Geography Drives Home Delivery Strategy

By Chris Jones | 09/04/2015 | 11:47 AM

It seems to me that many companies implementing home delivery strategies are trying to ignore the impact that geography has on cost and customer service. The fear of not offering, same day, next day or even a uniform home delivery service across a broad market or nationwide is driving these companies to make poor delivery strategy choices. It’s time to reassess the impact of geography and whether a uniform service and delivery strategy is best for your customers or company.  

For example, a company in the process of implementing a nationwide home delivery service was evaluating the delivery performance in 2 of its markets. One market (a region) was performing well in terms of cost and service. The other was struggling to meet customer service targets and keep costs down. When I looked at the geography of the 2 markets, it was immediately apparent that one was conducive to short lead-times, tight delivery windows and more reliable delivery and the other one was not. The better performing market was not only dense, it was compact and there were not a lot of physical limitations to moving easily throughout the market. The poorly performing market was much wider spread, with a few pockets of density and a lot of physical limitations such as bridges and lakes that constricted easy movement. All things considered equal, one market was destined to be a winner and the other one would struggle to adequately serve customers and cost more doing it.

While it would be great to offer all customers the same home delivery service levels, it may not be practical or cost effective and could possibly damage your customer relationships. Companies with divergent geographies in the markets they serve should consider multiple service strategies to best serve individual markets and minimize the cost to serve. For example, the geographically ideal markets should get the same/next day and one hour delivery window offerings. In the case of the less than ideal markets, the home delivery service offerings should be more limited (e.g. next day and four hour delivery windows) to help ensure that deliveries can be made as promised and deliveries costs are properly managed. My experience says that home delivery service policy can be localized and customers value delivery execution as promised more than they do making more aggressive promises and not consistently keeping them.

Another way to offer greater services and minimize costs in geographically diverse markets is to use multiple transportation modes in a home delivery strategy. For example, private or dedicated fleets might be highly effective in a dense part of a market, but not adequate for widely dispersed customer bases or specific regions. In addition, the ability to be more reactive to customers is a function of being able to service an area on a frequent basis. Commercial carriers can leverage their transportation density in particular lanes to offer faster service to specific customer geographies, and most likely more effectively too. The challenge in a blended home delivery transportation mode strategy is to ensure that the modes deliver a similar “door step” level of service and provide the electronic tracking and proof-of-delivery information critical to the customer’s home delivery experience expectation.

Home delivery is experiencing a renaissance of invention and there are many new delivery models being developed that are dramatically improving the customer experience. However, geography is a “natural law” that cannot be ignored in last-mile logistics strategies. How is your company adapting its home delivery strategy to address geographic diversity? Let me know.

The Problem is not the Problem. The Problem is Your Attitude About the Problem.*

By Chris Jones | 04/27/2015 | 1:52 PM

When I heard this saying, I thought it so profoundly related to one of the core challenges to supply chain excellence, an inflexible mindset. Too often in supply chain management we are bounded by our approach to supply chain problems, not the problems themselves.

For example, one of the greatest challenges in supply chain management is to get beyond a focus on cost reduction as opposed to revenue generation. If you are a supply chain executive, you struggle to have that discussion with the rest of the executive team. One retailer I know took a different approach to describing their metrics to get their point across.

The challenge that the retailer had was to be able to justify the value-added services it wanted to offer because they would reduce the number of deliveries it made on any given route. The general thinking was that the fleet productivity would be dramatically impacted and there was no way to relate that to the incremental revenue from the value added services. The problem the retailer had was that it was applying traditional metrics and “attitude” to a new business opportunity. Metrics like cost per mile and deliveries per route were built to address delivery operations as a cost, not a revenue generator. Fleet productivity is only one point of the overall financial picture.

This retailer had an “attitude” adjustment about its approach to metrics and changed to a “cost per minute” calculation for its delivery resources. That way it could compare the incremental revenue for the value added services against the time-based cost it took to deliver the services. In this case, the retailer was able to determine that depending upon the mix of products and value added services, it could make more money with fewer stops on a route as opposed to a lot of stops that contained no value added services and lower margin products. Once they understood this relationship, they started to understand how their delivery operations could help drive revenue and profit.

