CFOs: How to Make Logistics A Strategic Advantage
Small to midsize businesses can often find themselves in a tough spot when it comes to the freight market. Low volume often means less purchasing power, meaning these businesses are often left to the discretion (and rates) of the carriers and brokers they negotiate with. As a result, these businesses can often find themselves losing out on business or even losing customers to their larger competitors simply due to the higher freight costs. Additionally, the lack of purchasing power means a lower margin on the products they are able to sell due to the higher receiving costs from suppliers.
However, this doesn’t have to be the case, regardless of what size your business might be or how often you need to ship freight. The freight industry has entered into something of a renaissance period that is in a constant state of both innovation and evolution. Now, shippers and their CFOs have more power than ever to control their freight, supply chain, and overall costs of operation.
And they should. Failure to properly understand and manage supply chains can cost companies big time and millions of Dollars a year. CFOs today play a crucial role in managing supply chains. Armed with lots of data that others may not have, such as accounts payable, accounts receivable, manufacturing data, cost of goods sold and vendor records, the CFO plays a vital role in shaping the supply chain as well as the rest of the organization into a unified and well-running company.
Customers want to know where their shipment is during transit. They want to be able to track its progress, start to finish until the shipment reaches its desired destination. More than that, they want to know the status of the product itself, especially for perishable or sensitive items such as food or electronics.
Managing Changing Customer Expectations
Visibility is incredibly important when it comes to optimizing your supply chain. It can mean the difference between proactively solving an issue before it becomes a problem or reactively dealing with the consequences of said problem. Visibility also plays a vital role when dealing with more stringent delivery policies from customers such as Walmart’s On-Time-In-Full (OTIF) or Must-Arrive-By-Dates (MABD) policies are a perfect example of this, which can punish shippers for not adhering to a strict delivery schedule.
MABD and OTIF are crucial for changing client expectations. Given that Walmart is such a substantial customer for many suppliers in the United States, making deliveries on time and in full is the difference between making a tidy profit, or losing out on a major customer.
Additionally, chargebacks (define in logistics terms) could carry a heavy fine, especially for smaller companies. As it stands, Walmart will penalize shippers by 3 percent of the total PO for any late or incomplete shipments. It’s not just Walmart that’s stepping up the regulations either as more companies continue to tighten their delivery windows.
A large part of the transformation taking place in the modern transportation industry is due to the change in customer expectations. It’s no longer enough to simply deliver products on a tight delivery schedule. It’s about the levels of service your company can provide. Offering your customer insights into their delivery and being able to provide vital statistics and real-time information about their delivery isn’t a novelty, it’s an expectation. As a CFO, this is incredibly important to understand and a key strategy to focus on. Customers and clients expect more. A key differentiator between competitors ultimately comes down to the level and quality of service provided.
Planning is a large part of logistics and being able to enhance planning is another touchstone of surviving the new world order of logistics. For example, what do you do if a truck breaks down while in route to a delivery? Is your company able to catch it with enough time to make the deadline? What about finding carriers with an open capacity to move product? Is your company able to find space, even when capacity gets tight?
The Best Laid Plans
These are just a few questions that logistics planners and CFOs need to be asking themselves as well as their logistics partners on a regular basis. Consider what your partners have to offer and whether or not that meets your individual needs. If your shipping volume is such that you need 50 trucks per week and your partner can consistently only provide 30, you can’t expect them to solve your shipping problem. Your decisions need to be based on factual and critical reviews to make the most realistic and strategic plans.
Simply put, reactive shipping, planning a shipment due to a shortcoming of the original agreement, is a risky practice. There’s a lot that can go wrong when you’re already trying to play catch up. Much like maintenance on a piece of machinery, waiting for something to break is always much worse than fixing something before the breakdown actually occurs. Having a timely scorecard that keeps on top of key performance indicators in near real time is becoming a necessity in the logistics industry. It’s the only way to keep your customers informed and effectively manage your partner relationships – two critical components in modern logistics.
Better decision-making and increased visibility can drastically improve your company’s ability to meet and exceed customer expectations, including customer with OTIF or MABD requirements. Making such an enhancement not only helps to improve your company scorecard but it can also lead to more business. Companies that can factually prove they are capable of keeping their delivery schedules often have opportunities to increase their purchase orders which, in turn, increases their profits.
