The IndustryWeek Value Chain Survey: Customer-Order Management -- ?Out Of Order

Everybody wants more customers and more orders. But does your company know how costly those customers and their orders are?

It should. And some companies do, based on the results of the IndustryWeek 2002 Value-Chain Survey on customer-order management (COM).

Many manufacturers, though, aren't as attuned to how efficiently they are at fulfilling their customers' orders, according to the survey, which was conducted in conjunction with PwC Consulting to investigate value-chain practices of U.S. manufacturers. This could be because the concept of COM as a distinct function of the value chain seems to be fuzzy. Consider that those conducting the phone interviews for this survey often were routed to customer service managers when requesting information on COM. Yet, the survey provides evidence that best practices in customer-order management are emerging and paying off.

See the full report: The IndustryWeek Value Chain Report: Getting Down to Brass Tacks

What is COM? The Americas' SAP Users' Group (ASUG) includes a customer-order management sub-group that says COM "includes, but is not limited to" customer and customer credit management, sales order processing, pricing, availability checking, transportation, billing, invoicing and accounts receivables processing.

The group also follows trends that can influence order management, such as customer relationship management (CRM)-systems that amass detailed information about customers and their orders and allow for the application of that information throughout enterprises, such as in sales and marketing or production planning.

Overall, survey respondents endorsed COM practices. Forty percent of respondents said COM performance tracking had a significant positive impact on business, while 42% said it had a moderate impact. The rest saw no impact, didn't know or didn't track COM performance. But while more than 80% of the manufacturers said tracking order management costs was worthwhile, more than half didn't know what their order processing costs were.

"Performance metrics, including order processing cost, in many organizations, are not adequately measured," says Gordon P. Ziegenhagen, a Chicago-based consulting manager with PwC who contributed extensively to the survey development. "Many organizations have an idea what it costs to process an order. Many will say, for example, that it costs $50 to process an order, but this is often an historical figure with little tangible foundation. Our experience shows that true measurement ability lies in maintaining adequate costing and reporting systems."

Ziegenhagen calls order-processing cost "a prime measure of productivity of the order-fulfillment function (that) can generally be compared across industries." He says the first step toward tracking this metric is setting up a centralized database from which to pull and evaluate pertinent data. The next step would be accumulating all relevant cost elements related to order processing such as order-entry and maintenance, order fulfillment, invoicing and accounting. Finally, a reporting tool that can generate a scorecard to gauge performance is needed.

Tracking customer-related data is also vital to CRM practices, which, while not widely adopted by respondents, are being used by companies that reported the highest customer retention rates.

At Siebel Systems, San Mateo, Calif., a leading CRM company, pure COM is not considered part of CRM. However, the line between the two is blurring as CRM practices become more common in the B2B environment, and front- and back-office functions become increasingly connected. CRM is expected to become more popular with core industrial manufacturers, says Narina Sippy, Siebel vice president of production, planning and operations.

"We see this for a couple of reasons," Sippy says. "These companies are looking at front office differently. If they are only looking at customer-order management, they are only looking at cutting costs. Now, they are looking at CRM as a way to grow profits as opposed to just [relying on] cutting costs."

Indeed, 55% of companies with customer retention rates of 80% or greater are using real-time customer order tracking, and that group is also using real-time customer order data to reserve inventory (44%) and capacity (26%). Overall, 58% of respondents are differentiating products and services based on customer classification.

One thing the manufacturers are not using is automated cross-selling or up-selling-using customer data to anticipate customer need and push sales of appropriate products. This practice has been widely used in business-to-consumer marketplace but is now showing up in the business-to-business environment.

"The benefit to the seller [of automated cross-selling/up-selling] primarily leans toward increased sales revenue," Ziegenhagen says. "Buyers enjoy the benefits of being made aware of better and/or complementary products."

Customer service was most often cited by respondents as a reason to invest in e-business. Respondents also reported moderately high levels of collaboration with customers (65% of respondents collaborate with all customers), but somewhat surprising, the telephone and fax remain vital collaboration tools. (Forty-nine percent of respondents use phone or fax as their primary collaboration tools). Other tools include e-mail (16%) and conventional EDI (14%).

Executives who participated in a January roundtable review of the survey data, said e-business methods are being used in COM, but they are more important internally than externally.

"The majority of our [orders] are faxed in," said Andrew Wellener, Ohio-based business development manager for Goodrich Aerospace, Charlotte, N.C. "We are getting a lot of e-mail and fax. Some of our customers are using EDI."

One of the challenges, Wellener says, is to make sure the company has common approaches to responding to those orders.

Bill Mitchell, manager of operations for shipping services provider Roadway Express Inc., Akron, Ohio, agreed. "We are getting orders in all ways," Mitchell said. "The key is to make sure they are filled on the inside properly."

Sales vs. Profitability Which of the following does your company use to formally classify customers?