Back and Front Office Integration: Bad Story, Good Story - Customer Relationship Management

Even back in 2000, the integration of the back and front office was an apparent win-win. But that wasn’t enough as the business ecosystem began to shift in 2004–05. The extended value chain was beginning to emerge from the cradle. Before we look at what came next, a couple of stories—a failure due to broken back office to front office technology, process, and culture—and a success because the customers came first in the back.

Lessons of Real Life Failure
In mid-2007, a friend of mine, we’ll call him Steve, ordered something from a hardware chain that came with the wood cracked. He called their customer service department, was told that there was no problem, he had a lifetime guarantee and within two days the replacement was there, the offending original whisked out the door.

Great story, no?
No.

When Steve’s credit card bill came, he found they had charged him for the replacement. Why? This was supposed to have a lifetime guarantee and was certainly replaced soon enough to be free under the warranty. It had nothing to do with bad customer service or deceptive policies.

When he got to the bottom of it, Steve found out that this company didn’t have any processes or even technology in place to handle exchanges. They had a purchase and a refund for returns and that was it. The system treated the exchange as a new purchase and a return refund. Because of a glitch,he got dunned for the charge as a new purchase, but then wasn’t credited back. This wouldn’t be so horrible except for the incredibly antiquated system, but he was eventually charged (and sometimes credited) three times.

Steve spoke with a first-tier customer service representative initially. Then he upped the ante by speaking with the customer escalation manager. Each time he spoke with a new person, he had to re-explain the situation because even though there were transaction records on his customer history—purchases, charges, records of customer service calls—there were no interaction records.

Steve then went to the store where he bought the goods and spoke to the manager, asking him to cut a check to solve this issue with the multiple charges on his credit card. The manager was unable to give him that check even though he wanted to because he had no authority to do so. That was managed at customer service only. To add to the indignity, Steve had to explain the situation anew to this guy too, because the manager couldn’t access the system even with the transaction records. Ultimately, the only thing the store manager could do was send a memo in support of Steve’s case.

Procter & Gamble: The Customer-Centered Supply Chain
Procter & Gamble knows that they have to appeal to their customers. This has to permeate every experience, every product, every process, and every innovation that the company fosters. They even saw it as part of the permeable membrane of their supply chain. They recognized that the customers’ experiences came first and that they had to develop the metrics and build the supply chain processes around that. First,corporate leaders appointed a general manager of supply chain innovation whose sole job is to figure out how to make the supply chain work on behalf of the customer in both effective and efficient ways.

As far back as 2002, P&G key executives recognized that 60 percent of their sales were made based on what they called “events”—roughly equivalent to what I and others call “experiences.” So, for example, Pringles had a Mac the Stack “event” that gave teens decoder cards at concerts and theme parks. Teens took the codes online and found out how much they won, from $3 to $50. Procter & Gamble used this event to create an adventurous experience—and discover a lot of people who then bought products.

Sixty percent of a company that makes tens of billions of dollars is a lot of dollars. This didn’t exactly escape the notice of the P&G leadership. First and foremost, to bolster the idea of experience-driven sales, they appointed Jake Barr as the general manager of supply chain innovation and then put a plan into effect based on this idea: “If you can’t drive sales and deliver product at the point of purchase, you lose.” (Procter & Gamble: Delivering Goods, by Randy Barrett and Tom Steinert-Threlkeld, Baseline,July 1, 2004.) This led to P&G adopting a “pull, ” rather than “push, ”approach to inventory, which cut out excess inventory and was based on the idea the company would produce only what customers bought.

Second, the company reverse-engineered the products by looking directly at the cost components after it had surveyed customers to see what price point they were willing to pay for varying products. The idea was to manufacture the products profitably and still be able to set a price customers were happy with. It’s called pricing from the shelf back, and it’s a hugely important KPI when the customer-centered supply chain is where the focus is. The customers are effectively setting their own prices.

Third, company leaders put other KPIs in place designed to produce and deliver quickly according to purchases made. So, for example, besides the ones mentioned above, they look at:

  • Total supply chain response time, from purchase at register to purchase of raw materials to replace product. Originally six months, it came down to two months.
  • Shelf level quality—how many and what kind of damaged or unappealing packages are on the store shelves. Zero is the optimal number.
  • Out-of-stock rates—a mission-critical KPI for the customercentered supply chain. P&G research showed that 41 percent of the time an item is out of stock, the sale is lost; 28 percent of the time, a competitor gets the sale. Given that they were producing “on demand, rdquo;the risks here seemed high, but I’ll get to that.

Keep in mind, it wasn’t just a matter of P&G doing this alone. The company has 5,000 key retailers and 30,000 key suppliers dealing with its 300 brands. They all had to buy in. The demands weren’t only around impacting the customer but also convincing that incredible number of partners and suppliers that they should be part of this seemingly aberrant approach.

Needless to say, if they had failed in this unique customer-centered initiative, I wouldn’t be using P&G as an example, but the plan has been wildly successful. Here are the numbers:

  • Out-of-stock rates dropped from 16.3 percent to 7.6 percent between 2003 and 2004.
  • Earnings growth went from 15 percent in 2002 to 20 percent in 2004.
  • P&G saw annual supply chain cost savings of between $50 and $100 million.
  • Sales increased from $40 billion in 2002 to $43.4 billion in 2004.

Getting help from the customers might actually work, don’t you
think?


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