How to be a best in class Logistics customer

WEEKLY LINK

Published: 14/10/2009 at 12:00 AM

Newspaper section: Business

Knowing how to be a good customer is just as important as knowing how to treat customers well. Manufacturers, distributors and retailers often reward their best supply chain vendors, especially those that perform logistics services. Now what if the logistics service providers were to turn the tables and nominate their best customers? What would be the criteria for winning such an award? Robert J. Bowman of Global Logistics & Supply Chain Strategies highlights some tips for companies on how to be a "best-in-class" customer of a logistics provider in a poor economy.

Think in terms of the big picture: Companies on both sides of a contractual relationship need to align with the overall supply chain and business objectives of a particular category and its end consumers. For example a good relationship will give the provider some leeway in determining where to cut inventory or reduce overall service costs, whereas a traditional storage contractor would want a full warehouse.

Don't fixate on transactional pricing: Enlightened customers don't let the draw of a low-cost freight rate (with doubtful service levels) place the larger chain at risk. A good logistics provider can often help its customers save cost, as long as it's given the freedom to look at more than individual links in the chain. A reasonable approach to price must be preceded by a look at all the costs.

Set realistic expectations for outsourcing results: Going into a relationship, the customer's buying organisation might have failed to detail exactly what benefits the provider is expected to deliver. After that, poor communication between various levels of both organisations only serves to make things worse, leading to misunderstandings and finger-pointing. Putting the full details of the deal into writing can help to avoid the danger of "scope creep", whereby the provider's responsibilities range well beyond what was anticipated, without any clear intent behind the change.

Emphasise accurate data and automation: Lack of good data shouldn't be used as an excuse for failing to drive improvements in the customer's supply chain. The more accurate the data given to a service provider, the better the business case will be. Data integrity on the customer side is vital to establishing metrics to track ongoing performance, and crafting a relationship that benefits both parties over the long run.

Clear procedures and concise metrics: A series of key performance measurements and standardised procedures are essential to identifying and tracking the success of those programmes. If a service provider can highlight to its customer the exact amount spent on moving raw materials for each item produced, then costs can be reduced without eroding margin.

Focus on collaboration: In today's uncertain economy, it's only natural for companies to feel uncomfortable about committing themselves to an ironclad, multi-year contract. However, real collaboration involves the sharing of both risk and reward. That's especially crucial in rough economic times, when the provider can get stuck with excess transport and warehouse capacity if the customer opts out of a contract, changes its supply chain strategy or goes out of business.

Meet regularly with the service provider: There's no rule about how often partners should talk about major issues, but it should be monthly. Topics should include the state of the relationship, project plans, expectations of return on investment, and whether desired results are being achieved. The best-in-class logistics provider is usually ready to respond to unanticipated changes in the marketplace, economy or distribution network and will continually offer ideas for improving the customer's supply chain.

Get senior leadership involved: Senior-level reviews tend to occur once or twice a year, with quarterly reviews taking place at the general-manager level. The latter can involve individuals from various logistics or supply chain disciplines. The high-level talks will focus on how the parties are meeting their strategic objective, with a particular emphasis on any changes in facilities or distribution networks.

Pay your bills on time: For all that high-flown talk of collaboration and trust, outsourced logistics remains a low-margin business. In this economic climate people are looking to stretch out their payables, slow-paying clients can make or break a relationship, jeopardising the provider's profitability.

In Summary: The current economic crisis has providers thinking hard, not only about holding on to their customers, but selecting the right ones. A nervous or reactive client who demands across-the-board rate cuts but won't commit to a long-term engagement isn't going to attract many high-quality logistics entities, no matter how bad things are. Furthermore, any customer that fails to meet a provider halfway isn't going to derive full value from the relationship.

Weekly Link is co-ordinated by Barry Elliott and Chris Catto-Smith CMC of the Institute of Management Consultants Thailand . It is intended to be an interactive forum for industry professionals