Poor problem management: disregarding C customers

I see it quite often this poor problem management in B2B: instead of tackling the problems, companies prefer to serve their A and B customers first, at the expense of the C ones.

A, B and C customers refer to ABC portfolio analysis, a Pareto chart approach of customer base in which customers are sorted according to generated turnover, order quantities, strategic importance or any chosen parameter.

  • A class customers are those, usually few ones, accumulating 80% of the given parameter, let’s say turnover.
  • B class are the next 15%, a range of customers bringing all together 15% of turnover.
  • C class are the reminders, many customers with small orders accumulating 5% of turnover.

According to Pareto law, AKA 20/80, 20% of the customers will account for 80% of turnover and these essential fees are the favored category for obvious financial reasons.

On the other end, the “trivial many” of C category require more attention because of placing numerous small and often specific orders, for a tiny portion of the global turnover.

When companies face problems satisfying all demand, they usually “trim the tail” or ignore some of the least significant customers in order to favor the most significant ones.

Doing that, those companies:

  • Disregard their C customers
  • Make a gift to competition
  • Simplify their problem, not their solution

Disregard their C customers

There seems to be sound rationale behind the choice of trimming the Pareto’s tail, yet some of these sacrificed C customers may be new ones testing their potential new supplier. These Cs could have turned As if not sacrificed a bit hastily, based on (too?) simple, questionable selection process.

It may not hurt ethics beyond not keeping a sales promise when it is about widgets, commodities and the like, but what when the supplies are medical devices or drugs direly needed by every customer?

C customers may be emerging or poor countries with little choice of suppliers but people to treat.

Besides, these C customers have been acquired at some moment, could even have been welcome when sales were needed. It is a kind of unfair to disregard them when unable to supply all customers.

Make a gift to competition

Treating C customers with disdain may make them turn toward competitors, which is a free gift to the latter.

Given the costs of acquisitions, which is not only counted in money, companies in trouble supplying their customers should work out a solution to satisfy each and every one of them instead of just throwing a part into the arms of the opponents.

Simplify their problem, not their solution

Just cutting off supplies to C customers simplifies the supplier’s problem, not the solution.

In other words, it does not address the root cause, it just seem to alleviate the pain but at potential very high (future) cost: the loss of customers.

The only situation where this temporary solution – stopping supplying C customers – is “acceptable” is when it helps stabilizing a chaotic situation in order to work out a solution to supply ALL the customers. It has to be of short duration and preferably prepared and backed-up by adequate communication.

Turning off the tap without notice, hopping customers won’t claim is just unacceptable, unprofessional and unethical.

Yet all this being said, how many managers really care?

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Is 3D printing the ultimate postponement? Part two

In the previous post of this series, I used somewhat extreme examples to illustrate the benefits of postponement with additive manufacturing i.e. 3D printing (space exploration, ships amidst oceans and warfare). In this post I use more common examples about how the promises of these new techniques will disrupt existing businesses and bring new benefits to competitors and customers.

Spare parts for automotive industry, appliances, etc.

Spare parts are needed for mending cars or appliances for example. Until now, spare parts must be produced and kept in inventories in the eventuality someone needs a part. This happens eventually but it is hard guess to tell which parts, when and in which quantities parts will be required.

Therefore, spare parts production is launched according to complex and more or less scientific guessing, based on statistics. Once these parts are produced, they’ll go for various locations through the proprietary network or through  importers, distributors, retailers and repair stations.
Huge amounts of cash are kept frozen in inventories, scattered in many warehouses in various locations.

  • These inventories are likely to grow with each new specification change that affects a part, as the adequate replacement part must be provided
  • These inventories’ value will have to be depreciated when parts become obsolete and the probability of their sales diminishes

Storing and distributing spare parts is a business per se, but the value-added remains limited (which does not mean it is not profitable!), especially for the “players in the middle” who act more like cross-docking platforms taking their share of profits and risks.

Over time distributors and retailers slightly changed their business model and drift away from their original business: storage and retail.

In old days it was important to be the reliable parts provider and huge inventories were normality.

More and more those companies embrace a financial, more profit-driven purpose and keeping inventories is for them a necessary evil at best. Distributors and retailers try to get delivered at short notice in order to keep inventories – that is frozen capital and risk – low.

They push the problem upstream to manufacturers, the latter being required to reduce delivery lead time, which most often ironically means holding inventories to serve “off-the-shelf”. Distributors and retailers become a kind of post-office collecting orders, passing them over to manufacturers, who in some case have to deliver to the point of use, by-passing the distributor/retailer.

I worked in some industries facing this “problem” and the distributor / retailer channel in this way does not seem sustainable as manufacturers try to get rid of these “order collectors”.

Now with the rise of additive manufacturing techniques, new opportunities appear. Distributors and retailers may use them to become manufacturers themselves. What they need are competencies to use such equipments and managing CAD files from OEMs’ libraries, “print” spare parts at will: at the right moment, in the right version, without holding huge, costly and risky inventories of parts in huge warehouses, with high fixed costs.

