I received a “food for thought” email yesterday from Giles Taylor, a friend of mine and president of Trans-Solutions, a transportation consulting company. Here is an excerpt of his email:
“Do customers want speed or service? It seems like UPS and FedEx have created a market for fast delivery, when most of us want consistent delivery. Has it gotten ridiculous with UPS offering 2nd day AM service? There’s something for everyone. The French economist Jean-Baptiste Say had a great saying about this-Say’s Law: ‘Supply creates its own demand’.”
Giles goes on to say, “I once spoke with the President of DHL when they were trying to make headway into the US market. He was from Australia, but had extensive international experience. He was amazed at the need for fast service in the U.S.. He said the U.S. was like no other country when it came to fast service. A few years back, we conducted a survey of customers of one of our clients to determine how they defined service. The number one issue was not speed (that was down towards the bottom), but consistency. In other words, if you say the shipment will be delivered on Wednesday, then deliver it on Wednesday, not Tuesday or Thursday. A similar survey was taken 10 years prior. Consistency was the number one issue then. I suspect it would be the same today.”
This “speed vs. consistency” question reminds me of some research I conducted a few years ago on lead time variability. For some reason, reducing lead time variability was a priority for many of the logistics executives I spoke with at the time, and I suspect it still remains a priority today (and part of the reason many companies are shifting sourcing and production closer to consumption, the whole “near-sourcing” trend analysts are talking about).
For example, as part of a research project I conducted for LeanLogistics back in 2006, I interviewed Brian Cronenwett, Director of Supply Chain Logistics at Ace Hardware. At the time, Ace was very focused on improving lead time dependability because it greatly influences the algorithms used for replenishments and safety stock. “We have always been able to measure total lead time from issuing PO to receiving at DC,” said Cronenwett, “but we did not know how much time it took to complete each of the individual process steps.“
Ace launched a “lead time reduction” pilot program with six suppliers and its carriers and distribution centers to compress total lead time. Taking a holistic perspective was important because lead time variability occurs everywhere in the process. A key element of the program was getting suppliers to commit to specific order-to-ship cycle times-i.e. the number of days an order would be ready to ship after the PO is received. These cycle times could vary by product. For example, make-to-stock items may ship within one day of PO receipt while make-to-order items may take 10 days. The important thing was having a well-defined and reliable cycle time.
Ace received similar commitments from carriers regarding on-time pick-ups and deliveries, and the company’s distribution centers committed to specific day-of-the-week delivery and receiving schedules. In short, Ace virtually eliminated the lead time variability and uncertainty that existed in every step of the inbound process by working with its suppliers, carriers, and distribution centers to define and commit to a specific level of performance. The net result: several days were eliminated from the end-to-end process and lead time dependability improved, which translated into a 20 percent reduction in inventory for the goods from these suppliers.
It’s been a long time since I last followed up with them, but Ace was planning to extend the lead time reduction program to other suppliers. The company knew that scaling the program would create new challenges that may require it to tweak the process, and it didn’t expect to achieve the same level of results at the onset. But taking a holistic perspective of the inbound process and working collaboratively with partners and internal functional groups to identify and correct inefficiencies was, nonetheless, the right direction to move towards.
So, which is more important to you, speed or consistency? Are you willing to trade the former for the latter, or are you the type that demands and expects both? Do you agree with Say’s Law? Post a comment and share your viewpoint!
Say’s law has been interpreted in a variety of ways, “if you build it, they will come” and “you can’t sell what you don’t have” being a couple of them. Both of these interpretations are important considerations, however the former can be quite dangerous as witnessed by all of the 1970′s era Chrysler products available for desruction during the filming of “The Blues Brothers” due to overproduction.
I think that the Lean movement has both benefited, and in many ways been a cause of the focus on speed in the supply chain. Owing for to the need for quick replenishment of inventory to meet unstable demand.
But, at the end of the day, I think consistency is of greater importance than speed. Consistency allows for planning of the trailing operations / steps and the elimination of much waste related to uncertainty.
Steve Murray
Sr. Research Analyst
Supply Chain Visioms
Consistency has always been our issue. There is nothing in our supply chain that would warrent paying to receive something 2 hours earlier . If you need deliveries to your facility that fast, find out where you are on the routes of the big 3, and take it from there.
I think it is a service needed by very few, and the carriers saw it as a way to rollout to others to absorb the cost.