Building the Perfect Shipment
When it comes to defining success in order fulfillment, many companies can benefit from reexamining their KPIs
It's a given that production-oriented firms strive to optimize the movement of products between their facilities and customers. Such companies focus rigorously on specific key performance indicators (KPIs) to measure success and improve how goods are transported. But because KPIs can be narrowly focused, stepping back and taking a broader view of order fulfillment is a hugely valuable exercise that can identify untapped areas of supply chain opportunity.
Ultimately, the purpose of defining metrics (which eventually become KPIs) for a logistics operation is to improve overall supply chain performance. By better defining the concept of a perfect shipment, companies can improve transportation and order management performance, and by extension, supply chain performance.
Where might your company begin in defining the "perfect shipment"? The Supply Chain Council offers the following standards for what it calls a perfect order:
- Delivered complete
- Delivered on time
- Complete and accurate documentation
- Perfect condition
This a good starting point, but it raises several important issues. For one, your company could satisfy a customer's requirements in relation to these technical standards, but still not deliver maximum value or competitive advantage. And what about your company's needs? A technically perfect shipment to a customer might be at a loss, or to the detriment of other customers. In sum, a narrow, technical definition might be easy to track, or in line with logistics incentives, but ultimately fail to track customer value or reflect enterprise profitability.
In reality, "perfect" is simply the optimal mix of metrics and performance tradeoffs when considering both the company and its customers. Getting there begins with an evaluation of five key areas of shipping and fulfillment effectiveness. Logistics and customer service managers should focus on these metric categories and underlying questions when managing the movement of products:
- Product: Are the right goods being moved?
- Place: Are the products where they're supposed to be at all times?
- Time: How timely are the shipments of a given product from one place to another?
- Cost: How much does it cost (in total) to move a given product from one place to another?
- Quality: Are the business needs of the customer being met by the delivery of a given product? Are customers' overall delivery expectations being met?
Certainly, there are a number of tradeoffs inherent in the outcome of each question; for example, a cost management program may trump the speed of delivery. And sometimes an action that has a positive effect in one area will negatively impact another.
Evaluating the inherent tradeoffs requires a complete understanding of the components that make up a shipment. The most important components to consider include:
1. Contents: The shipment is comprised of the correct materials and quantities, loaded and shipped with any and all special requirements met. All necessary information is available regarding weight, dimensions, product description, packing and shipping constraints and unique product characteristics (temperature requirements, handling requirements, product compatibility restrictions, etc.).
Operational impact: A transportation planner who has easy access to all the characteristics associated with products that comprise an order as part of the same or different shipment can configure shipments for optimum weight and density. Operationally, this usually requires an automated tool. In addition, it's important to note that optimum weight and density may not be the maximum weight or density, depending on other factors.
2. Loading: The shipment should be built and loaded so as to optimize weight and volumetric constraints, while still enabling efficient shipping operations.
- Easy load/unload: When shipments are easy to load at the origin and unload at the destination, productivity and efficiency improves, costs associated with the loading/unloading process should decrease, and the potential for product damage should be reduced.
- Palletized versus floor-loading versus slip sheets (for ocean shipments): Various facilities, customers and sometimes even countries will mandate the type of container loading, as well as the size of the containers permitted. The origin location needs to know what all these various requirements are, and to meet these requirements in an efficient and cost-effective manner.
- Weight/volume optimization: Each shipment will have an ideal or target weight and/or volume utilization associated with it. Load planners need to know what that target is for each shipment in order to know whether or not they are doing a good job.
Operational impact: The proper design and configuration of a load depends on the availability of needed information. The planner can quickly and easily use that information to incorporate other business constraints into the design and configuration of the load. Ideally, on a day-to-day basis, the optimization of 90 percent of loads should be automated or common-sense, but the tools, information and capability should exist for the organization to easily deal with the 10 percent of loads that pose a unique challenge.
3. Timing: Perfect timing is one where the products are available when needed. Visibility into availability and constraints is vital to timing, and data should include the required-on-site date, ready-to-ship date as well as the actual shipment and delivery dates, including windows for pick-up and delivery.
