The devil is in the details

The devil is in the details

By Alexander Serre

The right personnel and resources can make all the difference to your start-up company.

Read on to see how a multimillion Euro enterprise can miss its ambitious development goals, simply by not listening to its customers.


To set the scene, you have to imagine on one side a large German family business specialising in the distribution of tools and services, and on the other, a dynamic group of tool distributors in the UK.

When I took the job of International Sales Director, my remit was to develop sales in the 27 countries in North and Eastern Europe. This meant both increasing the sales to each current customer as well as increasing the number of customers.

Understanding the problem

Part of the concept was to offer a full set of services for tooling distributors which went from supplying a wide range of top quality branded tools, its own excellent value for money Format brand, a cataloguing service, as well as a series of financial services. The concept was excellent but so were those of our German 2-3 competitors who offered more or less the same one stop shop concept.


One of the markets in my portfolio intrigued me. The UK was potentially one of the largest potential markets in Europe, yet sales were disproportionately small. So I set about contacting the dozen or so customers that we had in the UK. 3 had no turnover for the last year or so, and had switched to another source for their needs. I tried to find out why, and the recurrent answer was that our prices were too high and our service too slow. We were competing against some local tool suppliers soon that seemed logical. Next came 4 customers with very low turnover, whom I found out were merely cherry-picking and not interested in developing the full range of products and services. All this was not very encouraging.

However, I found out that the 5 remaining customers, although independent, had regrouped themselves into an organised group. During the visit to one of them, I went to understand their needs, current and future, and determine what we could do to help grow our business.

In essence, our concept was ideal for this group as it allowed them to position themselves differently yet clearly in a competitive local market.

Our private brand Format was of excellent value for money. In fact it was manufactured by top brands whose products we sold alongside our own brand. Customers could pick a selection of core products but also complementary products from our vast range and build their own custom-made catalogue Deliveries were made from the central warehouse in Wuppertal where close to a 100.000 products were held in stock.

Sounds great but why are sales not growing?

Well, there were 3 main answers.

Firstly the catalogues had a lot of errors in them. Although this is likely the subject of a future story, it is not the key topic here.

Secondly, our delivery service was very poor.

And thirdly, due to the number of other distributors also offering, or claiming to offer the Format brand, there was a price war, that was to the advantage of the end-customer.

What the group wanted was exclusivity to our Brand in the UK. This was logical, as they would be able to position themselves as exclusive suppliers of our brand and therefore they would be able to actively push and promote our product throughout the UK. Although not present in some areas of the UK, the group had plans to add new partners in the near future to cover those territories, including Northern Ireland.

Exclusivity was very rarely given but the proposal made sense. Especially when I asked the question of how much extra revenue could we do together if I sorted out all 3 problems.

The answer was 5!

5 what? Percent? Million?

“5 times more business in the next 3 years” was the answer.

Now that is an opportunity! 500% was simply utopic.

Finding the solution: The main problem to solve however was that of the deliveries. We apparently had an on time , first time delivery rate of around 60%, whereas our internal standard was supposed to 98%. There was obviously something wrong here. The discrepancy was simply too large. On my return to Germany armed with facts, I started to dig into the problem. Firstly, I had the 98% reconfirmed to me. Secondly, I had a trustworthy and experienced person in my team verify what figures SAP gave concerning the UK deliveries. The average over the past 6 months was around 95%. So not the 98% expected but certainly far from the 60% announced by the UK customers.

And then the detective work started.

SAP is a brilliant tool, but it is quite difficult to manage without a good level of training. SAP is factual, and all the facts are in the system if you know how to access them. Or you know the person that has the rights to access them. Delivery by delivery I went through the deliveries and created a Excel sheet that simply indicated, product by product the delivery date indicated by SAP and that indicated by the customer. The discrepancy between the 95% and the 60% were obvious. So off to the logistics department I went to get some answers. I had to be careful because the logistics department was the heart of the company. The warehouse was a slick, ultra-modern organisation the size of 11 football pitches, which included 11 rows of fully automated robots that looked after the picking of the fast-moving items.

It was the pride and joy of the owner and quite rightly so. But I had to tread carefully. A sales guy getting involved in logistics… He’s not even German… what does he want? I very carefully picked my contact person. It had to be someone who was competent, able and willing to dig into the bowels of SAP to understand the differences in my figures. And that person had to preferably speak good English so that there were no misunderstandings or misinterpretations due to language problems. With the help of a colleague who actually had noticed a similar phenomenon with his customers, arranged a meeting with the logistics back office expert. She fulfilled all my criteria and we were able to get to work. But really low key. I didn’t want to awake any suspicions within the logistics department. I wanted to be able to collect all the necessary data for further analysis, and I didn’t want my logistics contact to have any problems. We agreed to meet at specific times when she was sure that we wouldn’t be disturbed. She even stayed after work several times to help me. The findings were edifying. SAP recorded a product as “delivered”, as soon as it left the warehouse, not when it arrived with the customer! In addition, SAP was programmed to deliver part orders. That is to say, that if there is an order for 10 different products, SAP would organise the delivery of those that were in stock. So if 2 products were not on stock, they would get shipped at a later date. A new internal order. Was created for these 2 products meaning that the original deliver date was lost in the system and SAP recorded the subsequent deliveries as on time. To compound the problem for the customers. They were charged with the extra shipping costs.



