As the pace of commerce has dramatically increased, the patience of customers has similarly decreased. "Better, faster, and cheaper" just isn't good enough any more; customers today are demanding perfect orders, shipped and delivered on time to the minute, at a cost that barely leaves any margin for error -- or profit.
Every manufacturer faces the same crucial challenge: Your customer expects perfect orders and shipments every time -- can your supply chain deliver them, every time? If you can't, then your company faces the consequences of invoice deductions, lost sales and even lost customers if your customer's expectations are not met.
At issue, though, is the definition of a "perfect order." According to Edward Marien, long-time director of supply chain management programs at the University of Wisconsin, customers are asking for:
- 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.
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Largely because their industry is so heavily influenced by the demands of major retail customers, the grocery industry (including food, beverage and consumer products manufacturers) focuses intently on perfect order metrics. According to Dee Biggs, director of customer logistics with grape-based product maker Welch Foods Inc., Concord, Mass., manufacturers need perfect order metrics for several reasons:
- To measure and improve your joint supply chain;
- To identify those measures that are critical to the success of your joint supply chain;
- Because what gets measured gets done.
Consumer packaged goods (CPG) giant Procter & Gamble defines a perfect order as "a product that arrives on time, complete (as ordered), and billed correctly." As a result of an internal study, P&G discovered that each time it shipped an imperfect order the cost was an average of $200. The company found it was incurring such unnecessary costs as the cost of redelivery when orders were late; replacement costs if shipments were damaged; processing costs for quantity adjustments, as well as price and allowance deductions.
To improve on its perfect order proficiency, P&G launched what it calls its Consumer-Driven Supply Network. In the process, the company has moved from the traditional CPG model of producing to a forecast to producing according to demand, with the goal of replenishing products as soon as they're purchased. Part of that strategy depends on technology that can receive point-of-sale data from the retailer and convert that into a replenishment order. For instance, P&G synchronizes item data with key retail customers, which saves the company at least $25 million per year by eliminating unnecessary transcription work and reducing its out-of-stocks.
Equally important to that strategy is having an idea of what consumers want even before they enter the store. To that end, P&G regularly surveys its end consumers and works directly with its retailer customers to continuously improve its service levels. That's important because consumers are continuously insisting that they get what they want as soon as they want it.
This article is adapted from material appearing in the book Supply Chain Management Best Practices by David Blanchard (2007, John Wiley & Sons) and is used with permission.