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If they can stop eggs breaking, why can’t we do the same with contracts?

January 17, 2012

Logistics Viewpoints has an article about the value of business intelligence. It features a story about an on-line grocer, FreshDirect, that has survived through its ability to honor commitments and thereby maintain high levels of customer satisfaction.

One example is the way it is using live information to ensure on-time delivery, now running at 99%. This is important to FreshDirect because they know that meeting delivery commitments is key to customer satisfaction – and also to their own financial results, since they offer service credits for delay.  Historically, performance was only around 90%, but by monitoring the delivery rate of each truck, their business intelligence system can accurately predict which deliveries will be late. FreshDirect has a small fleet of trucks held in reserve, enabling them to release back-up support when needed.

A second example relates to the delivery of eggs. Customer satisfaction reports showed that deliveries that contain damaged eggs were a particular source  of dissatisfaction. Initially, the company explored alternative forms of packaging and this had some effect.  But then someone suggested a much simpler technique – to check the eggs before they were despatched from the warehouse! This approach has reduced the breakage rate to one per thousand.

The point of this story is to illustrate the importance and the power of analytics and to advocate its use in the world of contract management. Customer satisfaction with contract terms and contract performance is a source of powerful data that can be used to drive continuous improvement in capabilities and results. But if we don’t collect data, or dismiss it as being outside our field of responsibility, then we learn nothing, we are continually dealing with crises and we miss the opportunity to add value for our business.

What are the repetitive issues where your contracts are broken, or where they fail to meet customer expectations in the terms you offer? Is it perhaps billing accuracy; or delivery reliability; or unwillingness to take on risk? There are many possible areas for improvement, but first we must undertake the analysis to know what they are and second we must take responsibility to ensure something is done to fix them.

Otherwise, we will continue to deliver the equivalent of broken eggs to our customers.

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