The 99% Service Ideal

Jovy Jader // Articles


June 20, 2017  

During any Christmas holiday season in the Philippines, it is normal to see frantic shoppers snap up supermarket groceries and watch frenzied product merchandisers try to keep shelves filled. At the fruit cocktail section of the supermarket, it was easy to tell which brands would likely come out on top in terms of volume sales. These were the ones who were constantly visible and available. Their competitors were conspicuously out-of-stock and one couldn’t know who they were because they simply were not there. The price tags that were left on the empty shelves showed they had the lower price and obviously they were bought by consumers who preferred them over the others. That, however, was no longer relevant because there were no more products to buy.

The Christmas holiday season is always a test of many a firm’s operating capabilities. Transportation, banking, fast-moving consumer goods, retail stores (and their suppliers), and telecommunications firms always experience high demand that time of the year and they often get their share of customer service failure.

Service failure occurs when demand for products and services exceed forecasted expectations and operating capacities. It is not only a matter of capacity as in when a factory assembly line unable to keep up with the orders or when a ferry transport provider does not have enough vessels to accommodate passengers. It also is about capability at one moment in time: not enough trucks to deliver the goods or not enough porters to handle the influx of cargo. Failure occurs when a weak link in the operations sequence or supply chain just cannot meet the demand.

Service failure is the recurring nightmare of operations managers. It manifests itself in long queues, delivery delays, order cancellations, and out-of-stock incidences. Customer dissatisfaction is the result and that in turn brings about lost sales opportunities. The nightmare gets worse when inventories or capacities are in excess for items that aren’t in the service failure problem. It is here where operations managers get drubbed by their executive superiors and their career paths become potentially compromised.

Operations managers share one ideal and that is to ensure a 99+% service level to their firms’ customers. This virtually means serving customer orders almost perfectly, if not totally. Operations managers address three (3) areas to strive for this ideal:

Demand Capture. If firms need to know demand, they must place themselves where the demand is taking place. At least, they should have processes that immediately capture and communicate customer demand. Multinationals have deployed point-of-sale (POS) systems to track consumption in real-time. Vendors manage inventories at their customers’ warehouses so they have up-to-date data on usage and trends. These processes, however, must adapt to the intricacies of the supply chain. POS systems may be applicable for supermarkets but would they work for the small family-run or sari-sari stores?

Response Capability. The firm has a big edge if it can capture demand and communicate it to concerned functions in the organization. The next point is to respond to it. POS and feedback systems can feed information such as which items are best-sellers and which stores sell the most in a given period. For instance, bakeries in the provinces may show high demand for the low-cost pan de sal while those in the cities may show considerable demand for cakes and pastries. Operations managers can tailor their production and transport systems given this information. Vendors of shortening and margarine (key ingredients for bakeries) can pre-set their schedules to cater to provincial shipments versus local city deliveries, depending on the respective volume demand;

Standby Capacity & Inventory. Operations managers would always want an ace up their sleeves in the form of having ready standby capacity. Pre-cooked ham suppliers often enlist additional truckers to deliver against expected surges in orders. Onion farmers and middlemen reserve cold storage space as much as one (1) year in advance to ensure they will have the capacity to build inventories as harvests arrive before the December buying spree. Operations managers preferably want large inventories but as financial targets for lower working capital become more aggressive, managers have to balance that with firmly set production plans supported by augmented logistics capacity such as in leasing additional warehouse space, outsourcing production, and reserving extra transport capacity.

Achieving the 99%+ customer service level is an operations manager’s ideal. It may require investment in systems, infrastructure, and processes but if planned well, it can reap significant benefits. If managers can successfully capture demand, respond capably, and plan for extra capacity, day-to-day operations won’t be too stressful and instead can become a means for business success.

About the Author

Mr. Jovy Jader is a Management Consultant and Regional Speaker on Supply Chain Management. He has directed and implemented Supply Chain Management projects both local and international which have resulted to company-wide improvements in revenue, working capital, total cost, and service levels. Mr. Jader was formerly with Procter & Gamble Philippines and Coopers & Lybrand/PricewaterhouseCoopers.

Jovy Jader