Back in the day, the favorite buzz words of supply chain management were production efficiency, reliability, lean manufacturing, and zero-defects. Performance measures included productivity, yield, machine utilization, and percent rejects.
These were popular words but unfortunately, many executives and managers missed the point by focusing internal operations improvement and neglecting the needs of customers.
For example, in one of my engagements with a large food condiments manufacturing firm, the logistics group boasted proudly that their deliveries to major supermarkets were no less than 95% complete and on-time. When I surveyed the same supermarkets, they reported that the same firm had a 50%-65% fill rate. The firm’s salesmen confirmed the poor service rate, saying their orders were sometimes cancelled because supermarkets could not wait for the deliveries to be completed.
Obviously, the firm measured deliveries differently than the customers did. The firm based its delivery measure on its own targeted number of days while the customer based deliveries on its defined number of days. In short, the firm and customer did not have the same criteria for what constituted on-time and complete deliveries.
This was a common occurrence in other firms of varying industries. Company measures didn’t jive with those of customers. Even as firms may claim they offer high quality products at the best service levels, customers were claiming otherwise. Executives didn’t even know their firms weren’t performing up to par from customer perspectives. They often thought their firms were doing very well as their subordinates would report rosy statistics based on internally defined criteria.
Customers essentially want their orders filled and delivered on-time based on their expectations. Meeting their needs requires action in several key areas:
It is in orders management where customers interface directly with the firm and specify their needs in terms of item quantities, delivery dates, and agreed prices & terms. In turn, the firm manifests its commitment to deliver via the receipt of the customer’s order.
An effective orders management process is one that can promises the delivery and ensures it is done accordingly to the customer’s wishes. With support of advanced information technologies, this has become possible. But as with all systems, it requires command and control leadership and talent.
The success of an effective orders management system relies on an effective inventory management process. This again requires planning and execution in terms of setting minimum safety stock levels and scheduling production or purchases in sync with customer demand. Inventory management is one that requires upper management direction as a firm’s financial condition may hinge on the policies set for stock levels. Managing inventories can be a delicate balancing act but contrary to what many people may think, it is more science than art.
It’s one thing to set stock levels. It’s another when it comes to managing it for-real physically. Warehouse management consists of how products are received, handled, stored, retrieved, and prepared for dispatch. Efficiency in each of these tasks determine the viability and capability of delivering effectively to customers. How a storage facility is designed or laid out, how material handling is planned and invested, and how the information flow is worked out are important areas in which if done well, would commonly result in competitive advantage in delivery execution and logistical expense.
Often touted as the “last mile” of logistics, freight transportation entails the actual delivery itself to the customer. Though transport seems simple in its scope, experience has shown that there is much benefit in putting effort to planning and control of this process. Seasoned logistics managers know there is no such thing as identical deliveries.
Every delivery by a transport asset or provider is always different thanks to the complexity of traffic conditions, infrastructure, and government regulations. Defining the transport network, determining what to outsource or keep in-house, and setting freight parameters (e.g. turnaround, number of crew, mode of transport) necessitate talent in anticipatory planning and quick responsiveness to changes.
Managing orders, inventories, warehouses or storage facilities, and transport assets is key in delivering effectively to customers. Buzz words are nice but as most don’t recognize customer needs, they are of little value versus that of directly addressing what customers want.
Delivering fast and on-time is the new normal. Customers want no less. In these challenging times, it will all boil down to effective leadership and talent.
Jovy Jader is a Managing Director and a Supply Chain Management Consultant at Prosults Consulting LLP. Email at email@example.com.