Customer Special Orders: Wag the Distributor Syndrome?

by Mike Starling

Lots of wholesale distributors think that keeping the customer happy by any means necessary is the key to customer loyalty and satisfaction. Yep, as Phil says on Duck Dynasty, “Happy, Happy, Happy!”

One way to endear the customer to his beloved distributor (supposedly) is to provide a special-order alternative to procure product the distributor does not stock in the DC. Distributors assume that if they provide such an alternative, the customer will view the distributor as the obvious source for their special-order items, rather than turning to other sources. Is that true? Lets take a closer look at this issue.

A lot appears to depend on the size and experience of the wholesale distributor involved. The larger the distributor, the larger the product mix and selection, and the more likely the special-order item the client wants will be a stocked item. However, since the distributor is often sourcing from the manufacturer, the distributor has to weigh the cost-benefit of the minimum size order, order lead time, and transportation freight terms — which the manufacturer typically dictates —against the landed cost of jumping through hoops to deliver the special order to the customer. The costly mistake many distributors make is failing to understand the real cost (not just in terms of dollars, but disruption to the daily work flow and extra expense incurred) of dropping everything to make that special order “happen.”

The smaller the distributor, the smaller the product mix and selection, and the higher the probability a special-order item is not stocked—and order fulfillment here requires creative solutions in order to keep the client happy.

The small-to-medium-sized distributor’s motivation is to provide a special-order capability to achieve revenue generation, customer retention, and customer satisfaction (and a desire to look like one of the big boys). However, all too often this results in poorly executed and inconsistent special-order fulfillment, wasted asset utilization, and added operating expense —with none of the desired objectives achieved.

Here’s an actual example of this:

A small wholesale distributor in California’s San Francisco Bay Area was both eager to make a sale and grow revenue by increasing sales to some of their key customers.

The customer account sales reps were allowed to take “special orders” during their sales calls and phone them in to the Customer Service/Purchasing representatives. The company’s policy for special orders was “guaranteed” third-day delivery — place the order today; we procure tomorrow and deliver on the private fleet truck with your regular order the following day. This was designed to allow the distributor to offer non-stocked items to keep customers from going to the competition — who actually stocked the item.

All too often, when Sales phoned in a special order for a non-stock item, the following “process” (I use that term loosely) was employed for order fulfillment and delivery.

1. Customer Service/Purchasing received the order and verified that the item was not in stock.

2. Customer Service placed the order in the system and generated a back order/special-order pick ticket for the DC. Pick tickets were “batched” in customer service and carried out and placed in an “in” basket in the DC several times a day.

3. Pick tickets were not sorted for in-stock vs. special-order items until received in the DC.

4.The DC person responsible for review, sorting, and batching of pick tickets for pick shift in DC was also the person responsible for private fleet load planning, fleet routing, and finding a backup driver in the event of a driver calling out sick or going on vacation. He was also the “go to guy” that Customer Service/Purchasing went to for “hot” special order fulfillment (even though he worked for and reported to the DC Manager) and was expected to drop whatever he was doing, take one of the company vehicles to go pick up the “hot” special order item from the specified source, and bring it back to the DC to include it with the customer’s next delivery order. The distributor has some big name, Silicon Valley firms in their customer base, and so, as you might expect, any time they placed a special order, it would automatically become a “hot” special order.

5. The daily 3:00 PM order cutoff time was not enforced in the DC, and orders were allowed to flow into the DC routinely after 5:00 PM daily (including special orders).

6. The DC load planner/route planner was under orders from the company owner to “balance” the customer-order truckloads based on a “minimum sales dollar amount” to be on each truck. The dispatcher chose to combine the pick ticket sort routine with his load/route planning routine upon receipt of pick tickets in the DC. While this would have been somewhat effective if the DC had enforced the 3:00 PM order receipt cutoff time, lax enforcement typically led to chaos in the DC after 5:00 PM, as pick tickets were held by the dispatcher in order to complete load/route planning to ensure compliance with the owner’s minimum order dollar amount on each truck.

7. But it got even better. If a “hot” special order came in during the afternoon, the dispatcher himself would be dispatched to go pick up the “hot” special-order item. It was not unusual for him not to return until late afternoon, due to big-city traffic. This had the added effect of further delaying the pick ticket sort–batch–load/route-planning routine, resulting in overtime for the pick-shift team members.

8. To make things even better, the owner came to regard overtime on the pick shift as a normal part of doing business, and thought nothing of incurring added operating expense as a result.

9. It got even better. Due to the poor execution of warehouse put-away procedures and the lack of a cycle count program in the DC (they still did two physical inventories annually) the “stocked” items could not be relied on to be “in stock.” As a result, the dispatchers’ “minimum sales dollar order volume per truck” resulted in a lot of last-minute order shifting from one truck to another, creating further chaos for the loaders and routinely incurring more overtime expenses!

10. But wait— it got even better. It was discovered that some of the individuals on the pick shift could not read! While they could understand alpha-numeric AISLE//BAY/LEVEL/BIN location, they could not read the pick ticket, so they just picked whatever was in the bin location. Naturally this led to customer complaints, returns, and eventually an added “quality control” check by the shift supervisor to verify order contents before those orders got loaded onto the truck! Whoa!

Had enough? This story is true, and I witnessed it first hand!

For a distributor hell-bent on growing sales revenue, they forgot to look under the hood to make sure their own processes were in working order to support their stated goals and objectives. They further complicated the issue by insisting on offering a “special order” option, without kicking the tires and taking the process for a test drive to ensure that it was in working order.

The challenge lies in the small-to-medium-sized wholesale distributor’s ability to creatively service special-order requests. Perhaps the distributor might have been better off just providing a core group of quality products and services, thereby avoiding the whole issue of special orders in the first place. Many believe that failing to offer a special-order option to the client would mean lost business. But you have to weigh the total cost of doing so in time, assets involved, and resources required.

As the old saying goes, “If you aren’t part of the solution, then you are part of the problem!”

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