Mulani on Excellence: Mantras of fulfillment masters
Narendra Mulani -- Logistics Management, 7/1/2009
In a world where customers can change suppliers at the click of a mouse, fulfillment mastery—the ability to cost-efficiently receive, compile, and deliver orders “on time and in full” (OTIF)—has become more vital than ever.
But what capabilities actually contribute most directly to fulfillment mastery? And if a company is able to build such a capability, what impact does that have on its financial performance? In short, is the gain worth the pain?
To learn the answers, Accenture recently surveyed 240 fulfillment executives from around the world. What we discovered is that companies’ fulfillment performance might generally be termed “good but not great.” On the receiving end, survey respondents get 90 percent of orders on time and in full. Respondents’ performance on behalf of their customers is slightly better: They deliver 95 percent of their customers’ orders in full and on time. Days of supply for finished goods inventory average 15 days.
Such accomplishments are decent to say the least. However, they fall well short of the performance levels attained by the roughly 10 percent of companies Accenture defines as “fulfillment masters.” According to our research, masters achieve 98 percent on-time, in-full delivery. And they do so with 50 percent less inventory and outbound transportation costs that are less than half that of the respondent population as a whole (2 percent of total revenue versus 5 percent). Bottom line: Masters enjoy higher service levels for growing the business and lower costs for operating the business.
It should also be noted that masters demonstrate high levels of sophistication in every element of fulfillment—from fulfillment strategy (how they design and adjust their fulfillment operations), through operational excellence (how well they execute the strategy), and technology (how effectively they use IT to improve operations). In the remainder of this article, we examine the skills and capabilities associated with mastering fulfillment strategy. Next month, we’ll do the same with operations and technology.
How masters create dynamic fulfillment operations
One of the key distinctions between fulfillment masters and laggards is the ability to build dynamic and responsive supply chains that can be adjusted rapidly to meet changing market conditions (shifting customer demands and competitive moves; changes in suppliers; fluctuations in fuel prices and interest rates, etc.).
Toward this end, masters design their supply chains by continuously reassessing cost and service factors, adjusting their fulfillment methods, regularly reviewing their channels to customers, emphasizing selectivity in their choice of supply chain partners, and actively modeling and managing their carbon footprint.
Consider flexibility as it relates to inbound flows: Masters typically pay close attention to the capabilities of transportation providers and supplier locations. As part of their inbound flow analysis, every one of the masters we surveyed regularly reviews both transportation firm capability and supplier locations. By comparison, less than half of the laggards evaluate supplier locations and only 40 percent scrutinize transportation providers. Masters are also more rigorous than laggards about monitoring key elements of outbound flow. One hundred percent of surveyed masters evaluate customer locations when analyzing their outbound flow, compared to only half the laggards.
Fulfillment masters are also more likely to actively manage cost to serve in each distribution channel (only a minority of laggards do this). And half the masters we studied regularly evaluate the tradeoff between cost to serve and value achieved, compared to only one-third of the laggards. In addition, masters are routinely involved in the R&D process—thus ensuring that efficiencies, constraints, and available value-adding activities are incorporated into product design.
Lastly, we determined that masters more fully leverage third party logistics firms. Some 80 percent said their 3PLs have boosted flexibility, while a lower percentage of the laggards—63 percent—said the same.
The case of a major elevator manufacturer illustrates the payoff from possessing sophisticated capabilities in fulfillment strategy. To improve operating margins, the company’s North American division moved U.S. production to Mexico, which forced a reassessment of its U.S. distribution network. After evaluating the network, the company designed a new supply chain that cut the company’s transportation costs by 13 percent. Total fulfillment savings reached nearly $5 million while fulfillment service levels doubled.
Clearly, fulfillment masters have reached a higher plane when it comes to strategy development. It is also evident that a high level of enlightenment about cost and service benefits has resulted.
Next month, we plan to explore how fulfillment masters put their strategies to work, with operations and technologies of karmic proportions.
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