Four Important Logistics Objectives

Table of Content

 Four Important Logistics Objectives

Management must achieve four goals in order for the supply chain to be effective in a multichannel operation:

• Increased efficiency
• Improved customer service
• Increased sales
• Improved relationships

Each of these objectives involves specific and definite objectives that must be met during a certain activity. Fortunately, there are tried-and-true best practices that can assist you in achieving your goals.

1. Increased Efficiency (Productivity)

A corporation must design cost-effective shipping rates while lowering overhead, total inventory, and overall cost-per-order processing to boost efficiency. 

Working closely with your transportation provider can help you optimize your warehouse operations, including processes, layout, and flow. 

Establish a two-way communication channel with your carrier to communicate best practices, concerns, and opportunities on a regular basis.

Disjointed transportation flows, on the other hand, clog up space on the receiving dock. If a product does not satisfy criteria, it must be handled twice, potentially wrapped, stored, and returned to the source. 

This procedure necessitates additional effort and space. Furthermore, the lack of a dependable delivery schedule forces you to carry additional inventory, which reduces inventory rotations and raises storage expenses.

Consider having the vendor provide value-added services like packaging, labeling, and quality inspections to boost logistical efficiencies. 

This increases the likelihood of catching errors at the source, and source-based services accelerate product flow through the warehouse.

Also, transportation should not be an afterthought; it should be incorporated into the warehouse operation and structure. 

Consider inbound and outgoing transportation, as well as the ability to queue shipments by carrier and extract orders later in the day to improve customer service.

Determine which carriers can meet your company's needs, based on product type and turnaround time. 

Some multichannel merchants, for example, have carriers come inside the center to assist with truck loading, while others have an in-house USPS mailing office.

Consider whether or not facility issues could have an impact on your business. Limited delivery-door access, for example, may require businesses to rely on their carrier to transport a filled trailer and exchange it with an empty one. 

When there isn't an empty trailer ready to load during peak order-shipment periods, this generates downtime and disrupts the process. This problem could be solved by adding more loading doors.

The heart of effective supply chain management is vendor compliance. Simply put, vendor compliance means that a vendor's goods arrive in good shape and are delivered in the agreed-upon time frame. 

Packaging and shipping requirements, advanced shipping notices, master-case and inner-case sizes, case labeling, product packaging and polybag specifications, accounting and paperwork requirements, logistics requirements and routing guides, scheduling appointments, and statistical sampling requirements, to name a few, are just a few of the vendor compliance standards.

With senior management's approval, the proactive step of adopting a charge-back policy should be explicitly defined in a vendor compliance manual. 

Retailers would rather cope with the difficulty of collecting charge-backs if receipts arrived on time and were compliant. However, financial sanctions for non-compliance must be implemented. 

A warehouse will have to bear repackaging and relabeling fees if these guidelines are not established. 

Cross-docking, advanced shipment notices (ASNs), just-in-time inventory, source marking and ticketing, and radio frequency identification are all difficult to deploy without compliance regulations and enforcement.

Inbound freight decisions have traditionally been controlled by vendors rather than merchants. Merchants pay a 20 percent to 60 percent premium above actual shipping costs as a result of this practice. 

However, more merchants are gaining control of inbound freight, allowing them to lower prices by leveraging their economies of scale and negotiation strength. 

When you consider the number of documents, parties, languages, and currencies involved in global sourcing, this is not an easy shift to make. 

However, there are other advantages, including lower prices, better visibility of inbound items in route, and the option to schedule receipts.

Controlling inbound freight also gives you the option of combining inbound, outbound, and reverse logistics to get better discounts. 

This must constantly be weighed against the dangers of putting all your transportation eggs in one basket. 

Carriers have areas where they excel and areas where they fall short. Vendors should be chosen based on their strengths. Approximately one-third of businesses use numerous carriers, which is an increasing trend.

2. Improved Customer Service

Fulfillment operations work in tandem with marketing and merchandising in direct marketing businesses. This alliance is similar to a three-legged stool, which cannot stand without all three legs. 

Inbound and outbound transportation for fulfillment operations is critical to fulfilling marketing's promise to the customer that the shipment will arrive on time and in good condition.

