I was speaking to the ex COO of Metcash recently, Metcash in Australia are like Gilmour’s in NZ except Metcash turn over 2billion/annum. They recently implemented an automated, robotic picking solution for 90M that had a 5 year ROI. The robotics reduced the fulfilment costs by over 30%, prior, running manually they were cheaper than the key competitors like Woolworths by around 30% already.

I asked Silvestro, why, in a manual system they had achieved such a competitive advantage. The answer was they measured everything. KPI’s.

The discussion brought back to my mind the time tested management adage “If you don’t monitor it, you can’t measure it, if you can’t measure it you can’t manage it”

I’ve lived by this all my life and it’s been a key to a lot of my success in NZ and other countries I worked in.

During our discussion I bemoaned the fact that many clients don’t understand the importance of KPI’s, it almost never forms part of any due diligence yet its probably the single most important driver of productivity, accuracy and consistency.  We measure an insane amount of KPIs – over 160 and it’s what drives our accuracy and performance. I think if potential 3PL clients knew the importance of just this one thing, most other 3PLs would be out of business because they’d be caught out not being able to demonstrate this capability. Anyhoo I digress..

SCS have built specialist systems to ensure we perform consistently in the 99.7-100 percentile on our key metrics. We measure activity in real time and even produce real time operational P&Ls, we recently released a predicative modelling tool to estimate time required to process orders by account based on historical data.

SCS were (as far as we know) the first 3PL in NZ to release an on-line KPI portal we call it the SCSKPIEngine(c). When we released it I recall one of our key clients Jacob (founding director of Nature Baby) exclaiming that he was already delighted with SCS but the day we switched it on all of his remaining anxiety disappeared.

The value in a KPI system is immense. Refer the diagram at the beginning of this blog, it is directly related to the achievement of strategy! It’s that important.

Two years ago a person I have immense respect for, told me a simple truth. Customer satisfaction is achieved when expectation aligns with deliverables. The measurement of this course is KPI’s.

Three times this year I’ve ended up in a situation where our KPIs are brilliant and the customer has been deeply dissatisfied, one even threatened to go to market they were so upset with our service, we eventually proved we were performing over 99.7% (for a non-barcoded account which is unheard of) yet before we conducted the Root Cause Analysis, they were genuinely, deeply unhappy!

I struggle with this, I struggle less as I experience more of these issues as they invariably end up following a similar path. The challenge to smooth the bumps is more interesting and a key point in this article…read on.

Transpires in each case there had been a reasonable amount of staff turnover in the client companies and key knowledge had disappeared.

Typical examples were

1. Customers customer is angry that their orders keep getting short supplied, the DIFOT is terrible and one of the lowest in their industry, the new rep apologises profusely on behalf of the warehouse and complains to their superior about how our service is failing ?
2. Customers customer is angry that the orders are getting miskicked, new rep appologies on behalf of the (now) incompetent warehouse and complains this is another reason why they cant meet targets – the fulfilment facility is not performing
3. Customers customer is angry about the delays in order processing, takes ages to get orders processed through the DC, rep is now besides themselves that SCS is damaging their reputation, it’s now being escalated to the Country General Manager and even the CEO
4. Customers customer is angry that the GRA’s are taking sooo long to process, they just want the credit to appease their grumpy customer, rep is actively discrediting SCS in the market place now, clinets that might have been considering 3PL and/or SCS are now put off. SCS is being discussed at board level and mitigation strategies are being discussed.

In each case our KPIs are brilliant, we’re showing stunning fulfilment accuracy, outstanding turnaround times on order processing yet by the time I get the first call (thank god this does not happen often) I am on the back foot and on a hiding to nowhere, typically I am told under no uncertain circumstances that we are threatening their business, damaging their reputation and this is now a very serious matter for which the customer will do what they have to do to ensure a good outcome.

