Lost Orders Analysis

Background: A major bearing repair vendor in the utility industry with four independent locations was receiving fewer orders over time, even though the company kept dropping its price.

Situation: Customers would call for price and delivery, after which the repair vendor would carefully evaluate material and man-hour costs and desired margin, and return the customer's call within 6 to 24 hours.

Analysis: A quick structural analysis of the industry showed that customers should not be sensitive to price because:

  • the bearings were a critical element of the larger machine,
  • the repair cost for a bearing ($5,000 to $10,000 depending on size) was a small fraction of the buyers total costs,
  • each customer was a small part of the repair vendor's sales,
  • the customers were all very profitable,
  • there was no chance that the customer could do the work themselves, and
  • the bearings, weighing 500 pounds to a ton or more, were prohibitively expensive to fly, favoring the closest location.

    • By simply talking with several previous customers we found that what the market wanted was price and delivery while still on the phone. Competitors who could provide that information were getting the orders, even at higher prices.

    Improvement: Representatives of the four facilities worked together to create a price matrix applicable to nearly all of the bearings they are asked to quote.

    Result: The price matrix enabled each of the four facilities to give a price while the customer was on the phone. Some orders were lost due to long delivery when the facility was busy. No orders were lost due to price. The four locations began to work together to slowly increase their pricing once they realized that price was not usually a deciding factor.

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