Sometimes the best way to serve a customers is not to serve them

Filed in archive Point of view on April 29, 2008

When your company is selling a lot, does that mean that you're doing good? How about when you accept new orders from customers? Not necessarily.

One important point that we should keep in mind in the area of demand management is that:

Sometimes the best way to serve customers is not serving them.





When should we do this? Well, typically companies have a series of standards to give service to the customers. These standards encompass many elements such as delivery time, quality of the product/service offered, responsiveness, cost of delivery and so on. These target are usually met when the supply capacity matches with demand. If the demand exceeds supply, we can force supply side to catch up and realize the potential sales. This strategy works to some extent but not more than 10%. Pushing the supply chain to deliver more than this limit will usually lead to crisis: the costs will skyrocket, the defect rate increases, etc.

So in these situations, the best way is not to serve customers: As an alternative, we can explain the situation to them, raise our concerns and give them a date for a secure delivery.