Several years ago, while consulting for a web retail company, I had an extremely stressed out customer service manager come to me with a problem. He was trying desperately to get an order out the door in time for Christmas — but it was proving near impossible.
The customer had paid handsomely for overnight shipping with expedited processing. He clearly needed his order the next day, but several items were out of stock and the customer service manager couldn’t reach the customer by phone to ask if he would like to be shipped only what was in stock. There was a risk that the customer would be upset either way. Were the company to ship the partial order, he might be upset that the most important products were missing. Were the company to not ship, he might be upset that he didn’t receive the order in time.
In fulfillment, situations like this arise all the time. Even for large companies, inventory accuracy can be a challenge. But for this business, it was happening with alarming frequency. Worst of all, the problem exacerbated the company’s already high turnover rate.
Root Cause Analysis
The root cause of the problem was incredibly simple: The company was purposely keeping its inventory low to avoid the “costs” of high inventory. But in doing so, management was committing Accidental Evil against its customers and employees at a fundamental level. Chronic inventory shortages forced the best and most important people in the company to work significantly harder to stay on top of their work, keep customers happy, and field customer complaints. Customers were also put off by the sheer number of out of stock items on the website. If you placed an order, you were very likely to be notified that one or more of your items would be backordered. It’s hard to say how much business was lost as a result of this, but I suspect it was considerable.
But the true costs didn’t end there. Purchasing personnel were constantly reacting to outages rather than getting ahead of them. Finance personnel were pressed because orders sitting in the warehouse waiting on items to be shipped led to chronic cash crunches. Company leaders were stressed because they didn’t have time to address the team’s frustration. They were also worried about the high turnover rate and worked ridiculous hours to keep it all together.
Sales are great, but they could be much better
What’s curious is that overall sales numbers were great. Year-on-year growth was tremendous. That made it hard to build a case for how much better it could be. As such, I told the customer service manager that if the company lost that customer that needed his stuff the next day, then maybe we didn’t deserve that customer. I coached him on how to visualize the Accidental Evil that was happening within the company and separate himself from it so that he didn’t burn out.
If you know and accept that your car can reach a top speed of 80 miles per hour, then your response to someone demanding that you accelerate to 85 is simply, “I’m truly sorry, but I can’t do that.” Healthy companies can go very fast without burning people out. Unhealthy or dysfunctional companies can appear to go more quickly than they should because they get “subsidized” by the sheer will of their team. In the end, the pace becomes unsustainable and the company either rights itself to get back out on the road — or it implodes with great fanfare.
Using organizational “pain” to catalyze positive change
Unless the company feels quantifiable “pain”, it becomes hard for staff to learn and grow. It’s difficult to quantify the cost of the Accidental Evil experienced by the team because oftentimes people end up accepting a deteriorating situation as “normal.” When lower standards become more acceptable, people feel less inclined to effect the change needed to help the organization grow. This challenge is only compounded by the shortage of mental space caused by rampant stress.
Ultimately, the company did learn from its pain. Management stepped up their game by crafting a thoughtful financial plan and committing to it.
Most importantly, the company invested in a more appropriately-sized inventory. That solved many problems at once:
- Sales increased because more products were in stock. Fewer people abandoned orders and went to a competitor for products they needed.
- Complaints decreased because items didn’t sit in the warehouse waiting to be shipped.
- Gossiping and bickering dramatically decreased because people were less stressed.
- The turnover rate decreased, giving management more mental space to get on top of problems rather than constantly dealing with burned-out employees, hiring, and training.
- Customer service personnel were happier because they dealt with far fewer angry customers..
- Fulfillment was happier because they were able to get more done. Since they were compensated based on output, they earned more as well.
- Purchasing staff were able to focus on making sure products didn’t go out of stock in the first place, rather than always reacting to outages.
- The financial controller was happy because the financial situation was improving and he wasn’t paying for constant rush orders from suppliers.
- Suppliers were happy because they were paid on-time. Orders were no longer put on credit hold. That meant the company experienced even fewer outages.
- Everyone was able to work less, but achieve better results.
Looking back, this situation is one of the best examples of Accidental Evil that I’ve seen personally. For insisting on a modest inventory, the company was paying a huge tax on its productivity, financial solvency, and viability. Few managers were in a position to recognize this at the time, so no one was able to effect the change necessary to overcome it. What seemed like many problems, in fact, packed down into just one—and untying that one knot solved many problems at once.
A healthy company should be a fun place to work. It should also be profitable. If you work at a company that is not, I encourage you to learn more about Accidental Evil. In this blog post, I explore the phenomenon extensively and make some recommendations on how to overcome it. Doing so is rarely easy, but its pursuit is always worthwhile.