Customer service must be matched with costs in direct marketing. The first is the cost of acquiring a customer, which ranges from $10 to $25 depending on prospecting performance. 

This statistic covers the costs of catalogs and other forms of marketing, as well as the cost of non-responses. 

In many businesses, up to 70% of all first-time purchasers do not make another transaction. To break even, most direct businesses require a customer to buy two or three times.

The high expense of being on backorder is the second cost factor to consider. Hundreds of customer studies show that processing one backordered unit of merchandise costs $7-$12 in most direct businesses.

Returns also cost significantly more to handle than orders, and just one-third of all returns are exchanges in many businesses. The cost of processing a return comprises the following items:

Original order processing expenses ($3-$6 in most direct companies), which include indirect and direct labor, credit card processing fees, occupancy charges, and phone lines.

Costs of acquiring new customers.

The cost of processing returns and repairing things, which includes indirect and direct labor as well as overhead expenditures.

If an outgoing or incoming transaction is reimbursed, there is a loss of shipping and handling income.

Gross margins are being eroded.

Customer loss is a possibility if the shopping or return processing experience is poor.

Reverse logistics services often allow customers to send returns into the pipeline nearest to their location, whether at home or at a retail outlet, for high-return categories and enterprises. 

The reverse logistics provider should provide mechanisms that allow customers to see what's being returned before they get to the retailer's distribution center. 

Not only will this allow the merchant to plan resources accordingly, but it will also provide an estimate of return goods that will be available to fill new customer orders. 

Furthermore, when consumer returns are received, some merchants begin the refund or credit process.

Cancellations are another cost factor. Cancellations as a percentage of demand should be fewer than 2%, according to industry standards for great customer service. 

However, cancellations of 4 percent to 8 percent are not uncommon for clothes direct marketers.

Because of the high percentage of new products, there are no historical sales data for apparel. The nature of the apparel industry dictates that new goods run 50% to 75% of the time, four seasons a year. 

Lower cancellation rates are found in catalogs with fewer new products or categories that may be reordered more easily. 

Business-to-business cancellation rates range from less than 1% to several percent; home decor cancellation rates range from 1% to 3%.

Obviously, the speed with which resalable returns are returned to inventory and the cost of returns are reduced can have a significant impact on profitability. 

Leading retailers recognize that returns are an inevitable aspect of conducting business and provide a simple return process as part of the customer experience.

On the inbound side, cutting several weeks off receiving can save money on backorders and prevent consumers from leaving. This is where there could be a problem with global sourcing. 

Except in big volumes, most direct marketers are unable to reorder. Because of the needed minimum purchases, receipts are rarely arranged in numerous shipments.

Inventory levels and out-of-stocks can be reduced by improving supply chain efficiency. Take, for example, Wal-use Mart's radio frequency identification (RFID). 

Although Wal-RFID Mart's adoption is still in its early stages, the results have already been outstanding. 

Using RFID has reduced out-of-stock products by 16 percent at participating stores while enhancing customer experience, according to Linda Dillman, Wal-chief Mart's information officer. 

The focus has been on higher-priced, faster-moving merchandise. RFID-tagged things can also be restocked three times faster than non tagged items, according to Dillman.

The first aim is to set up effective incoming logistics systems and ensure vendor compliance. While most organizations will deploy RFID in the future, others may need to implement supply chain efficiency solutions now.

3. Increased Sales

How might a retailer's sales be aided by inbound and outbound logistics and transportation? There are several ways to improve service, all of which can be leveraged to marketing's advantage. 

Consider inbound and outbound freight as distinct activities with distinct needs. Wherever possible, bundle the volumes with your carriers, but keep in mind the disparities across the channels.

Maintaining on-time and in-stock positions is critical when it comes to direct promotions and advertising retail merchandise. You risk losing sales and customers if you don't have a solid source of merchandise. 

Because forecasting sales is challenging, you must get merchandise into the logistical chain swiftly and safely. Damage to products during incoming transit can drastically restrict product availability, and without items to sell, revenues will suffer.

