Four Key Logistics Goals

This is the second in a three-part series discussing ways multichannel merchants can improve profitability and supply chain efficiency. Last week the authors wrote about operating more seamlessly across three channels; to read that article, visit Using Logistics to Win in a Multichannel World.

For the supply chain to be effective in a multichannel operation, it is necessary for management to meet four goals:

1) Increased efficiency
2) Improved customer service
3) Increased sales
4) Improved relationships

Each of these goals includes definitive and specific objectives required within an operation. Fortunately, there are proven best practices to help you achieve those objectives.

1) Increased efficiency
To increase efficiency, a company must develop cost-effective transportation rates while reducing overhead, total inventory, and overall cost-per-order processing. You can improve your warehouse operations, including processes, layout, and flow, by working closely with your transportation provider. Establish a two-way relationship with your carrier to frequently share best practices, issues, and opportunities.

Conversely, disjointed transportation flow ties up space on the receiving dock. For example, if a product doesn’t meet specifications, it must be double-handled, possibly repackaged, stored, and shipped back to the source. This process uses extra labor and space. What’s more, lack of a reliable delivery time requires you to carry more inventory, which decreases inventory turns and increases costs for the added storage space.

To improve logistical efficiencies, consider having the vendor perform value-added services such as packaging, marking, and quality inspections. This improves the chance of errors being caught at the source; source-based services speed product flow through the warehouse.

Also, avoid making transportation an afterthought; try to build it into the warehouse process and layout. Consider inbound and outbound conveyances, queuing up shipments by carrier, and the capability to pull orders later in the day to increase customer service.

Determine which carriers are able to accommodate business demands, depending on product type and turnaround time. For example, some multichannel merchants have carriers come into the center to help load trucks, while others have an inhouse U.S. Postal Service office for shipping.

Consider whether facilities issues could affect your operation. For instance, limited delivery-door access can force companies to rely on their carrier to move a loaded trailer and replace it with an empty one. During peak order-shipment periods, this causes downtime and an interruption to the workflow when there’s no empty trailer ready to load. Additional loading doors could solve this issue.

Vendor compliance is at the heart of efficient supply chain management. Simply defined, vendor compliance means that product arrives from a vendor in proper condition and is delivered in the agreed-upon manner. In addition to product quality, some vendor compliance standards include packaging and shipping requirements, advanced shipping notices, master-case and inner-case sizes, case labeling, product packaging and polybag specifications, accounting and paperwork requirements, logistics requirements and routing guides, scheduling appointments and statistical sampling requirements, to name only a few.

The proactive step of instituting a charge-back policy should be clearly stated in a vendor compliance manual, with the support from senior management. Retailers would rather have receipts arrive on time and be compliant than deal with the hassle of collecting charge-backs. But it’s necessary to put financial penalties for non-compliance into effect. Without setting these standards, a warehouse will have to absorb repackaging and re-labeling costs. And without compliance policies and enforcement, it’s difficult to implement more advanced systems of cross-docking, advanced shipment notices (ASNs), just-in-time inventory, source marking and ticketing, or radio frequency identification.

Traditionally vendors, rather than merchants, have controlled inbound freight decisions. This practice costs merchants an estimated premium of 20%-60% above actual transportation costs. But today more merchants are taking control of inbound freight, enabling them to influence their economies of scale and negotiating power to reduce costs. This is not an easy transition to make when you consider the number of documents, parties, languages, and currencies involved in global sourcing. But the benefits are numerous — lower costs, improved visibility of the inbound goods in transit, and the ability to schedule receipts.

Another major advantage of controlling inbound freight is the ability to combine inbound, outbound, and reverse logistics to get higher discounts. This always needs to be balanced with the issue of putting all your transportation eggs in one basket. Carriers have areas of strength and weakness. Select vendors for their strengths. Approximately one-third of companies are using multiple carriers — a growing trend.

2) Improved customer service
In direct marketing enterprises, fulfillment operations are in partnership with marketing and merchandising. This partnership is like a three-legged stool — without all three legs the stool cannot stand. Fulfillment operations’ inbound and outbound transportation is key to delivering marketing’s promise to the customer to get the shipment delivered on time and in good condition.

In direct marketing, customer service must be balanced with costs. First is the cost to acquire a customer, which stands at roughly $10-$25, depending on the efficiency of the prospecting. This figure includes catalog and other marketing costs, as well as the cost of nonresponses. In many businesses, u to 70% of all first-time buyers do not purchase a second time. Most direct businesses need a customer to purchase two or three times to break even.

The second cost element to consider is the high cost of being on backorder. Hundreds of customer studies show that in most direct businesses it costs $7-$12 to process one backordered unit of merchandise.