53. Best Practice: Focus and Measure the Service Profit Chain in Distribution

Distribution Strategy, Index

The Service Profit Chain 

Jim Heskett et al. first published the evolving Service Profit Chain in Distribution  (SPC) model in 1994.  Jim and I go back to the fall of 1972 when he taught my first case study class at Harvard Business School. Next, in 1978, Jim’s research group wrote a case study (on a turnaround I did) entitled, The Small Order Problem. During 1980, he turned me on to how FedEx’s People, Service, Profits model was delivering perfect service. And, then in 1982, I adapted FedEx practices to a successful distributor turnaround.

For more on how I’ve adapted the SPC model to distributors go to Google and search for “merrifield + service profit chain”.

Here’s what you’ll learn:

  • The best people executing the best service creates the best customer retention and thus, profits
  • The best service creates virtuous feedback loops, while mediocre service yields vicious loops
  • Great profits flow from focused service value varies by customer segment and size
  • Good service to all types and sizes of customers earns weak returns

How to Focus and Measure the Service Profit Chain in Distribution Practices  

You can improve your service metrics by:

  • Using cost to serve (CTS) analytics to define your historically most net profitable customers and niches
  • Defining specific basic perfect-service metrics for profitable target customer niches and visit a few best customers to co-discover these
  • Using CTS analytics, determine the minimum average gross profit dollar per invoice needed to cover the average transaction cost of your service model
  • Defining viable extra services, and which customers get the extras for free versus on an unbundled basis with a profit margin built in. CTS math reveals the boundaries.

Besides improved service metrics, the SPC model begs you to create metrics for:

  • Measuring the motivational engagement of service employees
  • Decreasing turnover of service folks
  • Increasing the service skills within your motivated and retained team
  • Increasing happy customer stories
  • Retention and thus,  shared increases in key accounts

Best Practices Are Not a Strategy

All best practices—like the SPC—need to be focused on serving your historic customer profit core. But, general improvement won’t deliver focused, best-service value for better profits. To quickly re-energize and align into service excellence, therefore ensure all employees know:

  • Who the most profitable customers are
  • What specific service metrics define service excellence

In conclusion, for more on how to focus and measure the Service Profit Chain in distribution practices, catch my presentation, Metrics That Matter, at the APIC Conference, April 20-21, 2017 in Phoenix, Arizona.