Operational impact: Better upstream and downstream visibility (along with associated business process flexibility) can provide more opportunities to optimize shipments. Likewise, knowing the "real" dates and times associated with a shipment, and knowing them as early in the order management process as possible, relieves constraints and opens up options related to some of the components below, such as mode.
4. Mode: The shipment uses the most appropriate combination of modes, whether road, rail, ocean and/or air. When evaluating the modes associated with a particular origin/destination pair, everything should be understood in total: costs, transit time and level of effort.
Operational impact: Hidden tradeoffs must be identified and quantified. For example, the cost per kilogram to ship a product via ocean is lower than shipping by air; however, on a total cost basis, the carrying costs associated with the additional time a shipment is in transit could result in carrying costs exceeding the freight savings (for example, high-value electronics).
5. Condition: The shipment will be undamaged. While a customer will prefer products to arrive in pristine condition, there should be a definition and understanding of what condition the products must be in upon arrival in order to be considered acceptable. This would also include a definition of what constitutes "damage."
6. Information: The shipment has all of its required documentation in order. The information is accurate, timely and properly formatted. Similarly, a shipment's status should be easily determined in real-time, while at rest or in motion, from virtually anywhere in the world.
Operational impact: Poor documentation adds cost and cycle time to a shipment. These setbacks may cause additional business problems such as manufacturing shutdowns, increased inventory carrying costs, and the inability to meet budgets. Poor visibility, from a management perspective, can result in many of the same problems.
7. Total Cost: The shipment takes all of its cost components into account and minimizes its total cost. From an end-to-end perspective, there are three primary categories of cost for a given product:
- Warehousing costs (at each point in the shipment)
- Transportation costs (for all modes between origin door and destination door)
- Inventory carrying costs
Operational impact: Too often, silos within the enterprise attempt to minimize one cost component, without appreciating the impact the action has on other cost components. Organizations must manage to minimize total landed costs while meeting specified customer expectations of quality and service.
8. Flexibility: Business flexibility is the degree to which your processes, rules, organization and technology can accommodate predictable change (i.e., how tolerant it is). Flexibility is a prerequisite for agility (see below). To increase flexibility, ask yourself:
- How much business process latitude do you have in combining orders to build a shipment?
- How much upstream order visibility do you have to configure and manipulate the contents of individual shipments?
Operational impact: Though some firms will struggle to articulate a metric for flexibility, the capability and availability of information to configure shipments manually or automatically is powerful. By utilizing all the information related to other perfect shipment components companies can dramatically improve the ability to optimize shipments on an ongoing basis.
9. Agility: Business agility refers to the ability to quickly and adequately cope with unpredictable change, and the ability to take advantage of changes as opportunities arise. To evaluate agility, companies should address the following questions:
- How would the company change or alter a shipment at each stage of the order fulfillment process? The further downstream into the fulfillment process a company can affect a change, the more agile it is.
- What is your organizational ability to react to sudden changes in your situation? Oftentimes the presence or lack of change management "infrastructure" can greatly influence an organization's reaction to new situations.
Operational impact: Examples of agility include the ability to recall and/or change transportation modes of a shipment that is already en-route; having contingency plans in place in the event of a variety of unpredictable events; and the ability to re-route or change final destinations for a shipment after it has shipped.
Living the dream
As companies increase their ability to deliver perfect shipments, they will also benefit from visibility. Such insight enables faster, better-informed decisions in warehouse utilization and inventory management, thus reducing invested working capital, increasing profitability and improving customer satisfaction.
With better defined and more strategic KPIs, companies will also make logistics more intellectually stimulating for all employees of the supply chain. Understanding the "perfect shipment" focuses a team on the challenges of optimizing shipment components, selecting the right mix of options, and developing decision-making skills.
If your company can operate efficiently and productively, and avoid crisis management except in the most extreme cases, you will be differentiated in the eyes of your customers, winning loyalty and growing relationships for years to come.
About the authors
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