Sunday, August 14, 2016

Why Logistics' Leaders Need to Recast "Cost Control"

The best presentation I have seen in a long time was given last year at the CSCMP Annual Conference and it was given by Amazon.  The topic was a general update on their supply chain however a statement was made that has stuck with me.  The speaker was asked how they decide what service to provide given the costs.  His answer was clear:

" We don't trade off.  We provide the service then figure out the cost".

This is the definition of a true customer centric supply chain.  The customer decides the service level and Amazon provides it.  It is then up to the logisticians and engineers at Amazon to figure out how to do this profitably.  

When the cynics asked him how long he can go with losing money, his answer was "We make a lot of money, we just choose to reinvest in the business".  Another great answer and given the results of Amazon in the last few quarters, I think this issue of them making money has been put to bed.  

So what is a person to do who is stuck in an "old school" business where the executives believe the only thing a logistician should do is cut costs?  Here are a few ideas:

1. Recast it into growing revenue.  Logistics systems, when planned properly and executed at a high level do more to grow revenue than most parts of the business - including sales and marketing.  If you own the final mile of the delivery then you definitely have more impact.

2. Invest in quality.  Why do I do almost all my shopping at Amazon?  It is because the quality is near perfect and it is incredibly consistent.  This, again, will grow the business. 

3. Invest in final mile and own as much of it as you can.  Amazon is learning that now with the various ways they are investing in the final mile for Prime.  You can have partners but they have to execute your system.  For example, Amazon delivers on Sunday through the US Postal Service.  However, they use the exact same customer service alerts as any other part of Amazon.  It is seamless to me as a customer.  

I heard another person talk a while ago and it was about the two major touch points for a customer. These are the point of purchase and the first point of use.  Because so much is moving to an order and deliver method of buying, the point of purchase for delivered goods is now both the on-line experience and the final mile delivery.  Make the final mile great.  

Of course, there are other items but these are the big three in my book.  Do this and you will make your logistic's systems revenue generators and not costs to be cut.  If your leaders do not see this, then start planning an exit strategy because they will ultimately lose in the market place. 

1 comment:

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