Customer service failures.
Logistics can positively affect the performance of your post-sales service for customers, but this requires people that understand inventory management and are capable of implementing a company policy that considers customer service to be really important.
This last week I have experienced poor customer service. One company tells me that to obtain service parts will take three weeks from its warehouse in Kuala Lumpur, plus the repair time. Another company tells me that for their product, service parts take three weeks to be delivered from their factory in China. The service parts I am referring to are small and light weight and could be air freighted within 24 hours, but this was not considered by either business.
In both examples, it is likely that investment in inventory is seen as a sunk cost, so finance wants to minimise inventory, without understanding its value. Or the inventory policies of the companies are being driven by their sales department, which hope that customers who are not prepared to wait for service parts will instead buy a replacement product. The downside of that argument is that a dissatisfied customer is unlikely to buy products from the same brand.
Calculate the value
To address the concerns of accountants, service parts inventory does have value, not only to the customers but also to the business. Logistics professionals know whether a service part is earning a return for the business through the gross margin return on inventory investment (GMROII).
This calculation addresses the relationship between the gross margin of the service part and its stock turns; the lower the stock turns, the higher the gross margin must be and also the opposite. The calculation is:
Gross margin x Inventory turns / 1 – Gross margin
The target return for service parts is to earn about three dollars for each dollar invested in service parts inventory; of course, this is dependent on market conditions, but reasons for lower earnings can be identified
Without this formal approach to holding inventory, service parts are open to uniformed opinion concerning its value and such decisions as where inventory is located. With a structured approach and professional logisticians, brands are more likely to keep their customers for repeat purchases.
My response to the failure of customer service was a typical quick cost-benefit appraisal. One item was critical, so I purchased a replacement, but not the same brand; the other item was non-critical, so I purchased similar parts through another retail channel. I will not be buying items from the brand again.
