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Customer Service Costs

Issue

Financial Success A company had a 50% - 50% joint venture with another company to market, manufacture and sell a product in a seven state region of the country.  The company itself was responsible for marketing, sales and project management and its partner was responsible for manufacturing and shipping.

The issue arose when the profitability of the product line began to decrease steadily over a 12 month period.  The volume and price level did not materially change during this period and the company was struggling to understand the profitability decline.

Action

We began a series of discussions and interviews with the sales team and project managers.  We also began an in-depth analytical review of the product line from sales through income.  This analysis led us to the fact that the initial product being shipped to the customer earned good margins.  The issues and additional costs developed after the products were manufactured.

We then identified and segregated all the issues and their associated costs incurred from the last 12 months.  This enabled us to determine the major root causes of our cost overruns.  Over 70% of our additional costs related to late shipments and incorrect product specifications.

Our next step was to initiate process reviews with all related parties to determine the root cause of Business Consultingthese problems and implement corrective actions.  Our late shipments were primarily driven by capacity constraints and our incorrect product specs were driven by a breakdown in the communications process between the two companies.

Result

A sustainable corrective action plan for both issues was established with follow-up performance reviews.  We also instituted a customer feedback routine to ensure we were meeting customer expectations.  Over the next three months, this process began to eliminate the majority of these additional costs and profitability returned to more normal levels.

Value

There is tremendous value in quickly determining the root causes of issues using both interview and analytical techniques.  The issues were identified and corrective actions were instituted promptly with measureable results.


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