There are two types of approaches I get, one (which I prefer) is reasonably calm but there is tacit understanding to be gleaned e.g. “Brad there is an issue, we need to sort it out”, the client is upset but wants to gather facts before making any decisions, the other (I dread) is the client is coming at me with guns blazing looking for a quick kill. I have to say (thankfully) that most fall into category 1 🙂

At this stage my pulse is racing, I’m panicking that something dire is happening in the business that I don’t know about, the client is somewhere between clearly unhappy and furious, I need to fix it. I check the KPI register, it looks brilliant I go “huh?” I talk to my people and they all shrug and go “huh – they are all busting a boiler to pull off the typical miracles, we’re furiously managing over 160 KPI’s, driving productivity, managing staff issues and driving carriers to perform, very system we have tells us we’re performing brilliantly – they can’t explain why the client is angry with us and our name is being sullied.

The we do the RCA (Root Cause Analysis)…we discover…

– The short supply is because the customer is out of stock, the customers customer is measuring DIFOT based on Delivered In Full, because it’s not being delivered in full the first assumption is that the DC (Distribution Facility) short supplied (i.e. picking error). In fairness this is a reasonable assumption, most DC’s are not world class, don’t go to the extremes we do and frequently underperform which creates this natural thought process.

– The miss picks are actually keying errors being caused by either the customers customer who ordered the wrong thing or the customer who keyed it incorrectly. The person complaining is disconnected with both of these parties, they are only interested in what they expect and what they received, again its natural and normally correct to blame the warehouse when there is a misalignment in supply. –

– The delays have been caused by a new IT system or process change, e.g. a new workflow has been introduced which has slowed down the order approval process by 1-3 days – but no one told the reps

– The GRA’s are all up to date, we’re chasing the customer for info to progress the return to the next stage but they are falling behind because they have a huge workload and/or the customers customer has failed to follow the rules of the returns process which has slowed us down, we’ve communicated the issue to the admin team in the customer and detailed the unforeseen issues we now dealing with but they have not communicated this to the sales team who just get it in the ear from their customer.

In summary we find that SCS is actually performing to world class standards, the new reps don’t understand the fulfilment process and where issues can get occur on their side, the KPI portal has been forgotten so nothing is being recorded which means there is no reference point to resolve issues. e.g. if a miss pick was registered and our investigation determined it was a short supply then we would classify it as such and it would help educate the customers’ business. But when the first step is missed out then we’re denied the opportunity to help manage the expectations and instead get blamed for something we had no blame in. You’d be amazed how often this happens, especially with new clients and/or clients with reasonably high staff turnover.

Again – one underlying issue is that most DC’s simply are not brilliant, they don’t measure 160+ KPIs they don’t invest in the staff like we do yet as a “warehouse” we get “lumped in” the same bucket by people who don’t understand this; it’s a reasonable outcome considering the players and standard capabilities of most DC’s.

But we are not standard – we’re better than everyone else which is why we invest in technology driven, real-time KPI systems – TO PROVE IT.

And this is why I am so excited about our new mobile KPI app. We’ve been challenging the paradigm asking ourselves what else can we do to avoid this bad will that gets naturally generated by genuine misunderstanding, the cost to our business credibility is immense, we could moan and get defensive or adversarial (which a lot of our competitors end up doing) but we’re more interested in solutions…hence the smart phone app, we rationalised that we simply have to find ways to make it even easier for customers to understand their issues.

The answer is always to record the KPI so there is a record of fact.

However, if people are not using the KPI Portal how do they get the KPI registered so we can deal with facts, the answer is technology, everyone will soon have a smart phone (we recognised this 5 years ago which is why we started developing for them) it’s the convenience factor. Smart phone adoption is going through the roof, its exponential so this is our answer.

We are currently beta testing our logging application, soon every client will have access to it and this platform will form an important part of our client contracts to help alleviate contention and drive improvements.

But what else can you do with this technology, that’s the other thing I want my clients thinking about and getting excited about, we’re building the technology – how can you leverage it for your business – refer the diagram again at the top of the page again – drop a line with your ideas, this could literally transform parts of your business like it did with ours.