Another interesting example of attitude change is a retailer, Sleepy’s, who implemented tighter time window bookings to benefit it as well as customers. The traditional thinking for delivery windows is the wider the better in terms of delivery operations productivity. However, this retailer found out that it was experiencing a high number of failed deliveries because its customers were not at home. Failed deliveries can be a margin killer. Think about this for a minute. If you give someone an all day window, there is a high likelihood that at some point they won’t be home during that day and Murphy’s law would clearly predict that’s when your driver arrives. A tighter time window provides more certainty to the customer and allows them to better manage their day. Sleepy’s also dynamically allocates delivery capacity to make the delivery when the customer buys the mattress to make sure it can make the delivery. Since moving to this approach, Sleepy’s has been able to improve its delivery success rate by 4.5% and reduce product damage due to excess handling.

I am sure we have all seen examples where bad supply chain “attitudes” kept a company or project from being all it could be.  It’s not easy to get beyond what we know from past experience to best frame solutions to supply chain problems. However, supply chain strategies, tactics, and technology are constantly evolving and if there were ever a place to change attitude, it is here.

*The saying “The problem is not the problem. The problem is your attitude about the problem.” has been mysteriously attributed to Captain Jack Sparrow in “The Pirates of the Caribbean” movie series.

Originally posted on Logistics ViewPoints

Using Supply Chain Information to Create a Closed-Loop Customer Experience

By Chris Jones | 03/09/2015 | 6:28 PM

Consumers want to engage with retailers more than ever and this presents and excellent opportunity for supply chains to add value to the overall customer experience and minimize costs. While delivery performance is paramount, interacting with the consumer via supply chain information is critical to maximizing the customer experience. In Welcome to the Customer Facing Supply Chain, I wrote how Woolworths in Australia is engaging customers to drive growth and cut call center volume. There is a definite strategy to what they and other Omni-channel home delivery leaders are doing – using supply chain information interactively with the customer to create a closed-loop customer experience.

This strategy goes beyond the traditional delivery process, starting when the consumer is ordering and ending after the delivery was made. The pervasiveness of smart phones, real-time systems and GPS-enabled technology make engaging the customer during the order lifecycle easier and more compelling than ever. There are five basic steps in the customer order lifecycle where supply chain information plays an important part of the overall customer experience. This approach applies even if your delivery processes are outsourced. The five key steps are broken down in the following diagram.

Figure 1: Supply Chain Information in the Customer Order Lifecycle

Notifications Lifecycle


Step 1: Delivery Appointment Confirmation. Customers want to know when their goods will arrive and increasingly they are expecting tighter time windows. With today’s higher expectations, it is not unusual that potential customers will pass up retailers that fail to provide definitive time windows during the buying process. Equally, this is also an opportunity to set expectations for the customer to minimize failed deliveries, such as the successes that Sleepy’s has been able to achieve with this strategy.

Step 2: Scheduled Delivery Notification. As a concept, scheduled delivery notification has been around for quite a while – even though far too many companies still do not do it. The new thinking is that scheduled delivery notifications need to be more granular and provide a tighter delivery window. Best in class is now less than 30 minutes for a scheduled delivery. Again, this increases customer satisfaction and reduces failed deliveries as the customer, for example, knows which 30 minutes of the 3 hour originally promised widow their goods will show up.

Step 3: Delivery Tracking. Delivery progress tracking again is not new, but new variations have been popularized by companies, like Uber. that show the car on the map and the real-time estimated-time-of-arrival (ETA). Anyone living in a large city knows that delays are inevitable and customers are somewhat forgiving if you let them know that the delivery will be late and by how much. Simple approaches to delivery progress tracking like “left the DC” notification are no longer considered valuable by customers.

Step 4: Document the Delivery. Getting the goods to there at the right time is only half the battle. Instead, what occurs at the stop may be the difference between keeping and losing the customer, so tracking what happens via signatures, pictures, scans, etc. is critical to the customer and you. As we all know, some deliveries don’t go well whether it is, for example, an incomplete order, damaged goods or it won’t fit into the customer’s home. It’s also critical to capture that your driver was at their door (through a picture) in the case where the customer was not home. Providing that information immediately after the delivery helps verify what exactly did happen for the customer to minimize claims and even fraud, or that you will charge them for the second attempt after a failed delivery.

