Higher Performance Expectations in the Upturn

Bruce E. Jacobs

To survive the recession, executives focused on reducing costs, maintaining positive cash flow and stabilizing revenue. Some time in the future, the recession will be history, and the business environment for medical devices and equipment will begin to improve. Inventories will need replenishing, and new product introductions will resume. As sales volume increases, the lights will be turned back on, employees rehired, and capital investments will be made in equipment and processes. There is light at the end of the tunnel. Is it daylight, or could it be your customers bearing down on you with expectations for significantly better performance by your company as a provider?
Your customers know they have fewer providers to deal with now that the recession has thinned the herd, and they are expecting their remaining providers to perform at a much higher level than before. If an executive believes his or her company can continue operating in the same manner in which it operated before the economic downturn, the executive is in for a rude awakening.

Customers’ Requirements

Customers are emerging from the recession with greater expectations and higher performance from their providers. They are demanding higher service and lower total costs and are much less tolerant of mediocre providers that continue to underperform to their order specifications. Customers will begin to create more penalties for poor performance and failure of providers to meet their order specifications. Customers will shift more of their own supply chain costs to their providers by requiring providers to manage their inventories at the customer’s location. Payments for consumption of inventory will occur 30 to 60 days after consumption or use. Customers will expect faster response and fulfillment times—from order placement to product delivery. Customers will demand special services to accommodate their uniqueness, and providers will be expected to reply without being reimbursed for providing special services. Customers will require greater integration with their key providers in order for them to be able to respond more rapidly to their customer’s demands for high performance.

Don’t assume your current business operating model and performance capabilities are able to meet these requirements if they were not meeting these requirements before the economic downturn. Unless your company’s value chain and supply chain components have been revamped, and your information support systems have been modified to enable the new processes and capabilities, it’s safe to presume your present value chain model may not be capable of meeting the new requirements without adding major costs.

Continuous Improvement

The new economy will emerge with winning providers that continue their relentless focus on cost, quality, service, efficiency and ease of doing business for their customers. They will employ continuous improvement principles to build new capabilities to be agile, nimble and flexible to be able to respond and meet their customers’ changing demands and requirements. Their drive to achieve these capabilities and embed them quickly and cost-effectively in their processes to be responsive to customers will create disruptive innovation among competition in the industry. These new capabilities will be recognized and rewarded by customers.

The agility and nimbleness of an enterprise can be defined as its ability to consistently and reliably respond quickly and easily to customers’ changing requirements for products, performance capabilities, special services, costs, quality, delivery, responsiveness to issues and issue resolution. This agility is demonstrated at every point of contact with the customer. It is supported with enabling processes, practices, procedures, decision-making capabilities and supporting information systems and technology, but agility is not submissiveness.

Transforming an enterprise to make it more nimble and flexible cannot be mandated. It requires re-engineering of numerous business processes and practices along with development of new rules of operation. It requires a vision of how the enterprise will perform and react on an instant notice to the demands and requirements of its customers. It requires new performance measurements and the optimization of existing information support systems or the addition of new information support systems to enable the new agility of the enterprise to be systemic.

The agility of an enterprise is embedded in its business processes, management practices and controls, organization structure and culture are generally driven by a sense of urgency to service customers at the highest performance levels.

Before the economy moves into full rebound mode is the time to begin defining how the business will be different and perform differently in the new economy. The business won’t ever be what it once was. The challenge is to be able to define what it needs to be going forward, learn from the errors and mistakes of the past and from competitors, define the opportunities to better service customers and respond more quickly.

Define how the business can be proactive in meeting customers’ needs. One business model and set of operation practices may not be adequate to effectively service all customers, depending on their size, volume purchased, industry and market requirements, purchase specifications, order specifications and their customers’ requirements. Multiple business models may need to be designed and implemented to sell and deliver products, sell and deliver accompanying services, sell and deliver after-market repair and replacement parts and service. A business model that could cost-effectively handle large customers’ orders with large volumes of products may not be a business model capable of handling double the volume of orders with very small quantities because customers are ordering lower quantities, placing orders much more frequently and expecting shipment of the order the day the order is placed. In addition, they expect an advance shipping notice to confirm the order shipped and the order quantity fill rate, and require the carrier to arrive at the receiving dock at the appointment time. Customers’ orders that were once full truck loads of a single product or product family could be a full truck load of mixed pallet loads of product as specified on the order. Orders could be less than a truck load, single pallets or mixed pallet loads. Orders also could be a single case or a less than case quantity. The ability to provide these order variation capabilities quickly and cost effectively requires business processes specifically designed to provide the capabilities. One order fulfillment process does not fit all order variations.

Supply Chain Performance

The greatest immediate competitive advantage a company has when the economy improves is the ability of its supply chain to outperform its competitors’ supply chain.

Price increases will continue to be challenged by customers, and deflation may occur, requiring price reduction. Continuous improvement and focus on the end-to-end supply chain performance provides the greatest opportunity to offset the inability to increase prices as cost increases occur or to respond to deflation challenges. The battle of supply chains is about achieving the highest level of performance and customer service at the least total landed cost and highest use of assets, regardless of where your products, materials and purchase components are sourced. The economic upturn will create different expectations by your customers as they move cautiously to improve performance with their customers. Working with your customers to meet their requirements and realign your company’s capabilities to fulfill those requirements will provide systemic gains.

Bruce E. Jacobs is a consulting partner with BrokenGate Consulting and works with client executives to improve operating performance, design and implement improved business processes, value chain and supply chain performance improvement, performance measurements and optimize technology applications to enable improvements. He can be reached at (314) 704-0693 and at www.brokengateconsulting.com.