Give your Products away!
I was lucky enough to be invited to the Australian Steel Convention to speak this week. What a great event! A true ‘industry’ event in every sense, organised by the Australian Steel Institute (ASI). Well done to CEO Don McDonald and his team.
It was also, as an outsider, gratifying to see an industry body so actively involved and ‘leading ‘ the industry on so many initiatives, such as standards, safety and the future of the industry. I certainly learnt alot and was able to catch up with many old friends and colleagues within the industry.
My own presentation was about Supply Chain Efficiency, titled ‘Chains of Steel’ with a focus on getting just 3 Things right:
1) Really understanding customers wants and needs and balancing that with the needs of the organisation.
2) Translating this into a simple Supply Chain Strategy, and then
3) Understanding the ‘cost to serve‘ to help reduce costs and fine tune customer service offers.
There will an article in the next ASI magazine on the topic.
It was interesting talking to people in the breaks about their own Supply Chains and hearing some of their challenges that are also experienced in most industries I have come across. A topic of particular interest was ‘cost to serve’ and the benefits that can be derived from understanding it.
Here’s a crude example.
You have many small orders, of only $100. Maybe it is just one item in the order. By the time you incur all the costs of taking the order, picking the product, processing the product, loading it, despatching it and delivering it to the customer, your costs are $120!
You are losing $20 on each of these small orders. OK, stay with me here…
Let’s say the product comes in a ‘pack’ of 5.
Could you actually offer the customer a pack of 5, at the price of 3!
Sales are now, $300.
Costs are now about $150 (5 items are generally only slightly more costly to handle than 1 item, if in the same order)
Gross Margin is now $150 as opposed to a loss of $100 (5 items)
OK, this is a really over simplified example, just to make the point. Larger orders cost less per unit to handle than smaller orders. An easy way, in any industry to reduce Logistics costs, is to encourage customers to place larger orders, so driving down your ‘cost to serve‘ per unit.
So why not take a look at the ‘tail’ of your smaller orders. Try to estimate how much money you are losing on them. Yes, you ARE losing money at that tail end. Then work up some strategies and offers to encourage customers to buy n larger quantities. ‘Give some product away’ to reduce your costs, and improve your margins….
If you want to learn more about Cost to Serve, here are some additional resources: