Mitigating the cost of ‘fast and free’
Full disclosure: I did 99 percent of my most recent holiday shopping from the comfort of my couch.
It’s hard to overestimate the extent to which I have converted to e-tailing. Having virtually the entire range of products from every store at your fingertips is a powerful thing.
And a major part of that experience is the ease of delivery that e-commerce now provides. I recently read an entry on the Logistics Viewpoints blog from Fab Brasca, vice president of global logistics at JDA Software, who characterized this as the rise of “fast and free.”
Customers now shop online with what Brasca called “an entrenched expectation” of getting delivery of the products they buy quickly and, if not free, at a minimal cost. This entrenched belief obviously has major implications for the supply chains of retailers.
They are being asked in essence to reduce their operating costs in such a way as to offset the cost of final delivery. That’s something far removed from the traditional concept of retailing in which the consumer comes to a store and essentially provides the last-mile delivery themselves. There are obviously costs in now providing that final leg of delivery, and because of this entrenched expectation of “fast and free,” they need to be offset.
The cost offset need not necessarily come from the supply chain department. It might come from manufacturing, raw materials procurement, or marketing.
But most likely, it will fall on supply chain practitioners to offset this entrenched expectation, even if the legs an international transportation manager might typically manage have little or nothing to do with that final leg. The costs have to be rooted out from somewhere.
It brings to mind the way every link in the supply chain now has to better account for the rising cost of fuel. Everything from production to transportation to consumption has been affected by that dynamic. In certain cases, transportation providers have been able to pass through the added cost of fuel to their customers. Retailers might be able to add the cost of fuel to their products.
But at some point, the cost is ultimately borne, as it will be with this entrenched expectation of “fast and free.”
One other thing to note: the manner in which Amazon, in particular, has stretched its business across verticals means that no business is safe from this expectation of fast and free. At one point, only Borders and Barnes & Noble needed to fear the emergence of Amazon. But now you can buy a $1 box of paper clips or a $35,000 Rolex on Amazon. There are really no borders to this expectation.
So how does a supply chain practitioner manage these expectations, while also satisfying internal expectations? It has to be technology, doesn’t it?
If a retailer needs to find a way to account for the $8 cost of delivery of a $65 sweater (that’s 11 percent of the total cost, including delivery, by the way), then it must come through managing a range of activities in a more optimal way, like the order management process.
While many think of order management in terms of purchase orders only, really it’s crucial to the entire spectrum of orders that impact a supply chain. And order management has an inedible impact on total landed cost.
One interesting nugget of data to emerge from American Shipper’s 2012 import operations benchmark report was that barely a third of shippers say total landed cost is a major consideration.
Why so, when the actual cost to move freight is so critical? If you, as a transportation manager, are told to weed out 11 percent of the overall cost to provide a sweater to a consumer, how could you not want to know something as pivotal as total landed cost, down to the SKU (stock-keeping-unit) level?
“It’s that old adage — if you can measure it, you can manage it,” Bill King, director of transportation management solutions at SAP, said during an American Shipper webinar on international transportation management in December.
Having a true picture of total landed cost may in fact be the key to meeting increased customer service demand across the board (and all the costs that go into that). It’s not easy to gain that picture, and some companies tried and failed at it when total landed cost was a hot topic a decade ago, but it’s now more achievable than ever.
“People may have tried to do it in the past and got burned,” King said. “It was hard to get all the information they needed, first and foremost, and now they’re starting to get it, but it’s trying to consolidate it, and actually make sure it’s accurate.
“You say, ‘You know what, I thought I had all my data. I thought my data was great and clean.’ Now people find out when they work on these kinds of products, the next step is really to clean up some of that data. So I think people are working to get towards it, it’s just going to be an evolutionary process.”
The unspoken reality behind King’s comments, however, is the data underlying these total landed cost calculations are dependent not just on the quality of a shipper’s data, but also the quality of the data from that shipper’s suppliers and partners. So it’s an external exercise as much as an internal one.
And it’s fair to say that meeting the entrenched “fast and free” mandate is not one that an organization can accomplish alone.
“Everything’s there,” King said. “The pieces of the puzzle are there. It’s now just time to put them together.”
Brasca, in his blog entry, wrote that the change in consumer behavior is essentially changing how companies manage their transportation information, forcing them to focus on analytics.
“By using this data, companies can better provide the low prices and high service that are needed to win in a highly competitive market place,” he said. “This combination of price and service will allow retailers and their manufacturing partners to succeed, both in the short-term sale and in longer-term customer loyalty.”