Step 5: Survey to Measure the Delivery Experience. The best time to gage the success or failure of the delivery is right after it happens and is fresh in the customer’s mind. Most customers appreciate participating and the fact that you make an attempt to engage them can help improve their perception of your overall customer service. Some companies do it as part of the delivery process while others wait until the driver is gone. If the actual buyer is not home during the delivery then the best approach is the post-delivery survey.

Supply chain and related technology advances are making the closed loop customer engagement strategy more possible than ever. Delivery booking and optimization technologies used during the ordering process provide the customer with the tight time windows they expect. GPS-enabled tracking tied to real-time location and dispatching systems provide up-to-the-minute status and ETA calculation. Smartphones. with scanning, signature and picture capture and flexible forms, capture what happens at the customer’s location. Bringing this all together for the customer is notifications technology that itself has gone “Omni-channel”. It is now possible to interact with the customer through a variety of mediums, including text messaging, mobile or web applications and automated voice.

Any organizations still thinking that providing supply chain information to customers in real-time is a “nice to have” are kidding themselves. The value is clearly being demonstrated every day and the technology is available now to cost-effectively make the supply chain a critical part of the customer experience. Indeed, it is amazing, when I talk to leading retailers and distributors, how often I learn about new ways for engaging customers through supply chain information. This is one area where we are clearly early in the journey to the customer facing supply chain. How is your company engaging customers with supply chain information? Let me know.

Blocking and Tackling

By Chris Jones | 02/22/2015 | 7:57 AM

This past week, I was talking to my friend, Jan-Terje, about one of his customers and the value they were getting through using their TMS for freight auditing. I will get to his story shortly, but let’s face it; electronic freight audit is not the glamorous part of logistics technology. However, it’s the kind of “blocking and tackling” that every company should do well because of the cost savings to be had and tremendous insight into how your business and carriers actually operate. Electronic freight audit also may be one of the original and best “big data” opportunities in logistics.

Back to Jan-Terje’s story. His customer, a leading Norwegian distribution company, implemented a TMS for planning and executing freight and freight audit. After a number of months in operation, the company started to review their invoices and noticed that, on a regular basis, small shipments were sent from one of their DCs in the south to locations in the far north via full truck transport. If you don’t know much about Norwegian geography, we are talking about a trip of over 1,000 miles. As you can guess, they were grossly over paying.

This company determined that their problem wasn’t the TMS configuration or rogue freight spending. The TMS was just executing what that the distribution planning system was giving it and this shipment mix was not expected. Instead, they needed to change their ordering practices and do a better job of consolidating orders and required delivery dates prior to giving them to the TMS. Without evaluating what was actually happening through electronic freight audit, this company would have not known how the TMS was being used and the impact external factors (in this case, shipment size and requested delivery frequency) were having on freight costs.

Another company that I know used electronic freight audit to get a better handle on the complexity of the billing process and the total cost for moving freight. In this case, a chemical company was using barges to move bulk chemicals. As you can guess, there are quite a few assessorial costs that could apply and that could show up well after the material was moved – the barges are not the only thing that moves slowly in the barge industry. For example, depending upon the chemicals moved, there could be a barge cleaning charge applied to the shipment. However, this charge would appear weeks (or sometimes months) after the actual shipment was executed and the initial invoice was delivered. Without the ability to synchronize all of the charges over time via electronic freight audit, this company would have not had a complete picture of the total cost to move its goods via barge.

To excel at electronic freight audit takes more than a good TMS solution. First, it takes unwavering discipline managing carriers to get them to provide the right data electronically. Second, you need onboarding solutions to deliver that data in a timely and complete fashion. The carrier community is incredibly diverse in its ability and interest to provide high quality electronically. Simply put, some carriers see this opportunity for what it is – an opportunity to reduce costs and get paid faster. Others “don’t get it” - they either don’t have the electronic capabilities or fight getting on-boarded and do a lousy job sending consistently sending the right data on a timely basis. Then there are the majority of carriers who fall in between.

