22

CUSTOMERS

Other People to Worry About

If we don’t take care of the customer . . . somebody else will.

—AUTHOR UNKNOWN

INTRODUCTION

Successful businesses are built on the basics: supplying customers with the products and services that they want, when they want them, and at a price they are willing to pay. What would they do if you could not supply them with what they needed to run their business? How many times could this happen before their confidence in you as a supplier is eroded or fails altogether? Good customers are hard to find. It is always cheaper to keep the ones you have than to find new ones. Don’t wait until it is too late! Action steps must be identified to support your customer in the face of a disaster in your facility. A disaster plan that considers the customer is important!

The most basic step is to develop a customer notification plan. Properly implemented, such a plan builds a valuable image in your customer’s mind about your company and its usefulness to them. We have all experienced troublesome suppliers to our own businesses and value the ones that do not create problems for our operations. When a disaster strikes, it is imperative that your company’s hard-won reputation not fall victim to the calamity. You must consider the disaster’s impact on your customers and act decisively.

Our plan development steps by now should sound familiar. List what you want to protect, what the threats are, and then take mitigation actions to reduce the likelihood of the occurrence or the severity of a disaster. Of course, you then need to test the plan. A successful customer notification plan will strengthen the relationship between you and your customer. Just as your parents told you, “When life gives you a lemon, make lemonade,” this plan will demonstrate your commitment to top-quality customer service.

Once a catastrophe occurs, crews will be assigned to contain the damage and restore a minimal level of service. How will your customers find out if their orders will be delayed or are not coming at all? Will they learn this on the evening news? Will it be in the trade press? Don’t let competitors tell your story in a manner that is out of your control. It is unlikely that members of your sales force will be among the crews repairing your factory walls. Don’t leave them idle. They can assist in the long-term recovery by using their experience in dealing with your customers.

From a business continuity perspective, the best you can do at this point is to control the indirect damage this situation causes to your customers. As the saying goes, “Perception equals reality.” To control the perception, the sales force staff will inform the most important customers personally. They will also assist the customer to minimize the shock a possible materials shortage will cause to their operations. Do this by notifying them of the situation, explaining to them what is already en route or available from intact warehouses, providing a realistic timeframe for restoring the flow of goods, and, if necessary, assisting them in locating equivalent products elsewhere.

These are the actions of a partner, not an adversary. Your customer still has a crisis, but now there are two of you working on it! Handle this poorly and long after your facility is operational again, the customer will only remember the time you forced them into scrambling for components. Use the tragedy to strengthen your supplier-customer bond by helping keep their business running. The long-term goodwill will be invaluable.

KEY CUSTOMER ASSESSMENT

Our first step is an inventory of who your key customers are (use Form 22-1 from the companion url). Then, examine their buying habits to see which times of the year make them most sensitive to a problem. Third, add to the list any one-time customers currently under contract.

Who are your customers? If you are like most businesses, the 80/20 rule applies to your revenue stream: 80 percent of your revenue stream comes from 20 percent of your customers. All companies would like to be all things to all customers, but your efforts should focus on protecting core customers. This information might be extracted from historical shipping and billing data. Set a timeframe to reach back, perhaps two years, perhaps more, and total the amount of business each customer gives you. Place the big customers at the top of the list and sort in descending order, based on the amount billed. Drop the bottom 80 percent of customers from the list. Now, add back to the list any specific customers whose business you are cultivating or who have other significance to you.

Using this list of names, add contact information, such as names, addresses, phone numbers, and email addresses. There may be multiple locations that buy from you or to which you deliver. Next, add the name of the salesperson who covers this account. In tough times, relationships are important. Now the list tells you whom to call, where to call to, and who should do the calling. The salesperson’s name is important because this person may be sitting idle during disaster recovery.

For the customers on your list for the time period you specified, produce a month-by-month report of total orders or total billings (either one should do). Your goal is to dig out the buying patterns for the customer. You want to understand when the customer’s busy season is, which is when you need to be most dependable. The salesperson for this account can adjust the report based on experience with that customer. Before submitting that request, add to it a second report to break down the same time period by the specific products the customer buys. If you offer more than one product, in a disaster you may find your warehouse “fat” on some items and lean on others. It is likely that a disaster will affect some customers more than others.

In the case of specific contracts, either for one-time or ongoing purchases, you must check for a clause dealing with force majeure. This describes actions beyond your control, also known as “acts of God,” that prevent you from fulfilling the terms of your contract. This is especially important for contracts with penalty clauses. Note on the customer inventory sheet, next to the customer’s name, any agreements that contain penalty clauses and the products they cover. Invoking a force majeure clause means that the event could not have been avoided. A tornado isn’t avoidable, but an argument could be made that a warehouse fire was. If the other party demonstrates that you were careless in your fire prevention, penalty clauses in the agreement may be invoked. To do so, it must be established that your nonperformance was avoidable.

Some questions to consider:

1. If you cannot fulfill a contract, will you incur any penalties?

2. What is the financial and operational impact on your key customers?

3. In the event of a prolonged outage, how long can your customer withstand a loss of services or products?

4. Does your customer have alternative suppliers and supply channels?

5. How many days of inventory do your customers normally carry or are in the supply chain to them?

Exceptions may exist, but most customers just want their goods delivered on time. Delivery credibility can be a positive (or negative) selling point for your company. Many materials managers maintain supplier scorecards to weed out unreliable providers.

