Don’t forget the service aspect of warehousing

Because warehousing is essentially a service business, the nurturing of relationships is at the heart of success in this industry. We will explore examples of both the good and the bad, and each will remain anonymous.

How many examples can you find of service companies that have forgotten the meaning of service? Think about your contacts with airlines, banks, your favorite retailer or others. How many of the people you talk with display a sincere desire to be helpful?

It is easy to make a list of horror stories. A great example is the vendor who contacts you without taking the trouble to learn what your company does and what services you might actually need.

Surveys are now so easy to send by email, each asking you to spend five minutes to fill out a questionnaire that tells how you felt about your recent purchase. Because the surveys have proliferated, we suspect that people who receive them will respond only to report extreme anger or an unusual degree of satisfaction. The middle ground of relationships remain a mystery.

Escape the commodity trap

A surprising number of logistics service providers place the primary emphasis on price. Their website says "contact us for a rate quote," which implies that the most important thing they offer is a price.

One buyer has a fairly complex set of requirements. When a member of their staff contacts warehouse vendors, he sets out the details of the requirements and asks for a proposal, without any suggestion that there is a rush.

A significant number of vendors will provide an immediate rate quotation, frequently demonstrating that they have spent minimal time studying the data. Those who are fastest to offer a price are almost always rejected, since they demonstrate that they are commodity vendors.

Beware of the "lowball" bidder. Unfortunately, there are still a few warehouse service providers who will make a proposal with the expectation that the price can be renegotiated after gaining additional experience. They rely on the fact that the new client will be reluctant to change warehouses if the service is good, and therefore will agree to a higher price.

Equally toxic is the lowball buyer. Regardless of the price quoted by the potential vendor, this buyer works to achieve an even lower cost with the expectation that the vendor does not know his costs and may not realize that the margins are too thin. Eventually, the service provider will realize that a price adjustment is absolutely necessary, and the buyer is faced with a decision of either accepting a new proposal or finding a new vendor.

What makes warehousing unique?

The buyer of motor freight services can change suppliers by simply entering a new telephone number before ordering the pickup of a new shipment. Every motorist can change fuel suppliers by simply pulling into a different service station that posts a more attractive price.

Fortunately, the relationship between a warehouse service provider and the customer has greater stability. As consultant Jim Cecil observes, "A client at rest tends to stay at rest unless acted upon by an outside force."

The buyer of warehouse services makes a decision to place an inventory with a service provider. Moving that inventory may be difficult, and it can also be dangerous.

If the buyer changes warehouse providers to achieve a lower price, and the new provider provides unsatisfactory service, the buyer will at least be embarrassed about the decision to change warehouses. At worst, this could be a decision that will stain the career of the buyer. We have seen a few instances of buyers whose reputation for infidelity to suppliers reached a point where they could no longer find a qualified bidder.

Because divorce is particularly messy, relationships between warehousing service providers and their customers must be closely monitored in order to fulfill Cecil's observation about "a client at rest."

What makes your warehouse special?

If it is only price, then you are a commodity vendor. If it is super service, remember that good service today has become a commodity. If it is a list of "prestige accounts," remember that other vendors can say something similar.

Two features should be used to demonstrate your company is distinctive — and both are frequently neglected. One is the stability of your client list, and the other is the longevity of your personnel.

Make a list of your top 20 customers. Beside each name list the number of years and months you have served that client. The best service providers are those who retain their clients. If your retention rate is impressive, this should be a feature that makes you special.

Unfortunately, the logistics service industries do not do a good job of retaining people. In long-haul trucking, the people turnover rate is one of the highest of any occupation.

Make a list of your hourly employees. Beside each name show the number of years that person has been with your company. Then, do the same thing with your line supervisors. Finally, create the same statistic for managers. When you have the ability to demonstrate that your staff has longevity, this is an indication that you have put the right people "on the bus" and have kept them there.

Look for other features that will separate your company from the average vendor. Do you have peculiar abilities in the delivery of value-added services? Do you have some unusual materials-handling equipment? Do you operate a facility that has some unique storage capabilities?

What other features exist within your company that will make you different from your competitors?

The sleeping dog challenge

The outside force that will erode the relationship is probably not a competitor who offers a lower price. Usually, it is the slow and nearly imperceptible destruction of personal collaboration. It does not always begin at the top echelons, though it may end there.

Sometimes the prime administrative contact with the customer is an individual who demonstrates a lack of confidence in the warehouse provider. One warehousing organization has a poisonous relationship with an important customer.

When we consulted at one of the operating locations, an early contact was with the on-site representative of the customer. This individual marched into my temporary office and closed the door. He then expressed the vehement opinion that not a single person in the provider's operation was competent.

I had interviewed most of the key people, and it was my judgment that they were dedicated and well motivated managers. It was clear that a decent collaboration could not possibly be achieved until that individual is removed.

In another situation, the relationship problem started at the top. When the company founder moved his son into the chief executive position, the prime representative at the customer expressed the opinion that the younger leader did not have "the right stuff." Strenuous efforts to repair the relationship were not successful, and the customer opened a bidding procedure and moved the operation to another warehouse.

In both cases, senior management at the warehouse company was not aware of the seriousness of the problem until very late — in the second case it was too late.

Finding the sleeping dogs

The best way to maintain the relationships is to be aware of the early signs of deterioration. The conventional customer survey has been grossly abused. The careful provider prefers to know about the first sign of slippage. In fact, the customer should be equally interested in keeping track of the current quality of the relationship.

Consultant Fred Reichheld has studied the topic of customer loyalty. He maintains there is only one question in a survey that is a true indication of whether you have satisfied your customer. That question is: "How likely is it that you would recommend XYZ warehouse to a friend or colleague?"

It's the culture, stupid!

Cultivation of customers cannot be separated from cultivation of employees. In his book, "The Culture Cycle," Professor Jim Heskett provides examples of companies whose service is built upon the attitude of employees who are committed to delighting customers.

Employees who are happy in their jobs and loyal to their employers find that providing good service comes naturally. On the other hand, workers who live in an abusive relationship are more likely to spread that abuse to their contacts with both suppliers and customers.

Getting the right people on the bus is only part of the challenge. A bigger part is creating and maintaining a culture of service, once the employees are on board.

A Midwest warehousing firm acquired the assets of a much bigger firm based in Texas. The cultures at the two companies could not have been more different. The habits of the South stood in great contrast to the energy of the Midwest.

The CEO of the buyer firm recognized the potential culture clash, and he saw that integration was the critical part of the transaction. He organized a series of four-day retreats at a suburban conference center. Attendees stayed at the conference center where they shared rooms and meals with their new partners.

While a business program was the center of these meetings, their real purpose was to forge a relationship between the operating people in the two companies. The result was the most successful merger of warehousing companies we have seen.

Putting it all together

We live in age of relationships, and this is never more apparent than in warehousing. Those who think it is all systems and science are likely to be frustrated. Those who neglect the people side of the business will be surpassed by those who recognize the criticality of building relationships — inside and outside of your business.