There are a number of lessons that have been learned over the years to get past these challenges.

  1. The electronic freight audit process starts with your contracts. If your contracts are custom per carrier, then you can expect that the onboarding process will also be custom per carrier and take a long time. It will also make “apples to apples” cost comparisons between carriers much harder.
  2. Because of carrier diversity, you need a good degree of flexibility in your carrier integration solution and, where possible, use or create carrier onboarding standards. Virtually every carrier modifies the electronic industry document standards. If you cannot get the carriers to adopt an industry standard or your standard version, you need flexible mapping tools to normalize the data. There also needs to be “low tech” portal options for the smaller carriers to enter the data manually.
  3. Your company is not in the carrier onboarding business, so work with someone who is. Mapping and carrier data management can be complex and, if the number of carriers that need to be onboarded is in the hundreds, you need a team of experts to get it done quickly.
  4. You need to scorecard carrier data performance. Do not assume that data delivery performance is consistent. This could be the most important thing you do to ensure that the solution is successful over time. Put data quality provisions in your carrier contracts.

Sometimes the best opportunities to reduce logistics cost and gain greater insight into your operations come from the most basic business functions. So what is your organization doing with electronic freight audit? Let me know.

So How is Your Peak Season Strategy Working?

By Chris Jones | 12/19/2014 | 7:04 AM

While the holidays are a boon to retailers and the rest of their supply chain, they put tremendous pressure on the entire ecosystem to meet demands that are in many cases several times the volumes throughout the rest of the year. Many industries are highly seasonal and peak season represents a disproportional percentage of their yearly business. Running the same way all year long doesn’t work for these kinds of supply chains, it’s either too costly or capacity constraints limit the ability to scale. One thing that is for sure is that failure to meet peak season demand results in permanently lost sales and possibly customers. If your business is highly seasonal you need a peak season strategy for your supply chain operations and supporting technology.

A peak season strategy is more than going to “overtime”, it is about altering the dynamics of your supply chain from the way it works during the rest of the year. Outside of peak season there is most likely more capacity than required to serve the market and the strategy is to do it for the lowest cost possible. For the peak season, low cost fulfillment is still important, but responsiveness is paramount and capacity constraints limit flexibility.

Supply chain technology is an important peak season strategy enabler to temporarily create extra capacity without having to result in adding more physical assets like warehouses or trucks. For example, an outdoor recreation retailer implemented a yard management system at their stores to give them increased local inventory capacity. The retailer was able to park trailers at the store with additional inventory and the system was able to tell store management exactly what was in the trailers without having to receive the inventory into the store. In effect, the store ended up with additional “back room” capacity and transportation costs were contained by not having to increase the replenishment frequency.

Another peak season strategy is to unlock capacity by planning more holistically and combining operations. Integrating private/dedicated fleet and commercial carrier planning enables peak seasons to scale to meet demand and contain costs. Being able to evaluate the use of commercial carriers rather than going to overtime or having a commercial carrier rather than the fleet serve remote locations can improve responsiveness, throughput and potentially be more cost effective. 

Even companies that are able to build inventory in advance of peak season have to have a peak season strategy for their operations and technology. Given lead times, neither product nor geographic forecasts are accurate causing midcourse changes to minimize stock outs or excess inventory at season end. These companies must move manufacturing to shorter production cycles or faster modes of transportation during peak season. The supporting supply chain technology has to be configured differently to execute the peak season strategy. If you are running the same settings all year, then they will not support the different goals you have in peak season. Leading companies run multiple planning scenarios ranging from customer service maximization to cost minimization to see how far they need to push their operations to meet demand as it rapidly evolves during peak season.

A peak season strategy also has to have a revised set of metrics to support the change in supply chain behavior. The definition of responsiveness has to change – what worked the rest of the year and was measured in days, may require fulfillment in hours for peak season. Costs may be higher for manufacturing or transportation to ensure there are no lost revenue opportunities in this shortened selling period. Without revised metrics individual organizations will claim victory, while the overall company fails to meet its broader goals during the most important selling season of the year.

