As the demand for home delivery booms, so too does the issue of dissatisfied customers. While many companies may have outsourced their customer delivery service, based on the reasoning that distribution is not their core competency, increasingly they dare not outsource managing their customers delivery expectations. Chris Wright, Managing Director of Skillweb, explains how retailers and third party logistics companies must work together to solve the problems associated with achieving customer satisfaction and competitive cost-effective service levels.
The customer is always right
The marketplace today is changing. Todays customers are becoming more fickle and demanding. No longer loyal to specific stores, if a customer cant find the desired item in the right size and colour, they will leave the store in search for another that does have the product.
Impatient to purchase and have a delivery promise to suit their requirements, customers are unwilling to wait until their favourite store to deliver at their convenience. And with increasingly different sales channels to choose from whether via the internet, home selling, catalogues or over the phone, there has also been a marked uptake in home deliveries.
Not only has this resulted in increased numbers of items requiring last mile delivery, it has also increased the demands on reverse logistics where items are returned as a result of unsuccessful delivery.
Delivery at the distributors convenience is no longer working, it is becoming essential for retailers to commit to a delivery promise at the point of sale or shortly thereafter. Distribution, whether outsourced or in-house, must then meet that promise or as a minimum monitor it and proactively manage issues as they occur. It does not pay to upset your customers, the least they require is news, even if it is bad news delaying delivery.
So how are retailers meeting the challenges brought about by this new, demanding customer? Many are reducing the stock held in the front line, providing a response that is demand led. This puts more pressure on the supply chain to replenish stocks and re-locate it to different outlets to meet demand.
It is almost a form of mass-customisation suppliers need to decide what they are going to make and then make it on demand. An example of this is the car showroom. There may be several new cars in the showroom, but these are purely for demonstration. In reality, a new car is delivered several weeks later, tailored to a customers exact specification with extras.
The high street is also a clear illustration of this new stock management. In the past retailers may have held two key sales per year one in January post Christmas and a Summer sale to clear out summer stock. Today, the high street is never without a sale. These sales are more about clearing stock to have valuable shelf space ready for the next must-have items.
It may be that a particular item will sell at a different location the challenge for the supplier is to ensure that the product is re-assigned to another outlet. Moving stock around in this way requires an efficient system that can track demand and adapt rapidly to changes, re-routing stock in transit if necessary, to ensure that delivery promises are met.
Feeding the supply chain
Clearly to have a responsive supply chain means that there needs to be collaboration amongst the supply partners to agree a delivery plan. This needs to be tracked and monitored, and it should include a way of analysing actual performance against plan to see whether targets are being met.
Ultimately, the responsibility falls heavily on the shoulders of the third party logistics company to deliver the right product to the right place at the right time, and this is where the challenges lie.
Historically the contracts with delivery companies have been inflexible and driven by price. In an open book contract, the cost of the delivery is passed on in the price, with a profit margin agreed on top. In this instance there is no profit incentive for the delivery company to service the customer over and above a straightforward delivery service.
In a closed book contract, there is little room to provide service outside of set terms, since these will have been negotiated and fixed by price. With either contract, when a delivery is unsuccessful, the cost of working outside of the agreed delivery promise is prohibitive, often resulting in a dissatisfied end customer.
The key problem for a retailer is that outsourcing delivery to a third party means that they have no visibility of the supply chain. If there is a problem, the supplier only finds out when the product is returned, it gives no opportunity to speak to the customer and provide a solution.
A happy customer improves the bottom line
A pharmaceutical company that makes medicines wants to be able to concentrate on its core business, and sensibly relies on a third party for logistics and distribution. However, it is vital that the company is able to have this visibility of the supply chain, ensuring that its end customer gets the products as and when it is required, ensuring proof and time of delivery.
In the event of snow preventing road access, for example, then it may be that a delivery is delayed or cannot be made at all. Without a process in place to manage the situation real-time and have visibility of the problem, the order may be returned and lost.
However, if the customer can be forewarned that the delivery is delayed or may need to be rescheduled a return can be avoided. The customer is happy to be kept informed, and the supplier can make alternative arrangements to meet the service promise.
This customer-centric approach is the way forward, whereby both supplier and the logistics provider embark on an open partnership with common targets and total visibility. From the outset, both parties need to agree that the delivery promise is paramount, and agree a benchmark cost for a delivery drop.
This cost should be mutually beneficial. The process should then work in that the delivery part is profitable if the targets are met, and if the customers demands are met, then so too is the supplier.
Delivering on the promise
Clearly there needs to be accountability on the part of the third party logistics company, but also there needs to be mechanisms in place to do this. Today there are technology solutions that can enable this customer centric approach.
With efficient management systems the logistics provider can reduce error and stock loss, provide proof of collection or delivery and full traceability of delivery status. Such information can enable the company to manage customer expectations and provide management reports if required, all providing an improved customer service.
Logistics companies that invest in such technology will be the profitable ones that can be flexible enough to deliver the service promise and provide visibility of the supply chain to its customers.