Third-party logistics providers are partnering with companies to handle global sourcing differences, improve product fill rates and eliminate other "points of pain" in the supply chain
Perrysburg, OH — July 20, 2005 — CEOs and senior executives typically focus on making the sale, the product and driving down unit cost, but seldom devote the same attention to improving the logistics side of the equation: customer fulfillment or inventory management. Yet considering how quickly a missed delivery or incorrect shipment can sour a customer relationship and even cause the loss of existing or returning customers, this is surprisingly short-sighted.
Furthermore, problems caused by poor supply chain management often appear to be caused elsewhere in the company. For example, sales starts blaming production for lost revenue; production starts blaming sales for client losses, while in-house logistics and inventory management are the true sources of the problem.
So how can you know if your logistics operation is the source of the problem? If, as a company executive, you've heard any of the following, then you very likely have "points of pain" caused by the supply chain:
— "Sales are up, but overall profits are down, due to the cost of re-investment for in-house logistics to meet specific customer shipping needs."
— "One of our biggest customers just called and chewed us out for missing a delivery. They're telling us to get our act together, or else..."
— "Our customer is delaying payment because we didn't ship the right quantity of product, and it was late. Now they're asking for a price accommodation."
— "Production expedited product manufacture at additional cost, but it still didn't get to the client on time because it sat in the warehouse."
— "Production is complaining that sales isn't selling enough to keep production running efficiently, when in fact poor logistics is causing low client retention."
The High Cost of Poor Logistics
Simply put, a company has two main chances to impress a customer: at the point of sale and at receipt of product. While slipping up on delivery may seem like a forgivable oversight to a company's internal shipping department, it can not only damage a company's balance sheet but also cost them customers.
"Because the market is so competitive, I need the right part, at the right place, at the right time to be successful," stated Ron Maltarich, president of Tendeco Sales Inc., a supplier of aftermarket pulleys and tensioners for the automotive industry.
"Get it wrong and I've lost a customer," he explained. "Or I've racked up extra cost and complexity through re-ordering, back-ordering, canceling or expediting."
Stock-outs can be particularly painful to a company's bottom line when the out of stock product is part of the 15 percent that typically accounts for 80 percent of a company's sales.
Besides the hit to brand and customer loyalty caused by a stock-out, a mismanaged supply chain can also contribute to inventory loss, slow inventory turns, inaccurate inventory balances, delayed collection of accounts receivable, and lost resources spent handling delivery errors better spent elsewhere.
High Expectations, More Complexity
The Internet further complicates the manufacturing landscape by raising customer expectations of order availability and customization. Previously, a customer may have accepted slow shipment and standard packing, but today they're more likely to seek out a competitor's alternative or insist on expedited delivery, special packing, labeling or tracking.
Moreover, globalization has stretched out lead times and added complex layers to product sourcing and distribution among global, domestic and regional suppliers and customers.
Yet many companies remain wedded to outdated, in-house logistics practices based too often on how things have always been done. They lack flexibility, speed and accountability. These companies accustomed to in-house fulfillment, in fact, are often unaware of the extent of their logistics problem.