Peak season performance is what makes or breaks many companies’ yearly financial performance. If your business is highly seasonal and your supply chain strategies, systems and metrics are the same year round, you don’t have a peak season strategy and that is hurting your top and bottom line. So how is your peak season strategy working? Let me know.

Welcome to the Customer Facing Supply Chain

By Chris Jones | 10/05/2014 | 12:24 PM

It’s amazing how many companies are turning to their supply chain for competitive differentiation. You know that this is true when you start seeing commercials and sales pitches promoting supply chain capabilities. However, the difference we’re now experiencing is that companies are exposing their supply chains directly to their customers with capabilities that are intended to benefit the customer as opposed to just themselves.  What makes this strategy more interesting is that the customer and company benefit at the same time. Welcome to the age of the customer-facing supply chain.

The notion of the customer-facing supply chain occurred to me when I had a chance to see what two companies, Woolworths and US LBM, are doing with mobile apps used by their customers that are powered by their supply chain systems. In both cases, their supply chain and supply chain technology have become part of the “front office” helping them make their selling proposition more compelling and sticky.

Woolworths, the Australian retail powerhouse, has a 30 second commercial that sums up their entire proposition for online grocery and home delivery. In this commercial, they do a phenomenally simple job of demonstrating how easy and seamlessly it is to order and get groceries delivered. Behind the scenes from a delivery perspective, delivery appointment booking and real-time delivery tracking are all part of the customer-facing apps. What’s interesting is how they engage the customer post-ordering. When customers book an order they have 3-hour delivery slots, but when the orders are to be delivered, the slot narrows to 30 minutes and the customer is notified of the tighter time window. In addition, they have a simple real-time “ETA” button that the customers can use to determine exactly when their delivery will arrive. When you evaluate their results, there is an interesting mix that says they have dramatically improved their customer satisfaction. Online revenue is up over 50%, yet the number of customer calls to the call center had been cut in half! Their customers no longer wonder where their deliveries are.

US LBM is the 13th largest building products distributor in the US. This video shows how they are benefiting their customers and themselves (full disclosure: US LBM and Descartes created this for an award submission). US LBM built an application to improve contractor productivity that is tightly tied to their real-time supply chain systems. If you didn’t know it, construction is a highly dynamic business with most of the ordering and delivery happening in less than 24 hours. The challenge for US LBM’s contractor customers is that they are always on the go and need to know exactly when their material is arriving to efficiently schedule their crews. The benefits of improved visibility to the contractors are obvious, but equally US LBM benefitted from it as well with a 35% improvement in on-time delivery for many of their locations, while cutting costs by over 10% and turning around trucks 30% faster.

So what do these two companies have in common? Yes, they have operational excellence. More importantly, they have moved from an internal to a customer facing supply chains focus, providing the customers with the supply chain information they need to make their lives or jobs better. Both companies took some risk to expose the supply chain processes and information directly to the customer. If they are not performing well and don’t have the right data at the right time, the customers know it instantly. However, the results are compelling.

While the opportunity to use the supply chain as a competitive weapon is big, the implications for the kinds of supply chain technologies required are as well. Several times, I mentioned the need for information to be delivered in real-time, and that the information itself has to be created in real-time. Yet, it’s amazing to see who many supply chains try to operate in real-time, but their systems cannot. The best people and process alone will not get the job done when you need to share actionable information with your customers. The technology measuring stick is very simple. If your supply chain systems are still living in a “batch” world and don’t include real-time GPS updates, then it’s likely that instead of being enablers, your technology is an inhibitor to achieving the customer facing supply chain.

Making your supply chain part of the “front office” can unlock value for your customer and your own company. However, the greatest challenge to getting there may come from your existing supply chain systems’ capabilities. Has your company created a customer-facing supply chain? Let me know.

Getting the most out of optimization technologies

By Chris Jones | 09/03/2014 | 6:04 AM

Optimization technologies are powerful tools for improving supply chain performance. However, most companies leave lots of money on the table when they deploy them. Getting the most from them requires that companies spend time thinking about how they are going to be applied, how they will measure the results and the definition of success. The following points hold true whether you are optimizing inventory, transportation, labor, etc. in our supply chain.

