Archives for June 2013

How Many Times Can You Squeeze the Lemon?

By Chris Jones | 06/28/2013 | 7:48 AM

There is a saying that goes something like “you can squeeze the lemon one more time and get a little more juice out.” I have heard it used as metaphor for taking out costs and it appears to be well adopted by a number of large shippers (manufacturers, retailer and distributors) who have joined various transportation benchmarking consortia. My concern for these companies is that if their focus is only on rates, the cost savings will not be sustainable. Instead, greater emphasis should be placed on collaborative transportation strategies and practices to drive down costs and keep them low.

While comparing costs across companies to see who has the lowest rates can quickly yield cost savings, it is nothing but arbitrage. Basic economic theory says that arbitrage mostly benefits the early adopters for some period of time. After that, as many others attempt the same form of arbitrage, the market corrects itself. For transportation this means that costs will flatten out or in fact go up. Here’s why.

Carriers are just like any other enterprise. They don’t exist unless they can make money. If you evaluate the financial performance of truckload and many LTL carriers, they aren’t exactly “knocking it out of park” from a profitability perspective. At some point, nothing but pressure on rates either drives carriers out of that market or out of business. If you need an example of how this works, look at the domestic automotive market and the number of suppliers that went out of business because the “Big 3” OEMs just focused on cost. In the end, the OEMs had to provide financial assistance to a number of their suppliers because of the situation they created. Transportation capacity is already tight and cost-focused rate benchmarking will only continue to squeeze it. When the remaining carriers say “enough”, the cost reduction game is over. If you read a recent post on Logistics Viewpoints by Adrian Gonzalez, you can see it is already happening at ABF (www.logisticsviewpoints.com/2013/06/19/what-is-the-future-of-truckload-transportation).

For transportation costs to go down and stay there, shippers need to consider how their strategies and processes lower the carrier’s costs. To lower costs, the carrier needs to plan and execute collaboratively with the parties shipping and receiving the goods. A shipper sharing forecasted freight volumes with its carriers is an understood concept and will help the carrier lower costs because of greater predictability.

However, greater visibility doesn’t change the basic processes for moving freight. Carriers make money moving, not sitting. While there can be demurrage charges, they don’t make up for the lost productivity. For example, how are you helping them minimize load/unload times and dwell times? Are you using technology such as dock appointment scheduling to make sure that trucks are not lined up waiting for an open dock?

Cash flow can be a killer for carriers and there is a cost to them for “floating” your business. How fast are you paying carriers? How many invoices are stuck in dispute because of assessorial charges? What have you done to streamline and automate the freight payment process? To shorten the payment timeline and reduce disputes, leading shippers are using TMS solutions to determine either to eliminate the invoice process through payment based upon contracted rate calculation or accepting electronic filing of invoices. Portal based carrier management systems even allow smaller carriers to electronically file or update accessorial charges just like the larger carriers.

Driver retention is also critical, especially in these days of tight capacity. Driver turnover impacts productivity, capacity and service levels. Drivers want predictable hours and reasonable routes. How are you working with carriers on constructing routes that allow drivers to have regular hours, be home every night and steady income. For example, one logistics company worked with a shipper to create a hand-off strategy so drivers could complete runs during a day to significantly reduce driver turn over. While it’ss very hard for an individual shipper to make this happen, collaboration between shippers can make this more of a reality.

If you’re the company paying for the freight, what are your trading partners – the folks on the other end of the movement of goods - doing to make transportation more efficient? The sad fact is that many trading partners do not care, because it isn’t perceived as “their” problem. What metrics do you have in place to measure trading partner performance with carriers? You need to apply the same rigor to your trading partners to ensure that they are just as efficient when your carriers arrive to maximize end-to end carrier productivity.

Benchmarking carrier rates is an enticing way to drive down costs, but that “lemon has been squeezed a number of times already”. Without evaluating how to help carriers systematically lower costs, rates won’t continue to decrease.

How is your company helping to reduce carrier costs? Let me know.

