Supply Chain Easy Tip for 2017 – A Must for Roosters

Here’s a quick tip for you to boost your Supply Chain performance in 2017.

Now if you’re a Rooster like me, we’re somewhat ‘screwed’, as it’s the year of the Rooster.  (Chinese New Year is on 28th January 2017)

It seems our ‘birth year’ is not a lucky one…

But let’s see if we can stack the deck in our favour with this easy tip.

This is the most common ‘quick win’ I see in Supply Chains all the time and I’ve looked at a lot of the years.

Over 1,500 in fact!

Cost to Serve

Cost to Serve Steps

Don’t get stuck in a detailed cost to serve review just yet.  Look for the easy wins.

Just follow these steps.  All data is for 2016, or an appropriate period greater than 6 months)

  1. Find out your annual warehousing costs (finished goods).
  2. Same with your customer delivery costs.
  3. Then get your total sales value.
  4. Determine how many customer orders were processed.
  5. What is the average order value?
  6. Now work out the average warehouse cost per order?
  7. And then the average delivery cost per order.
  8. Then find out the average order value of the smallest 10% of total orders.
  9. Deduct the average warehouse and delivery cost from that average small order value.
  10. Are you worried at the result?  95% of you probably will be.

 

This approach is VERY rough, using averages (always risky), just to highlight if you have a problem or not.

But it should give you an insight and incentive to go digging deeper into the cost to serve of your orders.

On average, 15% of most businesses orders and 15% of their customers will be non-profitable!

This quick ‘back of the envelope’ health should give you some insights into where to dig deeper.

The ‘fixes’ are typically around these types of issues.

  • Customer order sizes are very small.  Think of ways to encourage larger orders.
  • Transport delivery is being ‘charged’ via an inappropriate rate mechanism.
  • Inventory Record Accuracy (IRA) is poor leading to stock outs and backorders.
  • Warehouse layout and processes are inefficient.
  • And…..if you have certain customers/order values where freight should be charged to the customer……see if you really are charging them!

All the best for you and your Supply Chain in 2017.  And if you’re a Rooster like me, we’ll just need to try a bit harder!

Oh, and check out this 2 minute cost to serve explanation video.

 

Rob O'ByrneBest Regards
Rob O'ByrneRob O’Byrne
Group Managing Director
Email: [email protected]
Phone: +61 417 417 307