Don’t just optimize what you do today. The typical question I hear when discussion optimization technology “How much will it save me?” In all cases, the answer I give is a range of costs (say 5% - 15%). The biggest reason for the range is the degree of change associated with use of optimization technology. The low side comes from optimizing the current processes and taking into account the current supply chain restrictions. The high side of the range is based upon looking at the business processes and restrictions and asking what could be done differently to take best advantage of the optimization technology. Deploying optimization technology provides an excellent opportunity to reexamine your supply strategies, tactics, etc. If you haven’t had a refresh of your supply chain in the last 5 years, there is a good chance that what you are doing today could be improved and many of the decisions that are being made are suboptimal or simplified because you didn’t have the tools to look either more broadly or deeply at the business.

Fix the overall definition of success with key metrics prior to deployment. When this doesn’t happen, deploying these tools becomes a subjective and painful journey. For example, in the world of route optimization it is not uncommon to hear from the existing planners that they don’t like the way the optimized routes “look”. What does “look” mean? If the goal was reducing total miles and vehicles, then they may not look like the nice “petal” routes that the planner put together in the past. However they may have taken out 15% of the miles driven and 10% of the fleet that used to make the same number of deliveries. That’s the definition of success. If you get that definition up front, you will be amazed how quickly you can get the value you are expecting from optimization technologies.

The more variables and fewer restrictions the better the results. Optimization technologies work best when they have more flexibility to make as many trade-offs as possible. It’s why they can produce results that cannot be achieved by the human mind. In the world of logistics, there are lots of variables that can be traded off. For example, in a VMI environment, delivery quantity and frequency can be traded off to reduce transportation costs. As long as the end customer doesn’t run out of your goods, you can make all the transportation decisions you want and there is no reason to fix a transportation delivery schedule.  Another extremely simple example of this came from a company that want to save money by consolidating its inbound transportation, but wasn’t hitting their savings targets because they had arbitrarily restricted the number of stops in a multi-stop run and weren’t eliminating as many LTL charges as they could.

Use optimization technology to help determine improvement opportunities. They really can be continuous improvement tools. It’s amazing how many opinions there are in an organization when it comes to where there may be savings. One of the ways to move from opinion to fact is to use optimization technologies to show the value of making changes to the business. If your optimization technology was “base-lined” to model your operational performance, then evaluating changes to its configuration can help identify where the big opportunities exist. Don’t underestimate this approach as optimization technologies are very good at finding counterintuitive answers. With all the “urban legend” in supply operations, sometimes the only way to make significant change that challenges the norm is to be able to compare the “what if” to the current performance. The great part of this approach is that you have a “sand box” that allow you to be creative without touching the actual operations. From there, all the doubters can dig into the results and verify the validity of the proposed solution.

Supply chain optimization technologies provide tremendous opportunities to improve productivity and customer service. However, their effectiveness can be severely limited by the deployment and success measurement strategies. How are you getting the most out of your optimization technology investments? Let me know.

Is Your Company’s IT Strategy Stuck in the 90s?

By Chris Jones | 06/01/2014 | 12:57 PM

Does your company suffer from an outdated understanding of the role and value of information technology (IT)? Today, IT is pervasive in the modern corporation and, if any part of your business or supply chain is “online”, IT is the infrastructure of the business. Yet, too many companies still treat IT as a standalone entity and cost structure.

Two events came to my attention that hit home on these points. The first was a recent blog post by my friend Vinnie Mirchandani called “The back office [is] crowding out the front office”. In the post, Vinnie points to the suffocation of IT value-added investments because large-scale back-office systems such as ERP are disproportionally consuming the allocated funds, but more importantly the IT resources. The second event was a conversation with a leading global company whose IT organization stated that they were mandated by the executive team to cut IT expenses to 2% of revenue. This insidious thinking came from a company benchmarking exercise.

At best, both instances represent laggard thinking. However, I believe it is even worse when you consider global supply chain leaders. To understand how absurd this kind of traditional thinking is, take the extreme case of a pure-play on-line retailer or distributor. Would they ever consider limiting their IT spend to 2%? Absolutely not, because they could never get their businesses up and running with such paltry and unrealistic funding. Instead of viewing IT as an expense “line item” global supply chain leaders view IT as a utility – like electricity and an essential part of supply chain operations or enabling business capability such as a manufacturing plant or distribution center.

