As 2018 wrapped up, we finished mapping three very different B2B journeys – healthcare, manufacturing, and distribution. We found one major consistency: customers in all three reported recent backorder issues.
The customers were all businesses, but that’s where their similarities ended. Some were mom and pop retail storefronts; others were global manufacturers whose names you would immediately recognize, but their stories were similar:
- The small business takes a customer order, then purchases the required inventory. Later, they receive a call that the product is back-ordered. This puts them in an awkward position – does the company scramble to find a new supplier, look for an alternate product, or disappoint its customer? None of these is very appealing.
- The global manufacturer makes delivery promises to its customers. They purchase their required inputs with their supplier, only to be told the product is on backorder. This leaves them with essentially the same poor choices as the mom and pop shop.
Is the consistent issue with back orders a coincidence? I don’t think so.
Growth is addictive. And when topline growth slows down, you look for ways to improve the bottom line. One way is to restrict working capital; in other words, reduce inventory.
Reducing inventory is a rational best practice when taken in isolation, but it can have very real impacts on customers. Here are four ideas, from tactical to strategic, that you, as a CX Leader, can consider to manage this issue and help the organization fully appreciate the cost of this decision.
1. Provide customers with proactive notice of back orders. This is a brute force technique, but if your inventory issues are restricted to just a few products, you can let customers know about it before they order, preventing the disappointment and the risk of them frustrating their customers.
Most companies are reticent to do this. They worry they’ll lose orders; customers may be willing to wait once they place the order but won’t place it if they know it’s on back order. Avoiding communication works well if your customers are robots 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. Repeated surprises will cause them to look elsewhere.
- Provide inventory transparency. This is clearly more difficult than simply providing notice. I wrote two weeks ago on the importance of good data. Sharing bad data with clients is even worse than sharing no data. If your data is good, on the other hand, providing transparency to your inventory lets clients know about potential issues early on, so they can set appropriate expectations with their customers.
- Prioritize customers. If every customer is special, no customer is special. Serving customers well requires trade-offs. With constrained inventory, first-come-first-serve is a terrible idea. Allocate inventory to your best customers first – but before you can do that, first define which customers are “best.” Defining the most important customers is critical to any B2B CX program.
- Put a cost on back orders. 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. Hard costs defeat fuzzy benefits every time.
It’s your job as a CX lead 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. I can see three complementary ways to accomplish this.
2. Measure the cost of reacting to the issue. Customers don’t meekly accept back orders. 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 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 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 back orders by contacting every customer in 30 miles to find inventory they could borrow; they then drove to this other customer, picked up the supply, then delivered it. This took hours. Customer service is good – but that wasn’t the best use of their sales team. Tracking all this cost may be hard; consider that 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 responsibility.
3. Measure lost customers. This is a bit difficult, since it’s hard to find one reason why clients are lost. Alternately, look for lower share of wallet after back order issues. If you run win/loss studies, analyze 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, you may have to focus on more anecdotal reporting.
4. 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. Journey mapping is (of course) a really good way to do this, especially when you video record the interview. We’ve captured our clients’ customers swearing and slamming the table when they talk about back order issues. While you need the data to show the problem rationally, nothing drives action like seeing one of your most important customers frustrated because they can’t serve their own customers.
Backorders are a big deal, particularly in B2B relationships. There’s a reason they happen – every company wants to limit costs. It’s your job to balance the working capital analysis by showing the very real employee and customer impact of reducing inventory.