Managing customer expectations

07 June 2007

American correspondent Susan Mucha asks, how closely does your company’s preferred business model mirror customer preferences?

I recently did a quick survey of 15 electronics manufacturing services (EMS) providers headquartered in North American and Asia regarding customer expectations for a presentation at an industry conference. One of the first questions asked was, “what is the most outrageous request a customer has made of your company?” The requests all related to risk abatement, response speed or schedule flexibility.

In the risk abatement category there wasn’t a lot that could be accommodated. The margins in EMS don’t favor companies who fail to have customers sign up for material liability. What I found surprising was that in response speed and schedule flexibility, EMS providers who found a way to accommodate an outrageous request often made money on it provided they understood costs and risks and shared that with the customer.

I also found some interesting dynamics in types of support required. Only four respondents indicated that over 50% of their customers required they hold finished goods kanbans. Comparatively eight respondents indicated they did this for less than 20% of their customers. Based on comments I’d heard in the industry over the last few years, I had believed that a far larger percentage of customers were requiring this service.

In terms of frozen production windows, the majority of respondents had a 3-6 week frozen schedule window. When I asked what they felt their customers expected in terms of frozen schedule, only four indicated less than one week, six listed 1-3 weeks, four listed 3-6 weeks and only one had frozen windows greater than six weeks. Respondents accommodated schedule changes inside the frozen windows either by charging or making a best effort with no guarantee. Several indicated that they did it regularly at no charge. The interesting dynamic was that there was no commonality in company revenue size in terms of response to this issue. Greater degrees of flexibility were found in both multinational and regional EMS providers. The primary drivers of flexibility tended to be internal focus on Lean manufacturing principles and supply chain management expertise.

The companies used a variety of arrangements to support variations in customer demand including: in-house stores run by distributors, raw material buffers set for each customer, brokers and non-franchised distributors, bonded inventory held at the supplier, and their individual buying power.

The two largest drivers of cost were excess inventory that customers wouldn’t take and schedule changes.

Key points to keep in mind in balancing customer expectations with business model include:

- Understand customer requirements and tailor programs to meet those needs
- Have visibility into customer historical demand, current demand and raw materials/finished goods in the pipeline
- Work with your customers and the supply chain to share the responsibility for supporting flexibility
- Set appropriate expectations of what your system can and can’t do with customers.

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