The challenge to breaking this broken paradigm is get executives and finance to think differently about IT and for IT to think differently about how it is organized. Some of the challenge is perception and some of it is outdated organization models. It’s hard for most senior executives to understand the value of IT if all they are really looking at is a cost line item on the P&L. Those “dog and pony” shows that IT organizations put on to demonstrate to management that they are worth the money don’t actually work. Just look at the number of companies that are still constantly looking to cut their IT costs. From an organizational perspective, IT has put itself in cost-rationalization situation under the banners of centralization, standardization and synergy. What ends up happening, is that monolithic organizations and cost lines are created with little support from the business units.

Most IT costs and resources need to be shifted to the operating budgets and organizations. There, IT becomes an investment or variable expense where the business unit (BU) or supply chain can make its own decisions on equal footing such as building a new warehouse, expanding the fleet or using a 3PL. At the BU or operating level, a dollar invested or spent shouldn’t be constrained to some arbitrary corporate objective if the value is there. This is why I am a big proponent of IT becoming an operating expense item.

Today’s technology landscape is much better situation to support this “utility” strategy.  One of the biggest reasons cloud-based supply chain technology is becoming so prevalent is that it can easily be incorporated as an operating expense and isn’t necessarily IT resource constrained (See my previous post on cloud technology). You would be amazed how many companies I know that say they have been adopting cloud-based logistics systems because they were constrained by the lack of tradition IT funds and resources. With the highly evolving nature of supply chains and competitive capabilities of today’s supply chain technology, time-to-value is today’s most important metric. Waiting in line behind the back office ERP upgrade doesn’t cut it for leading companies that want their supply chains to deliver differentiated customer value. The good news is that the breadth supply chain capabilities that can be delivered via cloud technology is rapidly expanding and giving supply chain organizations more options to address their challenges and opportunities on their own terms.

This isn’t an IT versus the business/supply chain discussion, but a better way to recognize today’s role and value of IT and how it needs to fit into the enterprise. It may sound counter-intuitive, but to purely centralize and cost-line focus IT is actually diminishing its real value to the enterprise. If you needed more electricity to ship more product and make more money, you wouldn’t think twice about it. The same goes for IT and why adopting cloud-based solutions make more sense. Do you agree? Let me know.

3 Rs of Supply Chain Competitiveness

By Chris Jones | 05/05/2014 | 7:57 AM

With the advent of big data and a myriad of web-based customer interaction tools, establishing relationships with customers has a higher focus than ever. However, there is a supply chain path to establishing strong customer relationships and one that cannot be ignored or all of the effort on the “front end” of the business will be wasted. Almost 20 years ago, I heard about the 3Rs of supply chain competitiveness developed by Donald Bowersox, then a professor at Michigan State University. Here’s my short take on them.

The 3 Rs are responsiveness, reliability and relationship and in that order.

Responsiveness is the foundation. From a supply chain perspective, it’s what you do to capture the customer. This is where I see a lot of companies spend a considerable amount of their energy. When that new opportunity exists, sales wants operations to go through supply chain “gymnastics” to get the customer what they need and when they need it. Supply chain agility is at the core of responsiveness. If every time this exercise crushes your margins or impacts other customers you are serving, you need to reassess your supply chain’s agility.

Reliability is the next step. It is about the consistency that you need to exhibit in your supply chain operations to keep the customer. Despite spending all of that energy to capture the customer, you can lose them if you are not reliable. Of the 3 Rs, it gets the least credit, but is the “marathon” of supply chain performance. You can serve a customer well 1,000 times, but if you screw up the 1,001st time, you can lose them. Culturally, there has been a shift away from loyalty to more of a “what have you done for me lately” mentality, which makes reliability more important than ever. Sadly, reliability doesn’t get a lot of “air time” until you are not reliable and start losing customers. Another challenge is that the definition of reliability continues to go up. Now it is defined by compete and on-time deliveries with shorter lead times, and a greater mix of products and value-added services. When was the last time you evaluated your reliability metrics or rewarded the organization for setting new records for customer reliability?