The Last Mile is the Last Word

By Chris Jones | 06/14/2013 | 2:35 PM

There is a lot of emphasis in retail on customer experience on the web or in- store, but the “rubber meets the road” for customer experience during the delivery process. It’s the last thing the customers remember about their shopping experience. There is nothing like a personal experience to drive home this point. In my case, it’s about a really bad home delivery experience, but for the folks reading this post it could be about ANY bad delivery experience. Here’s the story.

My wife bought an appliance from an unnamed leading retailer. As part of the purchase, the retailer was supposed to deliver the appliance on a specific day, uncrate it, put it in a specific location in our house and plug it in to make sure it worked. Well, the retailer’s third-party delivery agent didn’t show up on the desired date, dropped off the appliance on pallet in the middle of my garage, told my college-age son they were not responsible for the installation, and left.

You have to know my wife to know that she wasn’t going to accept that kind of poor performance for one second. She called the retailer and complained. The delivery agent was then instructed to finish the job. After they failed twice to show up as promised, my wife called the delivery agent and complained. The comment from the delivery agent was “well, the driver can’t find the product to deliver” – we already had it, and “there was no ‘paperwork’ to authorize them to come and finish the job”. So, she called the store manager and complained vehemently. He said he would pay us $300 to do it ourselves – we said no, and then he had 2 store employees come to our house and spend 5 minutes installing the appliance and testing it. This whole saga played out over a week. This was a national retailer and the third party agent is one of the larger ones specializing in home delivery.

Do you think my wife will buy another appliance from this retailer? Not a chance. Considering that we are about to tear apart our kitchen, these folks just lost $1,000s in revenue. So how did this all go so wrong? This retailer is still treating home delivery as a necessary evil, the delivery agent isn’t adequately training its people and neither is using technology to enforce the right processes and desired behavior.

I work with many of the retailers around the globe on home delivery and the winners take full ownership of the delivery whether they have their own fleet or outsource their delivery. This means that, as a retailer, you need to have proof-of-delivery and post-delivery processes and supporting technology to ensure the job you expected gets done and to the level you expected. For example, where were the pictures that showed the unit was delivered and installed? Where was the call-out, text or email after the delivery that asked us if the installation was to our satisfaction? I could just go on and on about what was missing in this case.

In addition, retailers need to integrate their fulfillment systems with the delivery agent and the ownership of the delivery process needs to be seamless. There should have been clear instructions on the installation as part of the delivery manifest and then, when it doesn’t happen correctly, provide feedback on what to go back and complete. In this case, the third party agent had no clue what to do every time and then threw it back to the retailer. Where was the accountability? What is in the contract to enforce quality work? It was pretty obvious that this retailer shopped for the lowest cost delivery agent, didn’t put any rigor into the agent’s processes or capabilities, nor invest in technology and integration to make this look like “one company”.

Similarly, home delivery agents need to invest in the processes, technology and people to support their operations. Home delivery agents are supposed to be the experts. That’s why retailers hire them. There is no reason not to offer the same technology I mention above to your retail customers. Who better to provide the best-in-class processes to retailers because of your experience working across multiple retailers? Most importantly, don’t go cheap on the drivers you hire, and make sure train them and provide a career path. These folks are the real value creators in your business. Retailers - it’s really easy to tell if your agent actually takes this point seriously - just look at their driver turnover rate.

With all the energy retailers put in attracting customers like my wife, why do they waste the opportunity to have her be a customer for life by failing to grasp the significance of the delivery and installation? What is clear is that price is no longer the differentiator? I just got back from the UK where this is playing out much faster than North America. John Lewis Partnership, probably one of world’s best retailers in terms of home delivery innovation, had 13% growth in 2013 while the rest of the UK market went backward by 6%. Their customer loyalty is legendary. I heard the same story from one of the leading office supply companies in North America. Delivery is their top rated customer experience and their financial results are strong. You figure it out. This lesson can apply to any industry.

How is your company excelling during the delivery process or do you have any real horror stories from which we can learn? Just let me know.

