Sales teams naturally follow the beat of a different drum than logistics operations. The drive of sales is, of course, to sell and ensure they meet every feasible market requirement. The drive of logistics is get those sales to customers at the expected time and cost. However, very often there’s a conflict between how the product is being sold and the ability of logistics to meet the terms of the sale. Customers may well want a free hamster with every order, but logistics might struggle.
The problem with many logistics operations is that they don’t fully question what they’re asked to do, and quite often don’t feel they have the right to. Pushing back on sales, and ultimately the customer, is not the norm for many logistics managers. If the pallet needs a pink ribbon wrapped around it, or sales think it’s a good idea to give away a free hamster with every box, then so be it. Just find a way to do it without adding time or cost please Mrs Logistics Manager.
Does the Customer REALLY want a Free Hamster?
Of course, supply chains should be demand-driven – supplying the customer with what they expect when they expect it. That’s a given. However, sometimes the customer may consider something as simply a ‘nice to have’ which sales interpret as an absolute necessity. This ‘necessity’ then has a significant effect on the performance and cost of the logistics operation. If that cost is passed to the customer it may not be so nice to have anymore.
The issue is, the more variables there are with products and customer orders, the more the logistics operation is exposed to cost and complexity. Of course, that’s fine if those additional costs are being captured, but it certainly isn’t the case where a product’s price make-up always accurately reflects the true input costs. This is when the logistics manager should ask ‘why?’, and work with the sales team to understand if the requirement is a true reflection of the customer’s needs.
The Small Things Make a Big Difference
It’s the small things, that may seem inconsequential to sales, that can make a big impact on logistics. Special customer requests, expediting and changes to order frequency or volume are typical issues that, when viewed as an isolated exception, seem reasonable and manageable. However, these types of changes can have a compound effect on the performance and cost of logistics operations.
Take, for example, reducing minimum order quantities. Agreeing to a lower minimum order quantity may seem relatively inconsequential and will usually be very convenient for customers – in a B2B environment this allows a customer to reduce their stock, storage space requirements and working capital costs. Great. However, unless managed correctly, with cross-functional consensus between sales, logistics and procurement, it will conversely mean that your logistics operation must cope with increased stock, higher storage requirements and higher working capital costs. Further to this, reducing minimum order quantities will also impact the efficiency of pick, pack and despatch operations as the number of orders increases.
It’s Not Just About Orders
Another area where big issues are created in logistics operations is in product portfolio management. From a sales perspective, the more products there are to sell, the more likelihood there is of making sales. To support this, there should also be an infinite amount of inventory for every product. Lovely. The problem is, that unless the product portfolio is managed through a delisting and inventory control process, then the logistics operation ends up storing a lot of slow-moving and obsolete stock. This stock will cost the business money through tied up cash and holding costs, and furthermore, it will create complexity and consequently drive logistics operating costs up and service down.
This is an Operational Issue, Not a Strategic One
At a strategic level at least, and through processes such as S&OP/IBP, we do tend to see logistics engagement when it comes to major sales strategies, for example, omnichannel fulfilment. Whilst omnichannel fulfilment was not initially driven by logistics – it was a commercial objective – it would be fair to say that the deployment of omnichannel has very much focused on the development of logistics networks and their associated IT requirements. However, omnichannel is a major strategy, and that’s not usually where the problem lies for logistics managers. The problem lies in the day-to-day variations in customer order requirements – this is where the logistics manager needs to engage with sales and push back where necessary.
These day-to-day variations in logistics requirements can be very subtle. A build-up of slow-moving products, and consequently slow-moving inventory, can happen very gradually. Special customer requests (pink ribbons on pallets, free hamsters etc.) can be presented as an exception that gradually becomes the norm. It is these types of issues that drive operating costs up and service down and the logistics manager needs to be ready to push back where necessary.
It’s Not Unreasonable to Question ‘Why?’
The reality for logistics operations is that they are, and will always be, constrained to their physical assets. Those physical assets, such as racking, MHE and transport take time and planning effort to change. Changes in order profiles, increased inventory, higher numbers of products etc. may well require reconfiguration of those assets. That reconfiguration can be costly, as well as time-consuming, and it’s perfectly justifiable for the logistics manager to ask why before making changes.
For example, let’s say a customer asks for all their pallets, which had previously been built to 1.6 meters high, to be built no more than 1.2 meters high in future. They don’t want to change how much they order, they just want to change the height of the pallets. To the sales team, this may seem like a reasonable request and relatively simple to accommodate. However, for the logistics operation, this change may well require racking reconfiguration, additional pallets, increased picking time and reduced transport capacity, which in turn, all equate to a higher cost to fulfil that customer’s orders. Does the customer’s need to have 1.2-metre-high pallets balance the additional costs you incur? It’s not unreasonable for the logistics manager to ask the question.
Sales Aren’t the Enemy
We’re not advocating that logistics managers should be belligerent and take a default position of ‘it can’t be done’. If customer requirements aren’t satisfied then those customers will go elsewhere where they can be satisfied. However, sometimes, that’s not a bad thing. Just like low volume, high maintenance products can be a drain on profit, sometimes low volume high maintenance customers can also be. The logistics manager needs to work closely with sales to ensure that customer orders are truly profitable when all logistics impacts are considered.
It must be understood, that sales and logistics are exposed to very different areas of a business. The impacts of exceptional customer requests, new products, inventory levels and minimum order quantities aren’t necessarily on the sales team’s radar unless logistics put it there.
The solution is for the logistics functions and sales functions to work in collaboration, taking a holistic view of the issues. Impacts on the logistics operation need to be analysed and presented in a clear and factual manner so that a cross-functional understanding can be achieved. If a change in a customer’s order profile renders that account almost profitless, or risks service to another account, then this needs to be explained. It’s not the time for being emotive or dealing with conjecture, it’s the time to get the factual analysis completed and presented in a clear and concise manner.
So, the next time sales ask you to put a free hamster in the box and wrap the pallet in a pink ribbon, ask ‘why?’ first.