The so-called "Perfect Order Index" means many different things to many different people in retailing and manufacturing. In its simplest form, the index attempts to show how a higher percentage of smooth transactions elevate customer satisfaction and repeat business rates.
But some believe this age-old definition of perfect order is lacking, particularly in its ability to address whether the order actually met the customer's needs. What's more, not even 50% of orders approach perfection by the traditional definition, according to a recent informal Cognizant survey of inventory managers.
So is perfect order still an admirable goal? If so, why is it so difficult to achieve? We revisited the concept to see where it retains value and how companies can adapt their supply strategy in light of today's challenges. Here's what we found:
Perfect order is often misguided.
More specifically, attempting to achieve perfect order for every customer requires an inappropriate amount of inventory. That said, the task is better geared toward leveraging SMAC Stack™ technologies (mobile, social, analytics, cloud) to deliver more perfect orders—satisfying need as much as quality—in a cost-effective way.
Companies need market context to understand vertical challenges.
For example, lead times and customer needs vary by industry. A maker of telephone poles, for example, is not under the same time constraints as an electronics supplier. Knowing this can help define a perfect order specific to your sector.
Demand comes before supply.
Following trending patterns and demand data with SMAC technologies allows companies to better understand destination context (when, what, how much), including the necessary planning and configuration requirements to get there.
Infrastructure is key.
Can the manufacturer and its suppliers produce and deliver products quickly and with enough scale to meet demand? For retailers, is the infrastructure sufficient to handle the rigors of omnichannel delivery with adequate consistency? If not, what infrastructure capabilities will it take to get you there.
Metrics must be updated.
A new view of perfect order also requires a change in metrics and performance indicators. For example, metrics should focus on the throughput and performance of the entire system, as opposed to just departmental output. Additionally, while individual units still need their own performance measures, they must align with the organization's goals to achieve a modernized perfect order.
Ask about demand instead of relying on assumptions.
Remember, there may be elements of perfect order that are irrelevant to customers, and businesses should avoid meeting those elements. To understand customer expectations, business should ask what is most important. Segment analysis studies are an easy starting point.
Reinvent fulfillment from start to finish.
Although it's not an easy undertaking, companies can rejigger their supply chains by following the above demand signals, as well as optimizing their warehouse and logistics operations. Many third-party logistics providers can help, since they're well aware of a customer's definition of perfect order.
Use SMAC to track performance as well as demand.
In addition to helping to gauge demand, SMAC technologies can be used to track perfect order performance. These include diagnosing the root cause of supply chain problems—whether upstream or downstream—and looking for patterns that present improvement opportunities. The goal here is to isolate poor performance in as granular a way as possible.
Orchestrate a value web with customer segmentation.
Categorizing customers helps companies better understand each type of individual or business. But this is more than just size or region inputs. It can and should provide more meaningful criteria, such as contribution to the bottom line. When that happens, supply chains improve, moving a company closer to perfect order fulfillment.
Thanks to the above realizations, we recently helped a global paper manufacturer save $10.5 million a year by re-engineering their order tracking, inventory levels, shipment schedules, and sourcing costs. More than just cost savings, however, this improved the manufacturer's perfect order index.
Figure 1
To achieve similar results, the biggest challenge for most manufacturers and retailers is moving from company-centric metrics to customer-centric ones. Again, demand before supply. The good news is SMAC technologies and the like can help you remake the "perfect order" while creating continuous value for loyal customers.
For more information, read the full white paper, Beyond the 'Perfect Order' Index: Obtaining a True Measure of Customer Value or visit Cognizant's manufacturing practice.