Provide Ritz-Carlton Service to Your Customers - It is Mostly Free

I had such a great experience this weekend I had to, as always, relate it back to customer value chain fulfillment.  We decided to spend the weekend at a beautiful resort owned by the Ritz-Carlton company and it was fabulous.  So, how does this relate to order fulfillment - the business all logisticians are truly engaged in?  It is called service.

Many of you may be saying "well of course it was a great time because it cost a lot and you were in a beautiful setting".  True and I will certainly say I am not naive of the fact the Ritz gets paid for all it does.  However, I do have to wonder which came first?  Are people willing to pay higher prices because the service is so incredibly better than the competitors or do they charge more because it costs more?  My hypothesis is it is the former rather than the latter.  Lesson 1:  People are willing to pay more if your service is significantly better than the competition.  Not just a little bit better and not just sometimes but consistently and significantly better than the competition. 

Now, the good news is most of what differentiated the company from the competition was free or very low cost!  I never walked by an associate at any level of the organization without them smiling and greeting me.  If they had a work cart in the aisle they immediately moved it so I did not have to muscle around things.  The place was spotless - every employee was part of the cleaning staff because everyone picked up even the slightest thing which may not belong where it was.  The bottled water was free!  Small bottles of water free!  It likely cost them almost nothing to provide that but rather than leave a bad taste in your mouth about the overall experience by ripping you off on $5 for water they just gave it to you!

My wife needed contact lens solution and the front desk offered to drive her to CVS to get it.  They did not say "I can call you a cab".  They just offered to fix that little problem for us.  Lesson 2: Don't make your customers feel they had a bad experience over some very small petty thing.  Just fix the problem and move on.

I could go on and on about the Ritz-Carlton and its great customer service but I think you get the idea.  So, here are a few lessons for supply chain / 3PL companies:

• Most actions which drive very high customer experience ratings are not very costly.  They are the basics.  Make your customer feel human again!
• Train everyone to be a customer experience evangelist.  The driver, the customer service agent, the building and grounds people.. everyone.  One thing you will find is not only will your customers be wildly excited and promote your company but it will also have the positive effect of making your workplace a desired location for recruits.  Want to recruit top talent and retain them?  Treat them as customers and not machines. 
• Fix the little stuff and move on. How many times do you find your company arguing with a customer over some petty thing (Think free bottled water).  At a company I worked we provided surveys on the delivery experience and I reviewed those surveys.  One customer had rated us all 10's (great) and put in the comment field "please bring donuts next time".  I went ahead and had the driver deliver donuts on the next delivery.  Nike had the right approach - Just Do It.
• Finally, when you do make a mistake, own up to it with your associates and your customers.  No one is perfect and no one expects you to be perfect.  They expect you to own up to it and solve it.  

Well, another great weekend in the books and wow did I learn and in a lot of cases re-learn a lot.  Your customer experience will definitely differentiate you and now, in the Nike fashion go JUST DO IT!.

Kraft, ZBB and the Art of Designing Supply Chains

A lot has been written this weekend about what is happening at Kraft Heinz (KHC) and why they suddenly had to write down a huge portion of their brand portfolio.  Many articles are calling out the zero based budgeting (ZBB) program 3G installed after buying Heinz.  I disagree.  I think it is something far more basic: They lost sight of their customers.

First, a quick definition of ZBB.  ZBB was the darling of the consultant community many years ago as a way to wring costs out of bloated companies. Consultants loved it because it allowed for a lot of business ("I am a ZBB certified...), companies loved it because it had the promise of driving out costs and Wall Street loved it because they generally love all things that are short term profit boosters.  And, in my opinion, it is a good program.  It forces you to reevaluate your costs every year.  Just because you did "x" last year does not mean you need to do it again next year yet the standard budget process assumes programs and positions continue forever.  ZBB does not.  ZBB picks the arbitrary time of one year and says every year every cost needs to be justified.

The reason for this however may be what KHC and 3G totally missed.  The reason you do this is so you can reinvest savings generated from non value added (non competitive) functions of the company to value added functions or better said, programs which make your company more competitive in the market place.  Pocketing the savings or paying it out in dividends is a short term strategy which ultimately ends.  And that is what happened to 3G.  They did not appear to invest the money but rather they pocketed it.

This is also why KHZ and the 3G model relied on acquisitions.  The only way this method of ZBB works is if you keep acquiring bloated companies and implement the program with them.  It is somewhat of a Ponzi scheme.

So, what should they have done differently?  Many of you have read my writings on the customer centered supply chain and outside-in thinking.  This is the fundamental miss of KHC.  They were inside-out in their thinking as they were so focused on the drug of cutting costs then keeping the money they forgot to invest in the future.  Perhaps they felt they would have an endless stream of acquisitions so the music would never stop (Remember, they tried to buy Unilever but were rebuffed and they tried to buy Campbell's but they claim the price was too high)? What they did not anticipate is many of the acquisition targets had implemented their own ZBB and thus the opportunity to wring costs out after acquisition diminished dramatically.

There are lessons for supply chain design and management:

1. Always work and design using outside-in thinking.  Start with the customer and work your way back in.  Never start in and work out. 
2. Not all costs are bad.  You can break costs into competitive and non-competitive costs.  Competitive costs are this which deliver competitive advantage in the market place.  Those are good and necessary.  Non-competitive are those which are either excess or just "cost of doing business" and those you want to minimize.  
3. Your mother taught you this lesson:  Anything taken to the extreme can, and likely will, be bad.   Just because you have a hammer does not mean everything is a nail.  
4. Don't lose sight of your business.  Sears did this and perhaps KHC is doing some of this.  They are in the business of lightening up people's day by selling great food products.  The business is not "how can I cut costs the fastest".  The ultimate tail wagging the dog.  

Lots of lessons here and I just hope a great budgeting tool is not thrown out due to very poor execution.  

If Your Supply Chain is Not Customer Centric - You Are Dead

My previous post discussed why Amazon is killing the retail market.  My thesis is simple and it has nothing to do with Amazon being a financial juggernaut.  It was not always that way so we have to ask ourselves how they arrived where they are today.  The reason: Customer Centricity.  Amazon bills themselves as ..."The Earth's Most Customer Centric Company".  They are passionate about the customer.  So, what are the supply chain implications:

1. Stop Talking About Cutting Costs and Start Talking About Increasing Revenue: The stereotypical supply chain manager prides themselves on cutting costs.  They talk about taking inventory out, moving to cheaper modes of transportation, consolidating warehouses or, God forbid, outsourcing to get cheaper labor.
   
   What they don't talk about is "How can I make the supply chain better to get products to the customer faster so we can drive sales".  Yet, this is the question they should be asking and this is the question the Amazon supply chain managers think about every day.  If you want to know what a "cost centric" supply chain looks like, look no further than Sears.  They are cutting costs right out of business.
   
2. Get Supply Chain Managers Closer to The Sales Force:  If your supply chain managers are not on the road with sales people periodically, meeting with customers and listening to the nuances of what they want, you are not a customer centric supply chain.  I have met a lot of supply chain leaders who say they are customer centric and then I ask them to name (by name, not company) 5 customers who are in a position to buy their product (not the logistics people of the customer company but the actual customer) and they almost never can do it.
   
   Also, if you are selling to an intermediary (i.e., MFG selling to retailer) don't forget the ultimate customer is the consumer not the intermediary.  The intermediary is only going to buy your product if the consumer is pulling it through the channel.  Because of this, you have to understand the real needs of the consumer.
   
3. Velocity is a Weapon:  Customers and consumers want speed.  When supply chain managers cut costs that is generally a euphemism for cutting speed.  It generally means, buffering inventory, slower transportation modes, conducting mode shifts by "trapping freight" and building truckloads etc.  Make no mistake, these are all revenue and sales killers.  Speed wins!
   
4. Look to the Future:  Don't build your supply chain for today!  Look to the future.  What will customers and consumers want in the future and ensure your supply chain can flex to the future.  This is one of Amazon's super secret sauces.  10 years ago who would have believed people would pay $100 per year to get access to 2 day or next day delivery?  The only company that did was Amazon which left others far behind - in some cases so far behind they can never catch up.
   
5. Listen to the Language Your Company Uses and Change it!:  Here is what I mean:  When Amazon discusses customer service they say, "2 day delivery".  When others discuss it (and I have heard a lot of retailers say this) they say "next day shipping".  Notice the nuance here? Amazon's statement is customer centric - when will the customer receive it.  The other statement is internally focused - when will I ship it.  This is a critical difference and it highlights the issue. 

Of course costs cannot be ignored and you have to do this in the most efficient manner possible but my point is that a growing company, with great customer centricity, can drive more revenue.  You cannot cut costs fast enough to overcome lower and lower sales (see Sears for a case study).  

Bottom line:  BE CUSTOMER - CENTRIC!

Amazon Mission Statement:  "Our vision is to be earth's most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online."

Definitions of Terms Must be as Your Customer Sees It

I am sitting on a plane right now, on the Tarmac, moving nowhere.  This reminds me of another aspect of a truly customer centric supply chain: Define terms as your customer sees them and not for your own internal metrics.

So, the airline app says I have "departed" and in their mind, I am sure I have. But in my mind, I am sitting in a tube, on a tarmac, going nowhere. I, the customer, consider departed to mean I am up in the air and heading to my destination. 

Lesson:. Define terms from a customer lens, not from an internal lens. When you do this, you will be on your path to customer centricity.