One of the most important goals of companies in today’s business world is to provide the best customer service. In fact, this is one of the great indicators of good competition that an organization may or may not have. No matter how efficient your supply chain is, if customers do not get their orders in the shortest possible time, then you have a major logistical problem to solve right now.
This, in particular, is an increasingly frequent problem among manufacturers and distributors around the world. This is known as the waiting time deficit: The time spent in procurement, manufacturing, and distribution is usually greater than the maximum time that customers are willing to wait. The time that a customer could expect is from hours to months, depending on the competitive environment of the market, the type of product, and even the geographical location of the final customer. It will never be the same ordering a helicopter, a book, or a container full of whiskey barrels.
In most part of today’s enterprises, the way this problem is solved is by increasing the level of stocks to be able to serve the demand in a shorter time, but this, in turn, represents two problems. The first one has to do with forecasts to determine the level of demand, and, consequently, the level of stocks – which must be accurate. This objective is not always achieved since there is almost never an excessive level of stocks (at least not in the companies that manage their inventories well.) The second problem has to do with the fact that the larger the stocks, the higher the costs. The real objective that companies should focus on, therefore, is to minimize waiting times. This will automatically lower the deficit, meaning greater customer satisfaction and, hence, better reputation.
How can you reduce the waiting time? Basically, what you should do is cutting the logistic waiting period, especially in terms of procurement, manufacturing, and delivery, and secondly, by lengthening the customer order cycle to fit your possibilities.
The integral approach to logistics that directs the entire supply chain involves certain options in and of itself; extremely important options, indeed, mainly between the continuous production in batches, if the organization is centralized. All these different options mean a certain level of service, as well as, of course, an added cost. Similarly, ensuring a good level of service has certain associated costs that make it impossible to reduce them. To improve this relationship there are different methods, and, one of them, is to redesign the whole system to make special emphasis on the point of penetration of the order.
You should never give the order penetration point for granted since we speak of the cornerstone of customer service in everything related to supply chain. In fact, the point where you place the order penetration point along the supply chain conditions the design of the very logistic structure of the entire chain, as well as the way it works in each of the links. In addition, because customers want the time between order and delivery of products to be minimal, it is essential that you be aware of the order as soon as possible. Normally, the order entry point is one of the lowest priorities in all logistics processes. Many companies seem desperate to implement new technologies, to revolutionize their production systems, to have more visibility online, and, of course, to make money. But they forget, perhaps, the most important thing.
Read also: Using Technology To Improve Operation Of The Supply Chain, by David Kiger
The order penetration point is the place in which the finished product is intended for a particular customer. This order penetration point must have an optimal design, taking into account that this point is not the same for all industries. Simply put, different types of industries correspond to different order penetration points: Those industries that manufacture packaged food products and small appliances, for instance, place their order penetration points in the external warehouses, so that the logistics systems are directed to facilitate the sale of products from the stocks of any store.
Few companies keep all the order penetration points of their products or businesses at the same level in their supply chains. For this reason, the optimal configuration of a company should include more than one logistics system, separated or not, that may adapt to the needs of different customers or product segments. Every product, even every market, has an appropriate order penetration point (and you should find them all.)
This is the subject of another post, but perhaps the ideal situation in this regard is to work on request: Only buying supplies for, manufacturing, and delivering products that have been expressly requested by the client. Thus, the return time of invested capital is very small. One of the main objectives of supply chain logistics management is to find methods to rise the order penetration point upwards (but that is also another subject to discuss.)
I hope this has been helpful. Until next time!
* Featured Image courtesy of Garry Knight at Flickr.com