Begin by keeping track of what's coming–where it is and when it'll arrive. Import and build priority product containers, as air freight delivery is expensive and may surpass the margin of low-cost products. 

Direct channels are subject to the FTC's 30/60 day rule, which requires direct marketers to either advise customers of a potential delay in receiving and, as a result, outbound shipment, or cancel their orders outright. (A point of clarification: The 30-day delivery guarantee begins when the consumer places an order.)

If you inform the customer that their order will be delayed for two weeks, the thirty-day period begins on the backordered date. 

You must send the customer notice at the end of the thirty-day period. If the customer's order is still backordered after 60 days, you must notify them.) 

Furthermore, in the multichannel environment, warehouses are rapidly becoming the "back room" for specialty shop operations. You may miss out on a deal if you don't have merchandise that can be transferred swiftly into a retail outlet.

As businesses grow more lean, transportation becomes increasingly more critical to achieving sales targets. There's also a distinction to be made between merchandising stores and catalog promotions. 

Shoppers in retail stores may replace another product for the one they came in to buy, while catalog and Internet customers are less likely to do so. 

As a result, several catalogs use charge-backs for late deliveries, backorders, and product substitutions.

If the consumer's expectations are not met–for example, if a present is delivered late or damaged–the logistics of delivering to the customer might impact sales. Returns raise the cost of operating if the consumer does not desire the product when it comes.

If transportation expenses are kept under control, logistics can play a role in a company's marketing strategy. 79 percent of e-commerce companies planned to offer free shipping and handling during the previous holiday season, according to BizRate Research. 

Free delivery has been shown to boost sales and order volumes. Most marketers, on the other hand, don't want to give up this cash stream, so they limit it to their top clients or higher-average order buyers. You'll be less eager to offer shipping deals if your company's transportation expenditures are out of control.

4. Building Relationships

The effectiveness of logistics execution depends on true two-way coordination between the retailer and the carrier. Total cost, time in transportation, and carrier representative responsiveness are all indicators of success.

One of the most important topics to solve in terms of carrier relations is the single-carrier vs. multi carrier philosophy. 

Using a single carrier allows for a bigger total number of shipments, resulting in lower negotiated prices. The disadvantage is entire reliance on the carrier, which could cause issues if the carrier's service is disrupted.

It's critical to have a positive relationship with your carrier representative. There will inevitably be concerns that need to be handled. The way those difficulties are resolved can be influenced by trust and a good mindset.

When comparing carriers, take a methodical approach. Give carriers as much information about your business requirements as feasible when soliciting bids. 

Follow these guidelines throughout the bidding process and afterwards while engaging with carrier partners:

Stay involved with the process.

• Verify results and reports.
• Audit bills.
• Consider the total costs of transportation in your analysis and reviews.
• Keep options open and treat carrier contracts and relationships as dynamic and evolving — not like a fixed three-year arrangement.

The purchasing and inventory control departments of direct businesses are in charge of analyzing inventory needs, creating purchase orders, receipt planning, vendor communication, routing deliveries, improving backorders, and organizing required receipts to avoid backorders and stock-outs. 

In terms of enforcing vendor compliance, they are often good partners with fulfillment. 

In multichannel and multi warehouse operations, the purchasing and inventory management departments are in charge of balancing or leveling inventory among channels, warehouses, and stores in order to maximize sales and profits.

Integrating partner systems, creating supply chain enhancements, and managing necessary IT resources all have system consequences. 

Hundreds of suppliers market software to streamline the supply and logistics process, indicating the complicated requirements for logistics management control. 

Many IT vendors specialize in certain market segments, while others focus on logistics as a whole. Among the services provided by these companies are:

• Manifesting and rate shopping plus integrated load and yard management
• Inbound transportation management and freight auditing
• ASN/electronic data interchange (EDI)
• Inbound and outbound product tracking
• Transportation procurement.
• Purchase order management
• Transportation planning and execution and routing guide management
• Carrier management
• Enterprise-wide approach to supply chain

Your company's information resources are managed and controlled by the IT department. 

It's critical to research current state-of-the-art solutions and invest in ones that will benefit your business.

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