Who’s your customer?  

Factoring the diverse demands of customers into the profitability equation can be daunting, particularly when those demands do not fit your model for order fulfillment and delivery cost containment, says industry veteran John Hill.

By John M. Hill, principal, TranSystems | ESYNC -- Modern Materials Handling, 7/16/2008

As warehousing and transportation managers, we typically serve two sets of customers: those who buy company products and the internal stewards who monitor related performance, costs and profitability. Which way is the balance tilted in your operation?

Why are you in business? For most of us, the answer is to generate a return on the assets and effort we invest to meet the needs of our customers. At the highest level, both sets of customers simply want quick and complete on-time order delivery at the lowest reasonable (and sometimes unreasonable) cost. Right? Yes, but it’s only the tip of the iceberg.

Factoring the diverse demands of customers into the profitability equation can be daunting, particularly when those demands do not fit your model for order fulfillment and delivery cost containment—and, when those demands vary widely by customer.

Reduced order-to-shipment timing, special labeling, coupon insertion, “rainbow” and “store aisle sequence” pallet builds, split-case picking and other value-added services add time, cost and hassle to the fulfillment process. And, as if that were not enough, add the additional pressure sales management applies when service levels decrease as well as the screw tightening by executive management when costs-to-serve threaten margins. Something has to give – but what?

The answer lies in defining what it will take to meet (or nearly meet) specific customer requirements, identifying associated warehousing and transportation costs and risks, working with sales to develop a value proposition for addressing each requirement and matching the results to the customer’s as well as the internal stewards’ perception of that value.

Simplified for illustration purposes, a table similar to the one below might be helpful for putting together profiles for each customer request. Using data drawn from current operations to obtain standard times and costs per case for current picking, packing and shipping methods, estimate the incremental additions required to meet new requests.

Though not included in the table, a similar approach should be taken to assessing the impact of requests for reduced order to delivery cycle times. Factors may include the costs of increased inventory, space and labor to accommodate such needs.

You’ll need an estimate of order volumes by type of requirement to complete the profiles and project overall costs. Once in hand, the profiles will enable you to meet with sales and management for objective discussion of the implications of acceding to customer requests as well as alternatives for compromise that will not undermine the customer relationship or break your budget.

Finally, once you’ve done the homework necessary to assure that your internal “customers” have the data they need to make informed customer service decisions, you might also want to take a hard look at the same data to determine what on your end could be done to make those decisions easier.