Competition today is increasingly fierce. Increasing cost of materials, increasing costs of labor and increasing costs of distribution are putting more pressure on profit margins than ever before. Delivering customer value while making a healthy, sustainable profit has never been harder. But there are disciplines and tools available that help companies do just that. First things first; what exactly is customer value? We must ask the customer because it’s their view – and only their view – that matters here. Research shows some common components of customer value, regardless of the industry. Customers say a big portion of customer value is doing what you said you’d do, when and how you said you would do it. Keeping your commitments or being reliable is the core underpinning of customer value whether you’re delivering a product or service or a combination of both.
So, How Reliable is Your Organization?
If keeping our commitments is the foundation of customer value, then reliability is a mission critical performance component. Businesses need to know how they’re performing. Do we deliver on our customer commitments, on-time and in-full (OTIF)? Many managers and business owners tell me they don’t measure OTIF performance because they’re “really good” at it. They rely on their own experience more than data in assessing performance. For some, it’s because the data may not be available. For others, it may simply be a lack of trust in the data. For yet others, it may be a belief that how we’ve always done it is good enough.
In my experience consulting with businesses, all have been surprised by the gap between the perceived performance of the organization and their actual performance. And, the surprises have all been negative. Actual performance was less than perceived performance.
Managers and employees tend to discount poor performance based on the cause. For example, an upstream supplier backordered an item causing this business to deliver incomplete to their customer. The manager didn’t consider this an OTIF failure. The manager’s company delivered everything they had at the time. It was the upstream supplier’s fail. Yet the end-user customer doesn’t view the transaction that way. To the customer, the company they chose to do business with didn’t meet its commitment. Period. The customer doesn’t care that the company’s supplier failed to meet a commitment.
Steps to Building Competitive Advantage
Biased review of performance will never lead to a competitive advantage. As Ronald Reagan would’ve said, ‘trust but verify.’ Collect the performance data and let it inform decision making accordingly. Asking ourselves, “do we know or are we guessing?” is an excellent discipline. It’s foolhardy to build a strategy and a business on what we think we know. Build the strategy on what you know.
Measure performance. To that end, there are a number of tools available to assist in measuring & delivering performance. Invest in the operational disciplines and technology that create measurable performance and capture it. Use the information and metrics they provide. Investigate the tools available. Adopt the tools that give you visibility and the ability to manage costs and value delivery to customers.
The key here is selecting the right metrics. It’s easy to become overwhelmed with the volume of data available. Keeping a tight focus on the mission critical metrics helps all employees consistently focus on delivering customer value - flawlessly.
Business must deliver customer value and make money. They must operate at a healthy profitability to be sustainable (i.e., make enough money to reinvest in the business and maintain competitiveness and reward shareholders for risk). Thus, the key metrics measure customer value and critical cost drivers. OTIF is an essential customer value metric. Cost drivers may include labor efficiency (payroll/sales or margin); asset utilization (capacity utilization of shipping fleet); or inventory efficiency.
Road to Improved Performance
Tools that directly measure your reliability (OTIF) are vital to any organization that wants to drive a competitive advantage.They inform on the mission critical performance elements. It’s easy to see what’s working well and what’s getting in the way. Once identified, obstacles can be eliminated and performance improved.
This is the primary stake in the ground for all areas of the company. Any employee can ask, “Is my work supporting our organization’s ability to deliver OTIF to our customers?” It will grow the understanding that all areas of the company need to perform correctly to deliver a flawless OTIF experience for their customers.
The right metrics will ensure your organization has a clear view of the strategy, the performance and any gaps. They
can transform organizational performance by shining a spotlight on it and creating actionable information. Organizations will no longer be guessing about their performance levels. They’ll know.