With your plan in place (and tested), invite your customers to comment on how to keep them supplied in a crisis. It is in their interests as well as yours that you have a good plan. Invite customers to observe a test and even allow them to select one of the disaster scenarios from a list you have prepared. They will see chaos, they will see people scrambling around, but more important, they will see how quickly order is restored to the situation and action begins.

This is a good time to further cement your relationship with your customers and ask them about their own recovery plans. This street runs both ways. Just as they want to ensure you are always ready as a supplier, you want to ensure they are always in business as a customer. This dialogue will be useful in developing or modifying your Supplier Notification Plan.

RISK ASSESSMENT

Looking at the other side of the issue, what are you to do if your major customer suffers a disaster? You need their future business. A quick risk assessment of the customer’s facility location may uncover those who might be closed by the same problem:

Hurricane (if you are both on the coast)

Blizzard (scenically located in the Rocky Mountains)

Earthquake

Other wide-area disaster

To prevent nature’s destruction from closing your business, make a conscious effort to obtain customers spread over a wide geographic area. Customers are where they are and you handle as many as you can, but your risk will be reduced if they are spread out. Don’t let poorly prepared customers drag down your business as well.

DEVELOP A COMMUNICATIONS PLAN

Okay! Now that you have an inventory of your customers, determine how you will communicate with them in an emergency. As always, the best way is by telephone, person to person. Face-to-face contact is fine but much too time-consuming. While traveling to the customer’s site, you are out of touch with the latest containment and recovery results.

It is much better for the customer’s purchasing agents to hear the first news of the calamity from you rather than from a newscast or your competitors. A newscast by nature consists of an attention-grabbing headline and few details. Your call will provide real information.

Before calling anyone, try to obtain a list of open and pending orders. Call those customers first. Lacking a list of orders, it is an executive decision as to which key accounts to call.

Contact your customers three times:

1. As soon as possible after the disaster.

2. Within 24 hours after the disaster with a clear picture of how this problem affects them.

3. When services have been essentially restored. Recoveries take a long time and your customers will be looking elsewhere. Do not wait until the last new nail is driven but when you can provide predictable delivery dates for their goods.

To facilitate the first call, a standard, written statement needs to be developed that can be used to inform customers of the problem. The statement should acknowledge the calamity, provide a few brief details, and promise to call them back within 24 hours with an update. If the disaster struck the factory but left the warehouse intact, don’t be afraid to say so. However, for the first message, all callers must use the same approved, guarded text.

An example text might be:

“This is to notify you that ABC Company has experienced a serious incident. A _________________________________ occurred that has temporarily halted _________________________________. This may impact your order by _________________________________. A detailed recovery assessment is now under way. We will contact you again within 24 hours with a full update to the situation and any impact it may have on your open orders. Thank you for standing by us in this moment of adversity. If you have any questions, please contact _________________________________ at _________________________________.”

For the first call, it helps to know what the customer usually buys and when. Keep your conversations positive, but honest. You would want nothing less from them. If this is their busy season, they should be the first called. After reading the text, ask them how this will impact their operations. If it will be significant, then consider assisting them to quickly locate alternative suppliers.

The second call, 24 hours later, should provide specific and useful information to your customer. Tell them when you can deliver their products to them.

If the recovery will be long, help them locate another supplier. You may protect your relationship by acting as an intermediary between the customer and another supplier. It is doubtful you can charge a markup for your services but you are protecting a very valuable relationship.

If the recovery will be short, provide a best estimate for the resumption of shipments. If the goods now in shipping are sufficient for several days, this may keep your customer supplied for the short term. Once production resumes, send the next several shipments by express freight until the normal shipping channels are filled again.

This may sound somewhat strange, but your competitors may become your supplier or your customer during a crisis. It all depends on whether you have the disaster or they did.

Do you have reciprocal-processing/servicing agreements with your competitors? In the event of a disaster, reciprocal-processing agreements should be available for immediate execution. For instance, a competing bank may clear funds for the customers of a competitor bank if the competitor bank cannot clear funds because a disaster has taken down its network. Or a competing airline may honor air travel tickets from other airlines in the event of a disaster that grounds the competing airline. It is good business and in the best interest of all competitors in the marketplace to make these kinds of reciprocal arrangements with each other, if possible, to minimize the impact of a disaster and to be able to fulfill your obligations to your customers.

ACTION STEPS FOR YOUR PLAN

A customer notification plan is not necessary for small or well-contained disasters. It is only executed when your ability to deliver goods and services has been greatly diminished or temporarily halted. It is also used if a disaster is well publicized. The key items to cover in the notification are:

1. Conservatively estimate how long the facility will be out of service and what products are affected.

2. Establish what finished goods are available for shipment and allocate according to those customers who need them the most or as required by contract.

3. Gather the sales force and explain the situation. Provide general details of what may be damaged and what is intact.

4. Provide a copy of the preprinted text and explain any limitations on what should be said.

5. If the sales offices are not available, cover all expenses for them to call from home or from their cell phones.

6. For products affected by the disaster, identify alternative sources of materials.

7. Prepare the follow-up message for customers to set an expectation as to when the facility will be back to normal.

Conclusion

Don’t allow a disaster to become worse by failing to communicate with your customers. Most customers will work with you to get through the disaster if they are kept informed about the progress of your recovery efforts and the status of their orders. Instead of a disaster becoming an opportunity for your competitors, make it into an opportunity for you to show your customers what a reliable business partner you are.