Game Changing Supply Chain Strategies Involve the Revenue Guys

How do you know if your company has a “game changing” supply chain strategy? It’s really simple. Are the folks in your company responsible for revenue part of it? Do they put your supply chain capabilities in front of the customer as a differentiator? Are they counting on your supply chain capabilities to grow the top line or crush the competition? There is a “glass ceiling for greatness” in supply chain strategies, but most supply chain executives don’t know that it exists.

If you ask any self-respecting supply chain executive, he or she will say that their supply chain is strategic to their company’s success. But, it’s highly likely that the supply chain strategy is inward as opposed to outward focused. That’s easy to figure out too. Is the supply chain an afterthought for the “top line” and profit folks? It supply chain the “get it done” organization? I actually heard that saying from a marketing executive at a leading consumer package goods company.

If you look at the following chart you will see the “glass ceiling for greatness” for supply chain strategy. It hits when the discussion turns from cost, compliance and service to revenue, profit and competitive differentiation. Cost and asset reduction, compliance and service reliability improvement strategies are all things that the supply chain organization can do without anyone else’s involvement and is a given. When you get to the top line/profit/competitive differentiation side it takes active buy-in and sponsorship from the people responsible for revenue, profit and the customer which are usually the head of sales, COO or president.

Figure 1: Glass Ceiling for Supply Chain Greatness

Source: Descartes

There are numerous and substantial opportunities for supply chain executives to make a difference in a company’s success and this has been going on for quite a long time. But sadly, they don’t happen enough because supply chain executives fail to sell the vision outside of their organization. Here are two successful examples of game changing supply chain strategies.

The first is John Lewis Partnership. I mentioned John Lewis in a recent blog Home Delivery Success Starts at the Order. John Lewis took what too many retailers consider to be mundane and a cost center – home delivery, and made it customer facing as part of their omni-channel retailing strategy. Instead of the traditional approach of taking the order and later figuring out how to deliver it, John Lewis engaged the customer at the point of sale – on the web and in the store. The result was that they took their top line for value added home delivery services up 500% AND improved their profitability by providing delivery choice with premium pricing for service for their customers. The following chart is an example of how to map home delivery capability to supply chain greatness.

Figure 2: Home Delivery Strategy Delivery Example

Source: Descartes

The second is Herman Miller in the 1990s. In the late 1960s, Herman Miller invented the modular office or better known today as the “Dilbert cube”. Herman Miller had an epiphany; they decided that their product was as good as any on the market, but not the point of differentiation. The office furniture at that time was defined by unreliable service and lengthy lead times. Instead, they believed that they could sell much more if they dramatically focused on reducing lead times (75%+ decrease), while automating order capture for convenience and accuracy to improve reliability. It all started with product configuration that happened right in front of the customer that was tied directly into a factory designed to turn out the order in a couple of days, not weeks. Their mantra became “MacMiller”, just like Mac Donald’s, fast and good enough. In Herman Miller’s case, this division grew its revenue 10X over a 6 year period while NOT fundamentally changing the product.

What is amazing is that the original game changing idea for both companies came from the supply chain organizations, not sales or the president - but those two had to "own it". If you are a supply chain executive you have to ask yourself a hard question. What can your organization do to deliver game changing results and have you convinced the revenue guys to do it?

How is your company breaking the supply chain strategy "glass ceiling" to deliver game changing results for your business? Let me know.

The Backhaul/ Co-mingled Freight Revolution

OK, for years and years, everyone has been talking about backhaul and co-mingled freight as a significant way to minimize transportation costs. The reality has been that for most shippers, it’s been a fringe operation and fallen far short of what could really be accomplished. What if, as a shipper, you thought of your transportation operation as a revenue or profit increasing opportunity? Dear logistics executive, how would that change your thinking, especially when the president of the company recognizes it? My advice is to figure it out now before he/she does. FYI, this applies to everyone, from the $50M food distributor to the multi-billion dollar consumer package goods (CPG) company.

So why will something that has been recognized for a long time change now? It’s pretty simple - corporate greed. Markets are not growing that quickly and competition is fierce, resulting in few places left in the company to easily squeeze out top and bottom line growth. But that’s not everything. We are seeing a shift in thinking and the ascent of shippers acting as common carriers or transportation brokers. Making this easier is the emergence of network-based cloud logistics technology. Lastly, where’s the greatest trapped open freight capacity in the North America - common carrier or private/dedicated fleet? The latter, by a long shot. As shippers realize that private/dedicated fleets that are today focused only on customer delivery could be deployed for inbound shipments or companies with complementary shipping patterns, there will be a revolution the truck-based transportation market.

If you are a multi-billion dollar manufacturer, retailer or distributor, would you “kill” for a $50M - $100M top line opportunity that has way better margins than your core business? Yes, you would. That’s what a leading distributor in the UK did, giving their fleet operations an 8 figure revenue target for backhaul revenue. The high profit comes because the majority of their fleet costs are already “sunk” before the backhaul takes place.

Even if you don’t own a fleet, you can become your own 3/4PL. That’s what a high volume CPG company is doing. Let’s just say that they cube out way before they weigh out, and put a lot of common carrier trucks on the road. For this company, the opportunity is to drive down their shipping costs by sharing their economy of scale with smaller volume CPG shippers going to the same retailers. The net is that versus the traditional LTL carrier they are cheaper for the smaller volume shipper, yet the smaller volume shipper absorbs a higher percentage of the transportation costs for the co-mingled freight.

How do you scale the backhaul/co-mingled freight opportunity? Not with spread sheets and emails. That’s why we are at the infancy of collaborative backhaul and co-mingled opportunity. It takes an infrastructure that collaboratively links all of the potential parties together. The real volume opportunity is with your supply chain partners and those companies operating in the same ecosystems.  Traditional enterprise technology doesn’t “get” the multi-party aspect and niche cloud applications, such as load boards, don’t provide the end-to-end process integration. In addition, the decision process is a little more complex than searching for shipment opportunities. Leading companies are making fleet versus common carrier selections based upon the profit opportunity. It’s counter intuitive to think that the “free” fleet can lose money, but that reality is totally possible if the fleet is driving all over to make opportunistic pickups.

My guess is that for the next 5 years, backhaul and co-mingled freight optimization is going to be an exciting opportunity for leading logistics executives to make a top and bottom line difference in their companies. The challenge will be to take an inward and cost-focused logistics organization and turn it into an outward and revenue/profit-focused corporate asset.

Is your company able to using backhaul optimization or co-mingled freight programs to increase revenues or reduce costs? Do you have a “revenue line” for it? Let me know.