Monday, November 1, 2010

Thoughts on Cost....

All of us who have been in the industry for a while know the drill.  The expectation is logistics cost as a % of revenue will decrease year over year. This makes a lot of sense especially when you think of leveraging fixed assets.  Obviously, your costs for "back room" type activities should not go up in a linear relationship with your revenue.  If it did then what is the point?

But on the other hand we have to ask ourselves at what point can logistics' services add add to the revenue of the company?  And I do not mean just getting money from shared services (which is all the rage today) but I mean an equation which states that better service leads to higher customer satisfaction which leads to increased sales and higher revenue.  As products become commodities at faster rates than ever before perhaps leading companies should be thinking about the packaging of services around the product as a value add and revenue generator instead of a cost to be cut.

A quick example would be  Why do you shop there? Do you shop there because they have better products or different products?  The answer is clearly no. They have what everyone else has.  What they have that virtually no one else has is a very convenient and easy order entry, an incredible delivery mechanism, easy returns and real time tracking.  The advantage of is not the products but the services around the products.

What is becoming clearer to me everyday is companies need to be looking at logistics and supply chain as THE competitive advantage.  Unless they have a product that is absolutely unique or not able to be copied due to patents or unique technology, a company needs to look at the services around the product for competitive advantage.

One way NOT to do this is to only ask those who manage those services to cut costs.

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