LTD Management
Logistics & Supply Chain Management Consulting Global Solutions That Work

Logistics--Customer Says

World Wide Shipping
President LTD Management

There is a game called "Simon Says." You must do whatever the person tells you to do when, and only when, he starts the command with "Simon says." There has been and is something similar going on in business, "Customer says." And no where is this seen more and felt more than in Logistics.

At one time, manufacturers or distributors got orders from customers. If they had the products, they shipped them when they wanted and how they wanted. If they did not have all the material, they shipped partial orders. The remainder went on backorder, Then sent more as they got finished items. So one customer order may be filled over several shipments. No more. Those days are gone.

Now customers tell manufacturers or distributors what they want, how they want it and when they want it. If the supplier does not or cannot meet those requirements, then he will likely incur chargebacks, penalties and the possible loss of that customer's business. Partial shipments, forget it, Not allowed. If a supplier does ship an order as two shipments, what usually happens is that the first one is accepted. The second one is rejected because the customer closed the purchase order with the receipt of the first shipment. There is no open order to receive the second shipment against.

The challenge for Logistics is how to meet these requirements in a service and cost competitive manner. This challenge is geometrically increased because each customer has his own individual and different requirements. So if the manufacturer or distributor has 200 customers, he probably has that many different sets of instructions on how each customer wants his orders handled.

Customer Says. Think about the different ways an order can be handled and various customers will have them. It is not just the ways; it is also the permutations of the ways. Each customer wants his order done to his specifications. And likely no two customers have the same, exact requirements. Each is different. There is no single or generic way to handle orders,

Now very possibly Sales has no idea what their customers demand for service. Why should they care? That's Logistics' problem. They did their job; they got the order.

Here are some ways--

Logistics Impact. Or maybe this should be called "Reality Check," as one of the television networks does a segment on its nightly news. With all the material on Customer Service, Supply Chain Management, Continuous Replenishment Vendor Managed Inventory, Just-In-Time, and similar programs which bring down the logistics and other costs to customers, there is "the rest of the story" as Paul Harvey might say. It has to do with being the logistics department of a vendor to the supply chain customer, This is not meant as an anti-supply chain management view. No way. All we are doing is discussing that there are costs and issues to the logistics departments of the vendors in the supply chain, and not all these costs mean lower costs for turn. In total they are a benefit, but to the particular logistics manager they may mean a nightmare of having to explain why his costs are up, yet sales are not.

And there are costs. Think about it. A customer wants each carton of his order stenciled, with the purchase order number, his SKU number and other information for him. Stenciling is highly labor intensive and dramatically slows down how many orders can be picked and shipped at no overtime. The next customer does not need stenciling; he has a limit on the pallet height of his order. So it takes more pallets and more time (and more labor) to pick his order and build the pallets. Or one customer wants his order on slip sheets. All this individuality by each customer, all this customer service specifics can play havoc with the Logistics budget.

Now a customer specifies which carrier he wants used. Never mind he is not paying the freight. He has his reasons, based on his receiving needs. But that carrier is not one that the supplier has any good negotiated pricing with. No matter. The customer demands it. There goes the Logistics freight budget. Add to it the extra congestion, and labor cost, at his shipping dock as another carrier needs a dock door (now this is the same problem the customer is trying to overcome at his receiving dock).

Even if the customer does not specify a higher cost carrier, he may be ordering more frequently and in smaller Quantities. This means more warehouse costs to pick the same dollars of sales. It means more freight costs because of smaller shipment sizes. Same with receiving what appears to be a large order from a customer and having to prepare and ship small orders to individual stores. More picking and higher freight cost.

Or the customer has his own brand of the supplier's product, a private label. So what? Well it means extra stocking space in the warehouse. You have to put the pallets of his product somewhere? If it is not a fast mover, it is not in the central picking area; it is placed further away. This means extra picking time with the travel to and from the product. And the cost impact with additional storage space.

The Accounting department does not understand this. All they track are the obvious costs with labor, overtime, freight, shipping supplies and the such. The work required to handle each order is not tracked. And so no one tracks how profitable an order or a customer is--or is not. A sale is a sale. Costs are costs. Tying them together should occur, but usually does not. Profits, or losses, do not occur at month end when the books are closed. They occur during the month. With orders. With customers. Not all orders and not all customers are profitable or as profitable.

The same issues occur with the vendor and with his suppliers as he implement his portion of supply chain management. He orders smaller lots. This means more deliveries to his dock. which means more labor spent with put-away time instead of pulling orders. It also means higher freight costs with smaller shipments.

Conclusion. At one time, suppliers dictated how they would accept and ship orders to customers. No more, Now customers are dictating to their suppliers how they will handle their orders. Turnaround time. For each action, there is an equal and opposite reaction. So it is with supply chain management-type programs. Management should understand the programs that each of their customers have and what it means to their company.