Relationship is the “holy grail” because you “own” the customer. It’s about achieving the unique position where the customer starts with you, because they perceive your unique differentiation or understanding and ability to deliver to their needs. It’s not until you achieve the relationship level that you move from supplier to collaborator. Now, even if you are highly reliable, you may never get to establishing a relationship. Relationships are not about delivering products, they are about delivering all of the elements that the customer needs to get the value they want from the products they are buying. For example, I have seen several retailers start selling a lot more appliances because of the installation services they bundled as part of their selling process. These retailers took one of the greatest blocking points for consumers buying appliances right off the table. In this example, the challenge for the supply chain organizations was to go beyond the ability to just deliver an appliance, but offer the complete set of services to deliver a working appliance for each customer. If there was ever a place for the sales and supply chain sides of the business to come together, “relationship” is it.

With so much energy being put building strong customer relationships, it’s time to pull out the supply chain basics so we don’t lose perspective. The 3R story is pretty simple, it’s all about “get’em”, “keep’em” and “own’em” in that order. How agile, how comprehensively consistent and how customer unique is your supply chain? Let me know.

A Tsunami Running Through the US Home Delivery Industry?

By Chris Jones | 03/18/2014 | 7:52 AM

You need to read the recent DC Velocity Article “Amazon plans revamp of U.S. shipping with mix of private fleet, regional carriers, USPS” by Mark Solomon. If this scenario plays out, the relatively stable home delivery industry is in for a big change over the next several years. We are going to see a challenge to the traditional norms and a lot of logistics delivery strategy segmentation for home delivery in an effort to drive service levels up while maintaining cost levels. Interestingly, the UK is undergoing a similar transition. Now is the time to take a good look at your delivery strategies for the next 5 years because the home delivery game is changing.

Here are some of the takeaways you need to keep in mind.

Micro versus macro economy of scale. The macro economy of scale view is that UPS and Fedex have breadth and depth in their networks that make them the natural choices for nationwide distribution. What is being proposed by Amazon is essentially a micro economy of scale perspective. They see the opportunity to operate as their own delivery service in the top 40 markets where they believe their delivery “scale” is competitive with the big players. The rest of the country gets handled by commercial carriers.

Omni-modal distribution. I wrote about this in my “Logistics Excellence Predictions in 2014” post in December. The whole idea of Omni-modal distribution is that the traditional product/delivery segmentation mode segmentation approaches will give way to planning and execution ACROSS the modes to drive up service levels and drive down costs. Amazon will leverage its food delivery network for delivery of non-food items. This creates further economy of scale as is tough for commercial carriers to emulate.

Rebirth of the regional courier. Traditionally, the regional courier market has been littered with poorly run and under-capitalized companies. This is changing as venture capital firms have been rolling up this market. Online sales continues to grow aggressively and there is a general belief that home delivery will grow at an aggressive rate, providing opportunities for reinvented regional couriers to also grow quickly and capture market share. Other leading retailers besides Amazon are considering taking advantage of this market change.

Different markets, different service levels. Don’t believe all of the hype around same-day/next-day - at least not on a nationwide basis. It doesn’t make good business sense and is fairly easy to deduce from the DC Velocity article that Amazon will have different delivery strategies and service levels based upon population density.

Private/dedicated fleet is back. After years of shedding of fleets because of costs and balance sheet issues, it’s time to rethink fleet. High levels of logistics service come with a high degree of integration and control. For those markets that have extremely tight time windows, dynamic delivery and same/next day delivery expectations, commercial carriers are not as good of a fit.

Home delivery capacity finally “hit the wall” last year and will be stretched for the next 5 years. I believe that Amazon has come to a similar conclusion and is taking some bold steps to change the home delivery game. From conversations with other large online retailers, they are drawing the same conclusions. Challenges always present opportunities. How is your home delivery strategy changing? 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.


Popular Tags

Subscribe to DC Velocity

Subscribe to DC Velocity Start your FREE subscription to DC Velocity!

Subscribe to DC Velocity
Go digital