A fully automated picking robot

Another interesting finding concerned a fast running product that was systematically out of stock. I spoke with the purchasing department to understand the problem. They called the supplier to give him a telling off. But it turned out that the supplier had officially increased his delivery time by 2 days a few weeks before, confirming by email and even getting a confirming from our company, but that no one had adjusted the SAP accordingly. Implementing the solution: Armed with all the facts, I descended into the arena. Although the term was originally referring to the gladiators in the Colosseum, I felt very nervous when I entered a meeting with the CEO and the other department directors. When I mentioned the problem, there was total silence in the room.

Despite the fear management culture, I needed to talk about the problem. The others looked at me as if I was mad to bring up such a sensitive topic. The CEO looked at me and was clearly thinking how he should react. He knew me as an open spoken person, and knew that I always supported my ideas with facts. “I presume that you have some proof to show me” he said. I showed my figures and documents. He asked a few questions and then picked up the phone and called the Logistics Director. He simply asked him, very calmly, to confirm how the company measured that an order was delivered. There a long silence in the room as he listened to the reply. He then asked how they treated orders with products that were not in stock. Again a long silence. “Thank you” he said and hung up. “Alexander, it would effectively seem that we have a problem.” The top-down directives were quick to be put into motion, new KPIs were determined for the company and were implemented within SAP. And a new Logistics Director was announced a few weeks later. In the weeks that followed, the word was spreading to customers in all countries that the delivery performance had been significantly improved and the level of customer satisfaction was vastly improving. Further solutions required Having presumed that the problem was solved, I confidently contacted my UK customers to announce the good news. Although the team and I received considerable thanks for work accomplished, I was somewhat surprised to learn that we had won a battle, but not the war. The UK market required next day delivery before 10am, and solving the SAP problem didn’t actually solve the express delivery problem to the UK and some other European destinations. In fact the Express service worked for Germany and most countries touching Germany, but didn’t work for destinations separated from Europe by water.

The UK and the Nordic countries were particularly impacted. As these countries only represented around 5% of revenues, negotiations with the courier firm such as DHL and Federal Express had not really included the requirements for these countries. So I had to discuss with the head of logistics to get these requirements taken into account. We were in the famous Catch 22 situation: sales were too low to focus on these requirements, but if we don’t offer these services we will never the revenues. As often, internal selling is harder than selling to customers. I managed to get my customers to write forecasts that integrated these improved services. On average, customers said that they could sell 3 times more if they had improved delivery services, and that they were willing to pay a reasonable surcharge for these services. With these improved forecasts, the new Logistics Director agreed to renegotiate the contracts with the big transport companies. The competition between these companies was fierce and we managed to negotiate very favourable terms which were acceptable to our customers. At last the satisfaction of our customers was at its highest in decades, and the trust and foundations were laid for sustainable growth together.

Conclusions:

From this true story, several key points clearly appear.

Listening:
Managers should listen to their teams. It is often the people closest to the customer know best what is going on.

Management style:
Top-down fear management is not only not constructive, but even destructive. When managers fear to say anything for fear of being reprimanded in front of their peers, this leads to important information being withheld. This also leads to demotivated, teams, unhappy customers, and subsequently significant loss in revenues and profits. Cost of non-conformity: In this particular case, it is very difficult to calculate the losses incurred due to these incorrect KPIs. The main damage will have been linked to the number of lost customers due to poor delivery and imprecise delivery statistics. Customers were being told that their statistics were wrong because ours were based on SAP, and therefore couldn’t be wrong.

Corrective action:
Once the problem has been properly detected, then the appropriate corrective action can be put into place. But to find the source of the problem, Toyota’s famous 5 whys method works very well in such situations. Insisting 5 times with a “… yes but why?” allows one to really get the root cause of a problem. In some very complex cases, it sometime needs up to 7 iterations.

Trust:
Trusting team members and customers is critical. And it works in both directions.

Courage to speak:
It sometime needs courage to be speak out when something obviously wrong. And getting sacked because one speaks out, usually means that the company is not the right one to work for.

Fact-based management:
When challenging an idea, it is obvious that facts are a key element of a successful discussion. Facts speak louder than words.

Don’t take no for an answer:
Whether it be from internal or external customers or partners, taking an initial “no” should not be considered as a negative but more as a challenge. It sometime needs creative thinking to overcome certain hidden obstacles. Asking the right questions: In order to get the right answers, one has to know how to ask the right questions. Increased customer satisfaction, constantly improving customer experiences are mainly and therefore revenues and profits are often achieved by asking customers their opinion, listening to their needs and implementing them where relevant.

Be prepared to defend your customer:
Customer wants to know and feel that you will represent and defend them against the internal urge of simply getting the most money out of them. When, as in this case, the customers know that you went to great lengths to find solutions for them, this creates an immense of goodwill, ideal for building trust and therefore future business together.

The devil is in the details!

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