July 1996 € Volume 6 € Number 7

Being a World-Class Customer


By Tom Wallace



A company I'm familiar with, located down south, has a problem: Its best customer is also its worst.

Yeah, I know that sounds contradictory. Let's restate it: The company's biggest customer is also its worst. And this creates a real problem for the company, because this customer accounts for more than half the company's sales. The customer is uncooperative, operates totally at arms length, refuses to discuss partnering, gives little forward visibility, and the word "trust" is not in its vocabulary.

Further, this customer has a dysfunctional planning and scheduling system. They change requirements at the drop of a hat, usually in the very short term, and the supplier is expected to jump through as many hoops as necessary to respond. The customer company feels that is the supplier's problem.

For years, my friends at the supplier company asked: "Is it worth it? Is doing business with this customer worth the hassle, the heartache, and the hidden costs involved? Is it worth the disruptions to operations-both in the factory and in the office-that make it difficult to provide superior service to our other customers, the good ones?"

They have their answer, and it's NO. The company has decided to wean itself away from the big, bad customer-so they can do an even better job in working closely with their smaller, good customers. The objective: Turn these smaller, good customers into bigger, good customers. I'm confident they'll make it, and they'll be far better off than before.

You've probably seen the humorous sign that some people have on bulletin boards or office walls: Employee floggings will continue until morale improves. A variation on that theme might be: Supplier floggings will continue until performance improves. My friends at the supplier company just got fed up with getting flogged.

I've been in the business world a long time, and I've never seen a situation where the golden rule-"Do unto others as you would have them do unto you"-does not apply. If you want first-rate performance from your suppliers, you had better deal with them on a first-rate basis.

Patricia Moody, a consultant based in Marblehead, Mass., says it even more forcefully: "If you want to be a world-class company, if you want to maintain access to the best of the supply base and to the technical expertise of that supply base, then you must be a world-class customer. The best suppliers hire and fire their customers. From their point of view, dealing with second-rate customers is costly and disruptive to their own finely tuned operations."

In her book, Breakthrough Partnering (1993, Wiley, New York), Moody lists the characteristics of a world-class customer:
Why not ask yourself these questions, and others, to see what kind of customer you think you are? When you're finished, ask your suppliers to rate you using the same checklist.

But this is the tricky part, because some suppliers may be reluctant to "tell it like it is." You should use a neutral third party to administer this survey, because your relationships with your suppliers may not be as good as they should be. This of course is what you're trying to determine in the first place.


Tom Wallace is an independent consultant based in Cincinnati. He is the author of Customer Driven Strategy: Winning Through Operational Excellence (1992) and editor/author of The Instant Access Guide to World Class Manufacturing (1994). Tom is co-director and a Distinguished Fellow of the Ohio State University's Center for Excellence in Manufacturing Management.

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Commentary

Goofiness-goofy things that happen-knows no bounds. I had CNBC on the television to check on the stock market, but was paying little attention.

Suddenly my head jerked up as I heard the announcer describe a precipitous drop in the share price of a company. It had started the day at around $26/share but was now trading at $16 and change. Off ten bucks. The company was worth 40 percent less. Why?

This company had somehow "lost" millions of dollars of inventory. They simply couldn't find it. They were victims of what I call the dreaded inventory shrinkage. This is where the general ledger says one thing but the shelves in the warehouse say something else.

I thought I was in a time warp. This is the kind of goofiness that happened 40 years ago, before there was an APICS or a defined body of knowledge. I thought we had pretty well wrestled this one to the ground. Think again.

How would you like to be a stockholder in an outfit that can't properly value its inventory and thus loses almost half of your investment? Maybe we should require the CFO, operations vice president and materials director of publicly traded manufacturing companies to be certified in production and inventory management.
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