What can CX leaders do about the difficult issue of supply chain disruption?by
Supply chain issues are currently wreaking havoc in the UK, with empty shelves in supermarkets, and no fuel at garages. Jim Tincher explains how CX leaders can manage this problem and help their organisations fully appreciate the cost and consequence of reduced inventory.
Britain is facing a full-blown supply chain crisis. Supply chain snafus have meant that McDonald's is short of milkshakes, chicken is off the menu at some Nando's and KFC restaurants, and Wetherspoon's is running low on lager.
Meanwhile, stock levels are the lowest since 1983 as an HGV driver shortage prevents goods from getting onto supermarket shelves, and the worst shortage of raw materials and components in decades has harmed the British manufacturing sector.
This current situation may be extraordinary, but the scenario for customer experience leaders isn't so out-of-the ordinary, according to Heart of the Customer's CEO and journey-mapper-in-chief Jim Tincher. Heart of the Customer maps customer journeys for a wide range of B2B organisations, from healthcare to manufacturing to distribution and more. And it has found one area of friction common across industries: backorder issues.
"Whether mom and pop retail storefronts or global manufacturers, customers with products on backorder face similar situations," explains Tincher.
"Here’s how it generally plays out: They take an order from their customer and promise a delivery. Then they find out that the product is on backorder. That puts them in an difficult position. Do they scramble to find a new supplier? Look for an alternate product? Disappoint their customer? None of those options are appealing."
The UK's current predicament is arguably caused by a confluence of factors - specifically Brexit and COVID. But why do backorder issues happen so frequently in normal times?
"Growth is addictive," explains Tincher. "And when topline growth slows down, companies look for ways to improve the bottom line. One way is to restrict working capital. In other words, they reduce inventory."
But with COVID expected to leave industries around the world reeling from material shortages for some time yet, the significant and negative impact on customers could continue for the foreseeable future.
Fortunately, Tincher has four ideas, from tactical to strategic, that can help you, as a CX leader, manage this problem. Furthermore, he also provides some ideas to ensure that - once the current difficulties recede - your organisation will fully appreciate the cost and consequence of reduced inventory, so that customer experiences may emerge from this supply chain nightmare in better shape than ever before.
1. Provide proactive notice of backorders
"This is a brute force technique, but if your inventory issues are restricted to just a few products, let clients know about it before they order, preventing disappointment and minimising the frustration you cause to their customers," advises Tincher.
"Most suppliers are hesitant to do this. They prefer to delay notice until after the order is locked down, because they worry the customer won’t place the order at all if they know the product is on backorder.
"That strategy might work out well if their clients are puppies with short memories. But if you’ve ever had to call a customer to renege on a promised delivery, you know that real customers have long memories. And such unwelcome surprises will cause them to look elsewhere."
2. Provide inventory transparency
"Obviously this is more difficult than simply providing notice," Tincher notes. "That’s why good, clean data is so important. And sharing bad data with clients is even worse than sharing no data at all.
"But if your data is solid, providing transparency to your inventory lets clients know about potential issues early on, so they can set appropriate expectations with their customers."
3. Prioritise customers
"If every customer is special, no customer is special. Serving customers well requires trade-offs," says Tincher.
"With constrained inventory, first-come-first-served is a terrible idea. Allocate inventory to your best customers first. Of course, you can’t do that until you’ve defined which customers are your “best” ones, a critical task for any B2B CX programme."
4. Put a cost on backorders
"It’s easy to see the cost of higher inventory. Between cash flow, storage, and staff time, these costs are very tangible. It’s harder to show the benefit. And hard costs defeat fuzzy benefits every time.
"It’s your job as a CX leader to show the impact, especially since it’s a customer impact. You’ll probably need help from your operations partners, but it’s the best way to ensure your company fully considers the impact of reduced inventory."
Tincher believes there are three complementary ways to accomplish this:
i. Measure the cost of reacting to the issue
"Customers don’t meekly accept backorders. If they need the product, they’ll work to get it. They’ll call CSRs, open complaints, and escalate to managers, while also reaching out to sales for help.
"One Heart of the Customer's client found their sales team had started “helping” with inventory issues. Soon, their customers expected sales to get back to them within the hour and they stopped calling customer service. Sales spent much of their day tracking down orders rather than selling.
"Another client found that their sales reps reacted to backorders by contacting every customer within 30 miles to find inventory they could borrow, then they drove to this other customer, picked up the supply and delivered it. This took hours.
"Customer service is good – but was that the best use of their sales team’s time? I think not.
"Tracking all this cost may be hard, so it might be more manageable to start with one market. Show both the hard costs of time and the opportunity costs from taking your sales reps away from their primary responsibilities."
ii. Measure lost customers
"This can also be difficult, since it’s hard to identify one reason why clients are lost. Alternatively, look for lower share of wallet after backorder issues.
"If you run win/loss studies, analyse them for inventory issues. One client found that, because of their issues, a customer prevented them from bidding on a $1 million opportunity. If you don’t have solid win/loss data, focus on anecdotal reporting."
iii. Put a face to the problem
"This can be the most powerful approach, especially when paired with the other two. Supplement the data by showing the customer impact visually. Of course, journey mapping is a really good way to do this, especially when you video record the interviews.
"We’ve captured our clients’ customers swearing and slamming the table when they talk about backorder issues. While you also need the data to show the problem rationally, nothing builds empathy and understanding – and most importantly, drives action – like seeing one of your most important clients frustrated because they can’t serve their customers.
"Backorders are a big deal, particularly in B2B relationships. Sure, every company wants to limit costs. So it’s your job to balance the working capital analysis by showing the very real employee and customer impact of reducing inventory. Show that you’re losing more than you’re saving and you’ll get leadership’s attention."
Neil Davey is the managing editor of MyCustomer. An experienced business journalist and editor, Neil has worked on a variety of newspapers, magazines and websites over the past 20 years, including Internet Works, CXO magazine and Business Management. He joined MyCustomer in 2007.