We live in a rapidly changing world. This really was brought home to me recently when I was having a discussion with my father, who was recounting his memories of running a business in England just after the Second World War, and having products delivered to his retail store by horse and cart. In just one generation he has seen a complete revolution in logistics and distribution systems. Today we accept overnight delivery services as a fact of life. We can trace our products at each stage of the transportation process.
The language of logistics and distribution is full of examples of the maritime legacy when the majority of goods were transported by water. We talk about shipments, receiving docks, free on board even when we are distributing products by many forms of transportation. The reality today is that there are many ways that products can be delivered to customers. According to APICS, logistics is defined as the art and science of obtaining, producing, and distributing material and product in the proper place and in proper quantities. According to David Ross in his book Distribution Planning and Control, logistics consists of seven Rs: having the right product in the right quantity and the right condition at the right place, at the right time for the right customer at the right price. The problem is that it is very difficult to get everything right all the time.
The problem is caused fundamentally by the uncertainty that exists regarding the purchasing patterns of customers. This uncertainty creates the necessity for organizations to forecast the potential demand for their products in advance of receiving actual customer orders. The errors associated with these kind of predictions create the situation where the seven Rs are not met.
CUSTOMERS ARE MORE DEMANDING
Four main criteria determine the level of customer service:
The extent to which a customer's expectations are met will determine the level of customer satisfaction and will determine the potential for future purchases from the customer. Customers today are more demanding than ever. They demand value, and every customer defines value in their own way. A simple way of looking at value is as perceived quality for the price. Everyone has expectations about what a product or service should cost. They make assessments about potential suppliers and the relative merits of differing products or services, and they listen to the experiences of other customers.
Companies today are competing on the basis of order qualifiers and order winners. Order qualifiers are the factors that determine whether you could even be considered as a potential supplier for a product or service. Order winners are those factors that will cause a customer to select your company as a preferred supplier of a product or service.
WE ARE ALL COMPETING FOR TIME
Time has become the most precious commodity that any organization has, and the primary basis for competitive advantage. Product quality and selling price are usually equivalent between potential suppliers, so now the order winners are speed of delivery and quality of service. Many companies today are competing on the basis of time. In the photo processing industry, the old standard of two weeks to get photographs developed has been replaced by the one-hour photo shop. Last July while I was in South Korea, I noticed that the standard development time advertised was 25 minutes. In November when I returned, the time had been cut to 17 minutes. Customers today are not prepared to wait long for any product. Any company that has a large order book of unfilled customer orders is vulnerable to a quicker competitor stealing customers by promising shorter delivery lead times. Many people in organizations today are already feeling the effects of the new time constraints, working longer hours and having to make tough decisions about how time is spent. As we enter into a new millennium, the
effective use of time will be an enduring challenge, not only for organizations, but also for every individual.
To Be Continued
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