Pitfall 2: Service Autonomy Is Excessive (Lesson 3)

B2B suppliers routinely sign and seal contracts with customers based on the fact that quantities are roughly estimated, the selling price is clearly defined and the method for annual price increase is understood.

What isn’t made clear, is the equivalent of “fare conditions.”  B2B “fare conditions” equate to the specific service levels that ought to be clearly identified in line with goods or services being provided at the nominated price.

If you dive deep enough into your business, you may well find that many of your customers are enjoying a first-class experience, despite having purchased a discount fare!

What often happens is that customers consistently ask for “add-ons” or adjustments to their services when face-to-face with the different company functions. These can come in the form of order changes, cancellations at the last minute, requests for delivery after hours, inaccurate customer purchasing forecasts, (unreasonable) increases in quality KPIs, etc.

These costs are routinely absorbed in supplier overheads, resulting in the true cost to serve the customer—and the resulting margin erosion—not being correctly measured and reported.

Suppliers rarely identify when and what customer requests are falling outside of overall service contracts. Many staff are unaware of the detail in these contracts, so they follow their instincts and do what they have discretion to do to keep the customer happy.

This is unlike the airline industry, which has learnt how to let passengers operate outside their original “fare conditions” only if they are willing to pay the appropriate surcharge.

The airlines will do all they can to give customers what they want, but on the airline’s terms.

Unseen Costs

Some of the worst, and most obscure, impacts of supplier over-servicing include risks to safety and depletion in employee engagement.

I have seen many manufacturing environments where the pressure to respond to late production demands or “urgent orders” has translated into hastened “production job changeovers” in order to keep yield targets on track. This puts tangible pressure on production staff and can often lead to safety standards being compromised.

Equally, pressure from customers can make line staff in any function feel undervalued. It may seem to them like they can never do enough. It shows on their faces and in what they have to say. They’re being taken advantage of, and, upon occasion, even verbally abused, sometimes serially. They feel that they are expected to “just put up with it.”

And all this is in response to suppliers allowing customer expectations to become out of control. Constantly submitting to customer demands can breed contempt, and exercising unfettered discretion on servicing can significantly contribute to margin erosion.