Sunday 24th Sep 2017 - Logistics & Supply Chain

A perfect order

One definition is the right product in the right quantity from the right source to the right destination in the right condition at the right time with the right documentation for the right cost. An awful lot of rights, and possibly not an awful lot of profit.

Dave Food from Oracle, our sponsors for this meeting, suggested that, while “the perfect order” means getting things right, the customer’s vision of what constitutes right isn’t necessarily the same as that of a supplier or service provider. “It isn’t just about the single deal – there are probably service elements, support, maintenance, returns loops. There are pure make-to-order environments, where we don’t want to accept orders for things we can’t make within the parameters; if we are making to stock, there are judgements about service levels. There are unexpected orders – who are those actually good for? There may be a lot of ‘noise’ – consumer expectations of what constitutes perfection, driven by innovation or by promotions. And there is the outsourcing element – who does what? If I ‘own’ the product, but I don’t make it, I don’t ship it, and so on, who ‘owns’ the quality of delivery? Have I got the ability, at the point of taking the order, to be able to confirm what I can do, when, and at what price?” So, he suggested, the perfect order is always going to be very difficult to achieve, “but we’re getting closer than ever”.

Peter Hough from BA (see panel for participant details), explained the problems of providing perfect in-flight services. “People have paid serious money for a ticket – they expect us to get it right every time: not just on flights out of London but on return flights from distant places. And we have multiple customers – we supply our catering outsourcers with a lot of gear for them to incorporate [so they are both customer and supplier], there are our 14,000 cabin crew who have to receive and use these supplies, and of course there are the people who have bought the tickets. And we not only have food and drink as a major cost centre; we also have in-flight retailing (with its own problems of controlling duty free stock, and backhauling unsold stock) as a profit centre.”

Erleen Anderson from DHL Exel Supply Chain suggested that in theory achieving the perfect order is “so very simple – the perfect order is very clearly labelled in every parameter, and there are no last minute changes”. In practice, she conceded, life is rarely like that, but the governing principles must be to keep things simple, don’t change things, have everything clearly labelled, and get the data as accurate as possible as early as possible. Then, you only need to know about the exceptions.

Unfortunately “every customer, every store, every order management system is different, so you have to build up knowledge of the customer.” This prompted Hough to ask “if the 3PLs need to understand their customers so well, why do customers insist on changing their 3PLs every three years?” Possibly an unanswerable question.

David Gratton from Ligentia traced many of the barriers to achieving the perfect order to the sourcing process. “Buyers are driven by gross profit. They place an order and expect us to manage it through, but in reality the factory may never have had any chance of manufacturing the order acceptably in the first place. The buyer books a cracking gross profit, and doesn’t notice the airfreight charges. Getting the right source involves looking at the whole supply chain, but buyers and merchandisers are still typically sitting in the commercial silo, with no idea about supply chain. And even if we give our customers a list of their ten worst vendors, they’ll still be placing orders next year.”

So it’s about visibility, said Hayden Organ of Kuehne + Nagel. “It’s still the case that the buyer is king, and things haven’t changed: although in many ways supply chain has advanced hugely, in other ways we have gone nowhere. There is an insanity where we are required to do the same old things, and our customers expect us to come up with a different and better result”.

Pessimistically, Organ said “I don’t think we will ever achieve the perfect order, unless it’s more by accident than by plan. Businesses need to focus on the discipline of who takes control of how the supply chain is going to perform, and what sort of supply chain you want for different products, even in the same business. One size doesn’t fit all.

“I’m sorry to sound defeatist but how can we shift the paradigm to reach that Utopia? Who is the real customer? Who makes the decisions about what that customer gets? Only then can we start to build the infrastructure around what that customer’s experience has to be.”

Expectations

But that also involves customer education. “We as consumers are hard to understand. We are disappointed in our expectations – but often we have no right to be. Why would we expect the same level of customer expectation when we are buying a key-ring as when we are buying a plasma TV from the same store?”

Malory Davies, chairperson, noted that customer expectations are changing all the time: “Nobody realised they wanted 24-hour delivery until TNT started offering it.” Erleen Anderson pointed to the many ways customer expectations, and thus fulfilment modes, have diversified from lifestyle couriers tracking their customers by text, to being keyholders for unmanned drop points, to (in Japan) delivering to a customer’s local Seven-Eleven (it preserves privacy, apparently).

