The rise in fuel costs, especially diesel, is significantly impacting the bottom line of many B2B companies such as distributors and wholesalers. While the transportation department bears the brunt of high fuel costs, it may not have much ability to mitigate the impact of these costs on the broader business as many of the causes of high fuel consumption come from outside the transportation department. Instead, transportation and logistics organizations need to make fuel cost mitigation a company-wide effort. Here are some ways that other departments outside of transportation can make a significant difference.
Sales & Marketing
How customers are served is big driver of fuel costs. This practice is typically owned by the sales and/or marketing organization, which is why it is so important for transportation and logistics departments to have input into customer service strategies. Traditionally, this is not an easy discussion, but the pandemic showed that, in dire times, customer service strategies could be changed with minimal impact to customer retention.
Customer service policies set the requirements for distribution responsiveness. This includes how often customers are serviced, minimum order quantity and other factors—all of which impact fuel consumption. These policies need to be reevaluated to determine if customers can be treated differently to help minimize the bottom-line impact of higher fuel costs. For example, do all customers need to be serviced equally regardless of size? Do all customers need to be serviced at a regular interval and time? “No” should be the answer in both cases, as these approaches generate higher fuel consumption than necessary and are, therefore, more impacted by higher fuel costs.
Concepts like customer stratification and hybrid delivery models can also dramatically improve delivery productivity and minimize the impact of elevated fuel prices. Customer stratification allows customers to be strategically evaluated against the revenue generated and cost to service them and mapped into a more cost- effective delivery strategy. Hybrid delivery combines dynamic and static delivery in a single planning model to support customer stratification, making the fleet more productive and minimizing fuel costs.
Allowing the sales team to arbitrarily determine delivery times for individual orders is another contributor to higher fuel consumption—and costs. For example, in the building materials industry, many orders are scheduled for delivery at the beginning of the day. This may occur at a customer’s request, but too often stems from a sales person wanting to impress the customer. Unchecked “delivery promising” behavior keeps fleet size larger than it needs to be and unnecessarily increases mileage and fuel costs. Instead, customer delivery preferences should be evaluated and the sales force educated to more effectively steer delivery times to put greater discipline in place and spread orders out over the day. This approach will help to minimize fleet size and better optimize delivery distance. It doesn’t take many orders moved to make a big difference in fuel costs.
Customer stratification, hybrid delivery models and delivery option steering by sales are examples of how changing the approach to delivering to customers can help to minimize the impact of high fuel costs. These strategies, however, need sales and marketing consent to implement. While some sales and marketing organizations understand this and are willing to do their part, many struggle with the potential perceived risk to revenue or have general concerns with “touching” the customer. This is where finance can help. Engaging finance along with sales and marketing to determine the risk/reward of employing various customer strategies to mitigate the impact of high fuel costs is critical to getting to an agreed benefit to the business. It’s also an excellent way to bring in another party that can help ferret out opportunities that exist and put weight to them, so they don’t get brushed aside.
To help combat the effects of high fuel costs, distribution companies need to look beyond the transportation department for solutions. Customer service policies play an important part in determining fleet productivity and should be evaluated to see if they can be modified to reduce fuel consumption and save on fuel costs. Finance also plays an important role by helping to determine the magnitude of customer service-based opportunities to reduce fuel consumption and lending weight to the discussion as it is not always easy to get sales organizations to change their strategies for servicing customers. Transportation and logistics executives need to engage sales and marketing to analyze the factors that cause higher fuel consumption and leverage finance to create data-driven cost-to-serve assessments to drive customer service policy changes that can better respond to today’s high fuel costs and benefit the company in the future.
As Executive Vice President, Marketing and Services, Chris Jones (CJones@descartes.com) is primarily responsible for Descartes marketing activities and implementation of Descartes’ solutions. Chris has over 30 years of experience in the supply chain market, including the last 10 years as a part of the Descartes leadership team. Prior to Descartes, he has held a variety of senior management positions in other organizations including: Senior Vice President at The Aberdeen Group’s Value Chain Research division, Executive Vice President of Marketing and Corporate Development for SynQuest and Vice President and Research Director for Enterprise Resource Planning Solutions at The Gartner Group and Associate Director Operations & Technology for Kraft Foods.