Can You Lower Your Cost to Serve?
Every manufacturer likes to see a truckload of product leaving the dock, destined for the retail shelf. They probably look the other way, however, when it’s a hotshot load of a few pallets. In today’s market, vendors face the challenge of meeting the on-demand replenish requirements of large regional and national retail customers. Order frequency is higher; order size is smaller. The question becomes, how much does that level of service actually cost?
It’s a tough question, and you’ll likely get two different answers from sales and from finance. You may very well be servicing an unprofitable customer if your week is filled with last minute outbound LTL to many points.
True cost to serve requires analysis of supply chain activities and costs incurred to meet customer’s product demand. This is a disciplined, data-based modeling of your network, and not many manufacturers conduct these studies.
So, short of modeling, what can you do to help ensure you are taking the steps to lower your costs to serve?
- Stage forward inventory in a distribution location strategic to your customer base. This is a quasi form of postponement; placing stock required for the final order closer to the point of purchase. Ideally, you can move your finished goods via truckload to this distribution point. This is critical for mid-tier processors or those with complex SKU product lines.
- Use technology to drive efficiencies in ordering; accuracy in picking, and supply chain transparency.
- Collaborate with like vendors in your supply to eliminate waste and reduce costs. In our industry, it’s called order consolidation resulting in multi-vendor load building.
- Strive for scheduled delivery. Work with your customer to determine the optimal frequency for delivery; handle the exceptions as required. It’s not perfect, but it is a best practice.
In full disclosure, these steps describe the Hanson Logistics Velocities MVC program, domiciled in our strategic Hobart, Indiana facilities, now in it’s fourth expansion. That aside, lowering or stabilizing your cost to serve is a worthy effort regardless of your product, channel or location.