The Curse of Metrics

By Chris Jones | 06/02/2013 | 7:44 AM

There is an old saying: “tell me how you are measured and I will tell you how you will act”. So how do you know that your supply chain and the individual organizations that comprise it have the metrics that truly align them to the common goals of the business? Metrics themselves can be misleading and there is a lot of “urban legend” in the supply chain. Since a blog is not a book, let me give a few pointers.

Act like the business owner. What really matters to them? Selling more, making more money and keeping customers satisfied and coming back for more. It doesn’t get simpler than that. But how are most supply chain operations measured? Not on contribution, but on operational costs and some service level agreement. That doesn’t sound like there is really alignment. It gets even more disjointed when the supply chain actually helps drive more revenue for the business. As an example, a retailer decided to offer installation and removal services to drive more product sales and gain additional revenue through value-added services. With the delivery of these services, home deliveries now can take longer -  some delivery routes can now only make 11 stops versus the previous norm of 17. How are the increased sales of product and service revenue reflected in the supply chain metrics? If the financial metrics are only cost-based, then the picture of true supply chain contribution are wrong and, most likely, in conflict with the overall goals of the business.

Build a supply chain metrics tree: Most supply chain executives would say that they have some kind of holistic metric, like lowest total delivered cost, or use some kind of balanced score card to measure their organization’s overall performance. Yet, when you look behind the statements, you find very little holistic thought to the metrics used by each of the supply chain organizations. In many cases, it boils down to focus on a single metric in the individual organization, to the detriment of the rest of the organization. How does that metric relate to all of the other metrics and the overall goal of the business?  As a supply chain executive, you need to sit down and map out all of the metrics used in each of the organizations and their relationships to each other. I like the tree metaphor, because the base is the foundation and the branches are each of the operations/metrics. There are other approaches, but if you have done this since you took over your organization, the time to do it is now.

Slaughter the sacred cows. Then there are the “sacred cows” of supply chain metrics such as asset truck fill, days of inventory, etc. where “more” or ”less” is always perceived as better. If you believe that lowest total delivered cost is the goal, then you need a balance of metrics and most likely compromise. Let me give you an example. In the automotive industry an OEM was trying to reduce its total inbound logistics costs, but had a truck fill standard that was considered an absolute – you can’t go below it. To meet that fill metric, it was driving a lot of miles consolidating supplier pickups and actually costing the company. To reduce overall costs, they determined that they needed to “relax” the fill standard. The conversation with their supply chain “experts” was reminiscent of the discovery that the earth was round. Always isn’t always.

We only have metrics for what we can measure. How lame does that sound? I understand the challenge of getting the data to make more holistic metrics feasible. However, if you really want to change the overall performance of your supply chain, the effort has to be there to collect and validate the data. Yes, this might cost more money to do it, but my bet is it is nothing compared to the overall performance improvement you can achieve.

Everyone needs to “live” the numbers. After all of the effort to construct the right metrics and get the supporting data right, the biggest crime is not making them known throughout the organization. Simply put, everyone needs to know and live them. There are lots of ways to do this. For example, one manufacturing executive used to walk his plant every month with a $100 bill in his pocket, randomly pick an employee and ask them “how many days since we didn’t ship an order complete and on time”. You think there wasn’t an employee there that didn’t know that metric and its importance!

Metrics are critical to supply chain success, but they can equally be divisive. Unless you just finished a review with the CEO of how your metrics support the overall goals of the company, there’s a good chance that either your supply chain, or the organizations that make up your supply chain, are using metrics that conflict with each other.

How is your organization doing with its supply chain metrics? Let me know.

The opinions expressed herein are those solely of the participants, and do not necessarily represent the views of Agile Business Media, LLC., its properties or its employees.

About Chris Jones

Chris Jones

Chris Jones is Executive Vice President of Marketing and Services at Descartes Systems. Jones has spent more than 30 years working with manufacturers, retailers, distributors, and logistics providers to improve their supply chain operations. One of his primary missions is to identify and leverage new and counter intuitive activities that make a difference in the business. Jones has held senior positions at Kraft Foods, Descartes, and Gartner. He has a B.S. degree in Electrical Engineering from Lehigh University.


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