MOVE TO AN INTEGRATED SUPPLY CHAIN
Some might argue that it’s better to just cut down on the transportation budget rather than finding a way to adapt the supply chain. While that might be easier from the outset, the long- term disadvantage is rather high and can lead to poor customer service, bad rapport, and an overall disjointed delivery network.
For a shipper, every part of their business is (and should be) connected. Your sales team is just as important as those in the warehouse or operating the dock. Even if those are all considered to be connected and are even working as a complete unit, transportation is no less a part of that. All too often, shippers look at their carriers as an afterthought and opt not to include them in the larger operations discussions as well as providing information to them at the last possible minute.
“When an order arrives, ideally the information shouldn’t only be broadcast to inventory folks and the distribution center. The information should immediately go to the transportation group, so they can start to coordinate the capacity to move that freight. Too often transportation folks are only notified when the pallets are sitting on the docks,” said Brian Gibson, executive director of the Center for Supply Chain Innovation at Auburn University.
While cutting down on the transportation budget might save a little cash up front, it could (and often does) have an impact on other facets of your business.
With the influx of big data, analytics, blockchain technologies, and so many more innovations, attempting to keep pace can be difficult. As demand grows and capacity tightens, shippers and carriers alike need to be smarter about how they operate if they want to stay competitive in today’s marketplace.
DATA AND TECHNOLOGY CAN CHANGE EVERYTHING
While the digital age is exciting for many reasons, it also means that there will inevitably be growing challenges, for individuals and companies alike; for companies, as they try to re-work the supply chain to accommodate a change in the trade landscape, and for individuals, as they arm themselves with skills and information to be competitive in a digitally dominated present and future.
Investment in new technology can be hard to swallow, especially considering the uncertainty of the global market. As a result, many supply chain organizations tend to focus their investments on upkeep rather than upgrades. While that strategy might have a short-term effect of bolstering profits, it may ultimately prove to be short-sighted as customer’s expectations shift to a digitally based supply chain. Digital supply chains, when done correctly, do more than simply streamline operations, they become a differentiator from the competition, setting your company apart from all the others. “This is a supply chain that delivers a customer experience and not just a product,” says Michael Burkett, vice president and distinguished analyst at Gartner. “It’s an intelligent supply chain that makes decisions as it interacts across an ecosystem of digitally connected partners.”
Logistics Partners Can Help To Ease the Transition
There’s a lot to take in when you consider the vastly different landscape of the transportation industry, especially when you consider that it’s only going to continue to grow, shift and change for the foreseeable future. For this reason, it’s important for CFOs to consider the advantages that can be gained from working with a logistics partner that fits the size of your business, understands your business, has proven experience with your customers you want to serve and has the ability to grow with your business, rather than trying to go it alone.
A strong collaboration between the CFO, Supply Chain Leaders, and a logistics partner can put your company in the best possible position to weather unexpected events, the often-unstable market place, and the ever-changing industry. In companies where a business-partnering model is established, CFOs are drawing on their unique, fact-based view of the organization to solve business problems and provide insight to deliver informed decision-making.
Any number of changes can be made to fulfill customer expectations, shape up the supply chain, and ultimately make a shipper run smoother. The question the CFO needs to answer is, which changes are the right ones? Throwing money into a digital solution is all well and good, but overhauling legacy systems haphazardly can be a nightmare. This is why some shippers are looking to logistics partners to help them manage the business today and prepare for the future.
“Shippers and 3PLs (Third-party logistics providers) said they are making investments to increase the nimbleness of the supply chain. Roughly three-fourths of shippers and 3PLs said they plan to invest in supply chain visibility/control towers within the next two years, and more than half of shippers and 3PLs are investing in predictive analytics,” according to the 2019 Third Party Logistics Study.
“Logistics is being transformed through the power of data-driven insights, and current technology is enabling unprecedented amounts of data to be captured from various sources along the supply chain. The use of technology is exploding within every area of the supply chain, which is driving increased agility,” the study adds.
Traditional logistics companies that once facilitated the movement of commerce through the supply chain with standard practices slowly formed over a long period of time to support traditional commerce, many of which are still relevant to this day. However, with an evolving market, dynamic, data-driven, third-party logistics companies are in increasingly high demand, for their ability to turn CFO’s valuable insights into actions and navigate a changing trade landscape and help shippers optimize their operations processes.
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