Furthermore, customizing parts locally would yield additional revenue, as customers with specific and maybe urgent needs are willing to pay a premium.
So would scanning and redesigning no longer supported parts for which no CAD files are available.
This kind of service is an ultimate postponement because the manufacturing of parts is on hold until the very last moment, when the orders are confirmed or the parts paid!

This is one example about additive manufacturing (i.e. 3D printing) techniques can disrupt existing businesses and bring new benefits to (some) competitors and customers. The financial barriers to entry dropping significantly, OEMs could reconsider to re-integrate this kind of activity and keep the value creation all by themselves.

This post being a prospective analysis, I would be glad to read your comments.

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Is 3D printing the ultimate postponement? – Part one

Imagine the first habitable base on mars. Your challenge is to pack the first cargo spaceship with all the necessary for the staff to face all maintenance issues, until the next cargo spaceship can lift up, say three months later.

Chances are you’ll include a 3D printer and enough of printer’s raw material, simply because it would be the most efficient way to provide many things needed despite tremendous logistics constraints.

Now quit outer space and consider a tanker, an aircraft carrier or container ship amidst the ocean. In some aspects, these vessels share common traits with our base on mars:

  • storage space for spare parts, raw material and machines for maintenance purpose is scarce
  • they are far from everything, can be supplied only after some delay
  • supplying them is not without some risk (weather, enemies, etc.)
  • supplying them is not only risky but comes at (very) high cost

In these cases too, 3D printing is a good option to consider as printing what is needed at the very moment it is needed is the optimum solution and ultimate postponement.

What is postponement?

In manufacturing and supply chain operations, postponement means delaying the completion of a product or packaging products until a signal assigns specific customer or destination. This is useful when many variants would lead to possible misallocation if the completion would be based on forecasts.

Put simpler, postponement delays a decision until what is expected is clearly specified. The reason is most of transformation step in a process modify the product in such manner that returning to previous state is impossible.

Example: if you cut a piece of fabric to make a handkerchief, it cannot be returned to a piece of fabric for a trousers’ leg. (except it was a huge handkerchief or tiny trousers)

Materials usually lose flexibility along the transformation process. Once transformed there is no stepping back.

Postponement is used to delay the completion or manufacturing until a differentiation point from which the item loses its flexibility (e.g. pack in white box and add customized label latter).

Because postponement and later completion is no realistic option for our vessels or space base, they must embark spare parts for all possible cases, but under constraint of volume and in some cases weight.

The embarked mix is a set of items based on forecasts and tradeoffs about what could possibly happen and what is most likely needed, still carrying the frightening risk that what will really be needed will not be included in the cargo.

Printing at will

Now if you can trade the same finite volume and mass of many different spare parts selected through complicated statistical computation for a 3D printer and raw printer material, the risk drops to almost none as any required part (as long as material is suitable) can be printed when required, and even customized to some unexpected specification change.

This is why NASA, the navy or some private companies consider to embark 3D printers and train staff in order for the unit to be independent from its supply base for a longer period.


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What is supplier development?

Since major companies subcontracted and outsourced significant part of the added-value in order to concentrate on their own core competencies, they increasingly depend on their suppliers.

In automotive and aerospace industry the rate of value creation is about 20% for the OEMs and 80% for suppliers. OEM here stands for a company that acquires systems, parts or components and incorporates them into a new product, with its own brand name.

The whole performance of the extended supply chain can be impaired by a single supplier not achieving the assigned targets.

I remember in my early consulting year the case of a railway rolling stock manufacturer whose carriages could not be delivered because windows and doors were late. The seemingly not strategic parts provider wasn’t monitored closely enough and his late deliveries came as a bad surprise.

Supplier development is a kind of help provided to some suppliers in order to settle issues and/or improve quality, delivery or costs. This assistance can be imposed upon the supplier by contract by the buyer if supplier doesn’t meet the objectives, or in a more friendly manner proposed to a supplier as a way to improve the partnership and overall supply chain performance.

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Supplier development programs are often part of a Lean or Excellence program that extends beyond the initiator’s (buyer) walls. It is also often a non-negotiable part of the contract.

Supplier development is most often a technical or methodological assistance provided by a special team from the OEM or consultants send by him. In some cases the supplier is required to act but the choice remains his, as long as the OEM agrees it.

Supplier development as a reaction to issues carries cost for both parties; costs of the issues and cost of the mitigation and solution. Therefore supplier development, as nice as it sounds is seldom a friendly option. Buyers use the case to press prices further down or impose some conditions the supplier can hardly refuse under the circumstances.

Yet these considerations set apart, supplier development looks very much like consulting on operations. It is made of problem analyzing and solving, process improvement, quality issues mitigation and so on.

In order to avoid surprises, send specialists for supplier development and secure the supply chain, most buyers will thoroughly check the candidate supplier’s capabilities before awarding him any contract. This is usually done via suppliers audits.

I published a book on the topic in 2004, combining quality and supply chain assessment in a single audit, in order to make the process less costly for both parties and more efficient.

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