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Making Service Count

As the demand for home delivery booms, so too does the issue of dissatisfied customers. Whilst many companies outsource their delivery service, based on the reasoning that distribution is not their core competency, they are increasingly reluctant to outsource the management of their customers’ delivery expectations. Chris Wright, Managing Director of Skillweb, explains how retailers and third party logistics companies must work together to solve the problems associated with achieving customer satisfaction and competitive, cost-effective service levels.

The customer is always right

The marketplace is changing. Today’s customers are becoming more fickle and demanding. They are no longer loyal to specific stores: if they can’t find the desired item in the right size and colour, they will move on to another store that has a similar product.

Customers are impatient to purchase, want a delivery promise that suits their requirements, and are unwilling to wait for their favourite store to deliver at their convenience. With increasingly different sales channels to choose from – whether via the Internet, home selling, catalogues, or over the phone – there has been a marked uptake in home deliveries.

This has not only led to more items requiring last mile delivery, but has also increased the demands on ‘reverse logistics’ – where items are returned as a result of unsuccessful delivery. Delivery at the distributor’s convenience no longer works: retailers need to commit to a delivery promise at the point of sale or shortly after. Distribution, whether outsourced or in-house, must meet that promise or monitor it and proactively manage issues as they occur. It doesn’t pay to upset your customers: the least they require is news, even if it concerns a delayed delivery.

Retail Therapy

So how are retailers meeting the challenges brought about by this new, demanding customer? Many are reducing the stock held in the front line, leading to a demand-led response. This puts more pressure on the supply chain to replenish stock and distribute it to different outlets to meet demand.

This is almost a form of mass-customisation – suppliers need to decide what they are going to make, and then make it on demand. An example is the car showroom, which may have several new cars, but these are purely for demonstration. In reality, a new car is delivered several weeks later, tailored to the customer’s exact specifications.

The High Street is another example. In the past, retailers may have held two key sales each year – after Christmas and a sale to clear out summer stock. Today, the High Street is never without a sale. These are mainly for clearing stock to gain valuable shelf space, ready for the next ‘must-have’ items.

Some items may sell better at a different location – so the supplier needs to ensure that the products are re-assigned to the other outlet. Moving stock around in this way requires an efficient system that can track demand and adapt rapidly to changes. This may involve re-routing stock in transit if necessary, to ensure that delivery promises are met.

Feeding the supply chain

A responsive supply chain requires collaboration amongst the supply partners, who need to agree a delivery plan. This must be tracked and monitored, and should include a way of analysing actual performance against plan to see if targets are being met.

Ultimately, the responsibility falls heavily on the shoulders of the third party logistics company to deliver the right product to the right place at the right time – and this is where the challenges lie.

Historically, contracts with delivery companies have been inflexible and driven by price. In an open book contract, the cost of the delivery is passed on in the price, with a profit margin agreed on top. There is no profit incentive for the delivery company to give the customer anything more than a straightforward delivery service.

In a closed book contract, there is little room to provide service outside of the set terms, since these will have been negotiated and fixed by price. Clearly with either contract, when a delivery is unsuccessful, the cost of working outside of the agreed delivery promise is prohibitive, often resulting in a dissatisfied end customer.

The key problem for a retailer is that outsourcing delivery to a third party means that they have no visibility of the supply chain. If there is a problem, the retailer only finds out when the product is returned. This gives them no opportunity to speak to the customer and provide a solution.

A happy customer improves the bottom line

The way forward involves a customer-centric approach, in which both the supplier and the logistics provider embark on an open partnership, with common targets and total visibility. From the outset, both parties need to agree that the delivery promise is paramount, and agree a benchmark cost for a delivery drop.

This cost should be mutually beneficial. The process should then ensure that the delivery part is profitable if the targets are met – and if the customer’s demands are met, the supplier is also happy.

The benefits of this approach can be seen from the following example. If snow prevents road access, a delivery may be delayed or cannot be made at all. Without a process in place to manage the situation in real-time and with no visibility of the problem, the order may be returned and lost. However, if the customer can be forewarned that the delivery is delayed or may need to be rescheduled, a return can be avoided. The customer is happy to be kept informed, and the supplier can make alternative arrangements to meet the service promise.

Delivering the promise

Clearly there needs to be accountability on the part of the third party logistics company, but the right mechanisms need to be in place. Today, there are technology solutions that can facilitate this customer-centric approach.

Skillweb has integrated Proof of Delivery solutions and consignment tracking systems that provide reliable distribution management business solutions. Our mobile terminals are designed to withstand rough handling on the road and are used by delivery teams to ensure automatic data downloads. Important details such as quantities and timings of orders delivered can be immediately entered into a database at headquarters, and related to the customer order and stock control systems.

With efficient management systems, the logistics provider can reduce error and stock loss, and provide proof of collection or delivery and full traceability of delivery status. Such information can enable the company to manage customer expectations and provide management reports if required – leading to an improved customer service.

Logistics companies that invest in such technology will be those that are flexible enough to deliver the service promise and provide visibility of the supply chain to their customers.