For decades, the B2B distribution plan has been easy enough: great service means a good relationship. A good relationship means calling the customer back so quickly you recognize the voice; it means taking the time to enter their orders by hand. The C-level executives in the board room view this “high touch” model as a competitive advantage and something that builds customer loyalty.
However, a closer look at the P&L shows a much different picture of the present day. Our report titled “The Silent Killer in Your Order Book” breaks down how manual ordering processes have become liabilities rather than assets.
It’s time for the modern CFO and Operations Director to accept the harsh reality: what your sales teams refer to as “high touch” service is really “high friction” expense. These processes are eating away at a company’s profitability and increasing their working capital needs.
This article explains how the economic principles behind B2B Customer Experience (CX) have changed and how optimizing your cost-to-serve is the new path to profitability.
The Financial Reality of the "Personal Touch"
Many people confuse a “transaction” with a “relationship.” However, when a Customer Service Representative (CSR) takes 15 minutes to complete a simple reorder, they are not creating a relationship – they are essentially serving as human middleware to connect the phone line to an ERP system.
In terms of your company’s financials, the manual workflow related to order processing is financially devastating for your margin. If we examine the costs associated with one manual order:
- Labor Costs: Time spent by CSR on the call, time spent finding products in the system (can be anywhere from 5 to 10 minutes) and entering the information manually.
- Error Rectification: Approximately 80% of errors related to manual order processing occur due to manual data entry. Therefore, your company incurs additional costs in the form of returns, expedited shipping and employee time spent correcting the error.
- Lost Opportunities: During the time that your employees are completing the reorder, they could be engaging in other revenue-producing activities such as cross-selling/up-selling high-margin items.
Data from within the industry also supports the trend of moving toward automated order management systems. Companies that utilize best-in-class automated order management systems achieve a cost per order that is 21% lower than their peers. For many industries that are experiencing increased costs and variability in demand, that 21% represents the difference between stagnant growth and growing.
Operational Efficiency: The Working Capital Implications of Manual Processes
Manual processes have implications that go beyond your P&L statement to affect your balance sheet. Inefficient manual processes create longer order cycle times — the time elapsed between an order being placed and the time when the order is fulfilled.
From the perspective of the Operations Director, inefficient manual processes create major issues including:
- Increased Working Capital Needs: Longer processing times result in longer inventory holding periods, which delay cash inflows.
- The Data Black Hole: Because all manual orders lack visibility into the customer’s search history and actual reorder frequencies, you lack the ability to make accurate forecasts of future demand. Improving reorder velocity and predictability with digital workflows provides an opportunity for a more agile and effective supply chain.
You can’t accurately forecast demand without having the real time data that digital interaction provides. Digital workflow is a natural way of increasing your reorder speed and improving your predictability in your supply chain and thus creating a leaner supply chain.
Re-defining "Service" for Today's Buyer
There is a commonly-held misconception among B2B Board members: “our customers prefer to speak directly with our representatives” and “we’re comfortable with customers having to contact us.”
McKinsey & Co. reports that nearly 95% of B2B buyers would like to have a self-service option available to them and 80% are willing to change vendors if they don’t offer one. Customers view calling in to ask about order status as a necessary evil, not as a “service.”
Today’s version of “high-touch” is not about entering orders into a system. Real “high-touch” is about consulting with your clients and making recommendations about product lines and strategies going forward. Digital platforms allow you to automate routine transactions and give your sales staff the opportunity to focus on developing those strategic relationships.
Steps to Take: Sealing the Profit Leak
While transforming digitally is not simply about setting up an online store, it is about transforming the operational efficiency of your organization from a cost center to a profit generating engine.
To optimize your Cost-to-Serve and maintain a strong bottom line, here are several steps you should take:
- Create a map of your “labyrinth”: Identify and document the costs involved in your current manual entry process from the initial contact until you resolve any errors.
- Focus on Reorders First: You may not have to immediately convert the more complicated product configurations into digital formats. Begin by converting the higher volume, lower complexity reorders that currently bog down your system.
- Integrate for Speed: Use API’s to synchronize your new digital platform with your legacy ERP to ensure that the data is correct and can be accessed quickly without needing to implement multiple year IT projects.
Conclusion
The “this is how we’ve always done it” mentality is silently killing B2B profitability. Companies continue to lose money through a thousand small cuts because they cling to manual processes under the guise of “customer service.”
Transitioning to digital is not merely an IT initiative, but a financial necessity. It is the only way to lower your cost-to-serve, free up working capital, and provide the frictionless experience that your customers are demanding.
Many B2B companies believe they have gone digital with their use of enterprise resource planning (ERP) and various types of technology systems; however, most B2B companies do not know whether these systems are adequate or optimally designed to prevent hidden costs and/or cost leakage. To identify the hidden costs and cost leakage of an organization’s processes you should first conduct a quick review/audit of the current business processes.
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