Charles Toye was just back from visiting suppliers in Slovakia. He said the infrastructure problems that make it difficult to get product out and thus create the perfect order were almost dwarfed by the difficulties of finding the perfect customer. “We had an order for 750,000 military jackets: and at the last minute they wanted to change the size of the epaulettes. That’s stressful. A lot of big customers have no idea of realistic lead times.”

But he also noted that many of his military customers, for example, “no longer want to deal through government supply-side bodies. They want us to put things together and deliver direct to the soldier.”

Cost is of course an issue, and one that clearly isn’t well understood by buyers and customers. Toye claimed it can sometimes by cheaper to deliver from Slovakia to the UK than from a UK warehouse. Anderson agreed: “The UK is very expensive. We need to do everything we possibly can in the country of origin, to use the cheaper labour.” Again, said Hough, it’s about managing expectations. “People have no idea how stuff gets onto our aircraft. We work through our cabin crews to educate them, one at a time.” “Customers don’t understand the value of things,” agreed Toye.

Dave Food suggested the need to understand: “What is it that’s negotiable in the order? What is acceptable and what is not? Telling the customer you are going to be late is one thing; not telling them at all is unforgiveable, but common.”

Organ said: “From the customer environment I definitely want to know if things are going wrong – but I also want visibility of how things are going – has it been made, is it on the truck, do I have to book a half day off to receive it? Information is not just operational, it’s also about customer service, and we may be underestimating the level of desire for information.”

Or conversely, suggested Food, we may not be understanding the significance of information. If we are short of microchips for a product that is slated for a promotion, we’ll pay for the personal courier. Other products don’t need this. We need to understand why this order is so significant, and that means we need information coming back from the customer.

Visibility

The visibility ought to be there, said Organ. “It interests me that firms make massive investment in IT and then only use 50 per cent or less of the capability. I’ve yet to see a supply chain that you can view end-to-end from one ‘dashboard’, and yet the technology, the connectivity, is there. Perfect visibility must be part of the answer to the perfect order.” But, asked Martin Dixon, former consultant for Schenker: “What do you define as complete visibility?” As Gratton pointed out, it depends where you are in the supply chain. “A manufacturer is interested in raw materials; some-one further down the supply chain probably isn’t. Systems will show you where everything is, but few people want to see everything all the time.

“But there should be at least one person who wants to know everything – because it tells you how your business is working. Someone has to be able to ask for a complete landed cost analysis plus the impact on service levels. Things are going in the right direction – there aren’t so many cases of companies only knowing a container has arrived when they receive the demurrage note.”

Also important, suggested Davies, is the question of supply chain resilience. The panel concurred, citing examples from the number of brands of DVD player that all come from essentially the same factory, to the fuel protests of a few years ago, or lack of port capacity, which, as Dixon observed “could seriously upset the perfect order”. And, said Organ: “That’s why I say we’ll never have the perfect order. There’s only so much contingency planning you can do, or realistically do anything about.”

“Discipline,” said Hough, “is the key – only change things when everybody agrees. Take Toyota – if you try to do something outside the ‘Toyota system’, you get slapped.” He likened the problem to that of airline baggage handling (which, he claimed, does now actually work at Terminal 5 Heathrow). “We have runners [standard bags], repeaters [common items that may require something different, like golf clubs] and strangers [unusual items such as orchestral instruments]. “The answer is to make the process fit the 60-80 per cent of runners, adapt it slightly for the repeaters, and accept that the strangers may have to be handled quite differently. Identify the specials and treat them in a special way. Don’t treat everything as special just because someone is shouting at you.”

Promotions

As happens at almost every round table, someone (in this case David Gratton) mentioned promotions. “Someone decides to offer say three in a pack as a special offer. Suddenly, that’s a product that didn’t previously exist. There isn’t time to have the packaging done at the (cheaper) source end, so you have to outsource to a repackaging specialist. And they may do these promotions every year, but they never think far enough ahead.” Organ confirmed that “Somehow, 25th December is a continual surprise.” The moral being, said Dixon, that if processes are being driven by the norm, you have to treat promotions as exceptions, and you need a process for exceptions. (This later prompted the rebellious thought: if “normal” supply chains are so disrupted by promotions, what happens to the supply chains of furniture sheds on the one week in the year that they don’t have a sale on?).

But despite the recession and everything else, the general consensus seemed to be that complexity, from globalisation to promotions, will continue to increase (although, suggested Gratton, preferred sourcing locations may move around ever faster).

There is enough technology around, Hough suggested, including RFID – but “people just aren’t using the systems properly”. And overall, while we may never be able to guarantee the perfect order, we certainly have the ability to move an awful lot closer.

 

 

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