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Many companies in the logistics service industries publicize their ability to attract prestige accounts. Their advertisements will feature the brand names of well-known manufacturers and retailers. The presumption is that the service provider must be better than average in order to attract such famous companies as customers.
Surprisingly, the subject of retention is neglected. There are two areas in which retention is very important --
- The ability to retain customers
- A record of keeping talented people on the team.
Retention is the ultimate symbol of quality. In effect, it is a miracle adhesive. Bankers and others who provide financing for logistics service providers frequently ask about the longevity of customer contracts. This is the wrong question! A month-to-month service agreement that has lasted for 20 years should have more credibility than a new five-year warehousing contract that includes the right to cancel for failure to meet key performance indicators. Furthermore, customer retention is more important than prestige accounts. Whether the customer is a well-known multinational or a small manufacturer, the fact that this client has stayed with the provider for many years is a significant indicator of quality and stability.
Retention is also the neglected standard in judging the quality of the provider's human resources. What is the average number of years of service for the hourly workers? Then what about the supervisors and the managers? Of course there can be valid reasons for shorter tenure. A rapidly growing service provider will have team members with short tenure, since they were hired to support an expanding warehouse operation. A provider with no employee turnover may have some deadwood, but a company that has a poor record of retaining people may have a significant weakness in human resources management. Well-managed organizations attract and retain talented people, and the reverse is true when there is a weak management team.
When you appraise a company that is either a potential customer or a key supplier, don't neglect to ask about retention. Ask about customer retention and employee retention. Both are reliable barometers of quality. If you are the vendor, and if your retention record is superior, you should use this record as a selling point. You should use this when selling to customers, but also when recruiting new talent, or when dealing with your banker for new financing.
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