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
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)
- Find out your annual warehousing costs (finished goods).
- Same with your customer delivery costs.
- Then get your total sales value.
- Determine how many customer orders were processed.
- What is the average order value?
- Now work out the average warehouse cost per order?
- And then the average delivery cost per order.
- Then find out the average order value of the smallest 10% of total orders.
- Deduct the average warehouse and delivery cost from that average small order value.
- 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.