Value-Chain Report -- Effective Order Management: One Key To Superior Customer Service

Dec. 21, 2004
Process and technology improvements enhance performance.

Differentiating your company from the competition can be fairly straightforward. Your customers simply ask that you deliver the right product, at the right price, at the right time, at the right place and supply the right information during the process. Although industry leaders have been preaching this mantra for years, we all know that it is not as easy as it sounds. In fact, achieving these objectives can be a real challenge. One of the keys to success is having an effective order management process in place. Five Elements Of Effective Order Management In order to provide superior customer service, a company must execute reliably in five key performance areas:

  • Define -- Understand what the customer requires.
  • Commit -- Make the promise to deliver.
  • Produce -- Manufacture or acquire the product.
  • Deliver -- Get the product to the customer.
  • Respond -- Provide information throughout the order cycle. Because of their high degree of visibility to the customer, each of these performance areas is extremely important to successful customer service. Each interaction between the company and its customers must be well executed. From the time that a customer orders a product until the time that the product is delivered, a company must be successful in each of these five key performance areas. How does a company enable success in each of these five performance areas? Although there are countless initiatives that companies can undertake to enhance performance, these actions generally can be viewed as the successful implementation of four process enablers and three technology enablers. Process enablers that support effective order management include:
  • Ability to realistically promise to deliver according to the customer's requirements
  • Capabilities for meeting promise commitments
  • Infrastructure for maintaining a low cost structure while fulfilling orders
  • Aligning inventory with customer needs Technology enablers that support the processes underlying effective order management include access to accurate and reliable information in real time; responsive analytical and planning tools; and integrated order-management and execution systems that allow close coordination and integration of activities across the entire supply chain. Providing Realistic Promises One of the most significant issues faced by manufacturers is the lack of accurate, timely information and appropriate systems and processes for making realistic promises to customers. In general, information tends to flow sequentially through the supply chain in ways that are slow and inappropriate for effective decision-making. One solution to this problem is to implement real-time systems and data exchanges that enable trading partners to share information and provide visibility throughout the supply chain. Utilizing these types of systems, manufacturers will have access and visibility to information on key order-management criteria, such as product specifications, component inventory levels, manufacturing capacities, production schedules and other constraints. With this information, the accuracy of promises to customers can improve significantly. Meeting Promise Commitments Most manufacturers make an earnest effort to fulfill their promises. And while companies typically do not accept customer orders with the intention of missing their promises, mishaps inevitably happen. Events that interfere with promise commitments typically manifest themselves in two forms: Products are delivered later than promised and/or products are delivered that do not meet customer specifications. Missing the delivery date. In most cases, when products are delivered on or shortly before their promised dates, customers are satisfied. When products are delivered late, customers are usually unhappy. One way to address the problem of missed delivery dates is to provide a more realistic promise in the first place. Having systems and processes that provide a more complete understanding of capabilities and constraints throughout the supply chain allows for more accurate promises that reduce delivery errors. Missing product specifications. Few things are more frustrating for customers than to receive a shipment only to discover that the product is out of specification or not what was ordered. Although human error may cause some of these types of problems, errors in order fulfillment are often caused by inaccurate or incomplete information. There are two ways to address this problem:
    • Ensure that products are configured properly during the sales process, providing promises only for products that can be supplied in correct configurations. For example, an order-entry configuration tool should "know" that a valve for a highly corrosive environment cannot be made of certain materials.
    • Provide access to complete and accurate product configuration information for planning, scheduling and production processes.
    Maintaining A Low Cost Structure After the customer order has been received and a delivery date promised, the manufacturer is charged with executing that order. Depending on the type of product and fulfillment process, delivering on the order while maintaining a competitive cost structure can be a significant challenge. Two approaches that manufacturers may employ to contain costs include order aggregation and/or lean manufacturing. With order aggregation, manufacturers accumulate similar orders until some economies of scale are achieved, and then the accumulated orders are produced concurrently. With lean manufacturing, manufacturers improve their production process and reduce changeover time, resulting in a lower overall cost structure. Technology enablers exist to support both techniques. Much has been written regarding each of these techniques. Aligning Inventory With Customer Needs Companies that operate in an industry or business environment that requires that they produce or procure products before customers have explicitly expressed their preferences and demands have to forecast demand and produce or procure to support that forecast. Mismatches between forecast and actual demand results in excess costs attributable to unsold products or lost sales opportunities. One of the keys to improving the balance between inventory and customer-service levels is reducing forecast error. Two of the most common ways to reduce forecast error is to improve the forecast methodology and/or reduce lead times. With an improved forecast method, the average forecast error is reduced. By reducing lead times, manufacturers can delay commitments to specific product quantity and/or configuration until they have more or higher quality information regarding true customer demands. An often overlooked but effective method for reducing forecast error is to postpone product commitment. Even while committing to an overall production schedule and quantity, manufacturers still can postpone their commitment to specific product configurations until later in the production process. This added time buffer allows companies to learn more about true customer demand -- possibly receiving actual customer orders -- which enables them to reduce forecast error. Companies can leverage process and technology enablers to improve their ability to meet customer requirements and improve customer satisfaction. Recent advances in information technologies have created many tools to support some of these key performance requirements. By implementing process and technology improvements, companies can more precisely define, commit, produce, deliver and respond to customer needs and dramatically improve overall customer service and value. Kevin P. O'Brien is a Cap Gemini Ernst & Young practice leader for supply-chain consulting with high-growth and middle-market companies.
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