Your VP of Sales calls you one day and gives you the bad news of the day (as CEO you will generally get a dose of bad news and a dose of good news each day – another post). A customer has a problem with your last product shipment and they would just like to return the entire shipment. You ask some questions regarding the specifics of the problem and the VP of Sales tells you that the issue appears to be that some items in the shipment were not manufactured correctly and therefore did not run correctly at the customer. You are not quite sure you believe your VP, and you think that the customer did not use your product correctly and they caused the issue, not your manufacturing team. How do you handle this?
My title uses the word “when”, not “if”. You will have quality issues, whether they are 3.4 defects per million opportunities or they happen daily. (With the latter you will run out of customers quickly!) According to a somewhat dated article on IndustryWeek.com, product returns cost more than $100 billion per year, and those returns can reduce a manufacturer's profitability by an average of 3.8% (http://www.industryweek.com/planning-amp-forecasting/supply-chains-also-work-reverse).
How you handle these quality issues and how you manage returns can increase customer relationships, sales, and profitability over time on the positive side, and of course if handled incorrectly can decrease company value.
Getting back to the quality issue example, you don’t really believe the quality issue at your customer and you have strong confidence in your manufacturing team and their talents for making great products, so what is your tack? Do you question your customer, assume they have done something wrong, and make them work to prove the quality issue and accept a return? Or do you apologize and resolve your customer’s issue, regardless of who is right or wrong in this case? (Hint – stay positive.)
I have seen from my experience successfully running manufacturing companies that the latter approach is more successful in generating customer goodwill, retention, and then keeping those profitable sales long-term. Follow the steps below to generate value for your company and customer base.
- Firstly, apologize. Assume that what the customer has told your team is correct and factual, and you have shipped defective material. Tell the customer you are sorry for their issues and your company will work to resolve them as quickly as possible.
- Take responsibility. Absorb the negative statements or complaints from your customer and don’t blame your team. You do not have to say that your products were defective and you definitely caused a customer issue. However, I believe that as a quality and responsive supplier you should take charge of the issue and resolve it quickly.
- Get goods back. Authorize a return of the products and issue a credit upon receipt. I think it goes without saying that you pay for the return freight. In general issue the credit regardless of the condition of the products (see below for what to do with problem customers). You want to help the customer by removing the defective products and you really want to have the products back at your company for your quality people and manufacturing team to examine and evaluate. I have seen products come back that are new, untouched, and test within manufacturing specifications. I have also seen returns that were not our products. More competitor intel never hurts…
- Root cause analysis. If you have a quality issue with the product return, analyze the issue and find the root cause. Then fix the cause so you will not have more issues in that process manner. Any good quality system will guide you through the examination to find the root cause, document the examination and the changes required, and then adjust your manufacturing process accordingly.
- Customer communication. If you find an issue, determine the cause per above, then fix the process, and tell your customer. Give them some details on what you did and what you fixed so your customer has confidence that future products will not have the issue.
- Ship new product. Ask the customer for a new order to replace the returned goods. Look to close the loop on the issue by getting new product to the customer as soon as possible.
For sure this “customer is always right” attitude can be abused by some customers. If you have a customer who always seems to have issues with your products but you have never been able to factually verify, you can fire the customer. You do not have to continue to do business with a customer that may have their own internal problems. Hopefully that is rare, and I have never fired a customer for this (unprofitable sales, another answer), but you should keep in mind the approach above means you should evaluate a customer that always has problems with your products.
As CEO, you are not dealing with every customer issue and product return. You are, however, setting the tone for customer relationships and you can easily instill this process with your team. And you will have to manage conflicts between sales and operations. Help your sales team realize that you will have product issues on occasion, regardless of your ISO, TS, or other quality certification. Make sure the results of the root cause analysis are shared with sales, and that your manufacturing team is supportive of sales efforts. Ensure your manufacturing team knows that your salespeople are not out in front of customers blaming “the plant floor” for mistakes. Good sales teams can “swallow” customer complaints, relay to manufacturing in a fact-based manner, and be a part of a company solution. Good manufacturing teams can accept product returns, change processes, and continuously improve. Your leadership in the internal communications and processes around product quality issues will ensure company success, not just customer relationship success.
Your company will have product quality issues. It is not fun to deal with an unhappy customer due to your product defects. However, you can take the positive opportunity to turn your customer’s frown into a smile by quickly addressing the issue with the six steps above, use the issue as a learning experience to improve your company processes internally, and then you should be increasing your long-term customer relationships. Please ‘em and keep ‘em!
