyond a passing understanding; this is like asking a person who has never seen a semiconductor to design a computer.
“Perfect” in this context means both “right stuff, right place, right time” and “right communications, pre-, during and post.” Yes, that is a lot to ask, but compared with the chaos of after-the-fact reconciliations, it should be a relative bargain.
It’s important not to lay the responsibility for order perfection solely at the feet of the suppliers. Retailers must be ready to actively receive deliveries on time, identify deviations and initiate corrective action in real time.
And ordering the right quantities in the right time frames requires an accurate, continuously updated picture of shelf conditions that can only be achieved with systematically excellent in-store execution.
In short, the “perfect order” is not an end in and of itself. It’s an indicator of a healthy demand-supply system.
Being late with my comments today I can’t improve on the insights outlined above. But I do offer kudos to that company whose associates can regularly provide perfect orders without ever a single defect. Like Don Quixote of yesterday, and perhaps Nancy Pelosi of today, we want to dream the impossible dream, the faultily faultless, the splendidly null, dead perfection, no more, no less, and we stand proud and enriched with psychic income when measurement verifies that our team of associates have provided perfect orders.
Every retailer knows which suppliers always ship Perfect Orders, which suppliers generally ship Perfect Orders, and which suppliers rarely ship Perfect Orders. Even better, the suppliers themselves know their own ratings. Generally the poor performers have well articulated automatic rationales for why they cannot or need not achieve high standards. It’s not that they deny their poor performance, they just don’t believe better performance can be expected of them. And they’re right.
Purposely, we voted for the “cost outweighs the benefits” in developing a perfect order.
Didn’t Lands’ End gain magnitudes of praise for its customer service, by creating and demanding from its sales associates that a perfect order and sale must be made every time?
Haven’t Marriot, Nordstrom, even Starbucks, and other very consumer centric retailers secured a place in their consumers’ minds with their perfect order and sale transaction?
Yes, others can use it as a metric to evaluate the sales associates, to include the order taking personnel, shipping/mailing and follow-up to shopper/feedback, personnel and team. But, isn’t the perfect order and sale the reason why family owned, or private and public companies and corporations are recognized and command such loyalty in the marketplace?
This, newly, found shopper’s vehicle to business success used to be the norm, when many of us were growing up and not a new means to today’s retailers’ selling formula.
Let’s create the “Hall of Fame” in shopper service; hassle free “order to sale and delivery” transaction, and superior shopper satisfaction and hence, loyalty! Being in this “Hall of Fame” is truly the benchmark and measurement. Hmmmmmmmmmmm
Ask Edward Deming whether we should use “perfect orders” as a metric. Of course we should, but as many have stated, the answer is not to “fix the problem” but to avoid it. Looking at it purely from the technical perspective, the imperfect order problem is a classic example of the challenge of managing an “analog world” with “digital tools.” Unfortunately, computers are just “dumb machines” and when we ask them to do anything but process formulas or add up totals they get confused. Order processing is a perfect example.
The order process begins with an accurate purchase order. The problem often is that the retailer’s PO process cannot handle all the substitution and cost adjustment activity that can occur. The retailer’s computer cannot handle multiple item numbers for a single line item on the PO. This means that when new versions of an item are introduced the processes are not able to handle the transition. Bracket costs, allowances, and deals all have to go into determining the final PO cost and the Price List, Allowances, and Deal Sheets used to determine the values must be included in the PO transaction. When the order is received there has to be a way to capture both the quantity received and the quantity short or rejected. Everyone in the receiving process has to sign-off on the final quantities. Finally, when the invoice (or ASN with costs) is processed the payment must include a remittance advice that explains the reason for any deductions.
Perfect orders should remain the goal, but the consequences and effort for handling imperfect orders can be greatly reduced if the computer systems handling the process are more responsive to the real world situation.
Perfect orders are certainly an excellent metric, though generally more associated with consumer goods companies than retailers.
The biggest challenges at a high level are determining what should be included in the definition of a “perfect order,” and setting the target level, as the cost of near 100% perfect orders is too high.
The standard definition of “on-time, complete, and undamaged” is a start, and the easiest measure to hit. It starts to get a lot more complicated when you add other attributes to the measure: e.g., advance ship notice was accurate; shipment, ASN and invoice all match; and, most difficult, the order was touched only one time internally. That last one will send the perfect order of most companies very low. There are also issues with getting feedback from carriers. Many CPG companies have a sort of running, delayed perfect order score, because data from carriers keeps coming in over many days/weeks about what was delivered when. And if there was a late delivery because the retailer made the truck wait, does that count?
All that said, using the perfect order as the defining metric can lead to great insight about supply chain problems that otherwise are buried in silos.
But, it takes a leader at the top of operations, the supply chain or the CEO him/herself to make this the focal point.
My sense is that perfect order as a metric has sort of reached a plateau, and that this is unfortunate.
Perfect orders are a very meaningful metric to use, so long as you realize that, um, “stuff” happens. Get a benchmark, and go for a level of improvement. Try to see what the improved level did for you, and what it cost. Eventually, you’ll reach a point of diminished returns where further effort is counter-productive to the organization. At that point, don’t obsess — just stop, and retain what you have.
The grocery industry has done a lot of research on the perfect order, and in the past couple of years actually redefined the perfect order to include seven key metrics, which are (1) cases shipped vs. cases ordered, (2) on-time delivery, (3) damage free, (4) order cycle time, (5) days of supply at the customer warehouse and store, (6) data synchronization and (7) service at the retail shelf. The new metrics were developed because the old metrics were too myopic and did not view the entire supply chain from end to end. Some of the metrics no longer measure specific orders, but the feeling from the joint committee of retailers and manufacturers that worked on this project was that these metrics do a better job of defining success of the supply chain. The benefit of measuring the perfect order metrics is the opportunity to reduce costs and improve service throughout the joint supply chain of two trading partners. We encouraged all retailers to share the perfect order information with their trading partners as a first step toward improvement. This is a huge competitive advantage for those retailers who share data, as the manufacturers will use the information to make improvements to reduce cost and increase service. The grocery industry views perfect order measurement as a key metric and one that needs to be measured every day and improved every day. At the end of the day, what matters is if your product is on the shelf when a consumer wants to purchase the item. We feel the perfect order metrics address this issue.