Just Say No to Slow-Mo
When the economy slows, so does the pace of shipments. To cut costs, some companies shift to less-expensive deferred delivery services. But there are cases where speed helps reduce overall costs, even when economic activity is flat. Here's one example that bucks the slow-mo shipment trend line.
Acoording to press reports, an Australian retailer, Coles Meyer increased its commitment to product velocity with extraordinary results. The initiative began 18 months ago when Penny Winn was brought on board as director of buying operations. Winn previously headed Woolworths' ambitious Mercury Program, a $1-billion supply chain overhaul designed to speed inventory, reduce touches, cut overall costs, and use speed to serve customers quickly—all while minimizing stock-outs.
Fear of product aging and too many touches drove Winn to make product flow fleet of foot on the Mercury Program. "I used to be paranoid about the tomatoes in Woolies only having one touch. The grower put it into the black crate and the customer took it out, and that's the only time it was touched," she says, according to Australian Business. Speed salved paranoia, in her case.
When she arrived at , Winn found that, in some instances, 40 percent of the inventory was not on display, unless you count the warehouse racks at the company's four distribution centers. Could stylish shirts and dresses take a lesson from the lowly Woolworths tomato? Winn thinks so. "Nobody wants to buy a smeared shirt or crinkled dress," she notes. Her view is that if you have aged products and too many touches, you create a reason for customers not to buy.
The solution is velocity and as few touches as possible. Under the new approach, that 40 percent figure has been reduced to close to 10 percent. Speed is helping to reduce Coles overall supply chain expenditures from 1.4 percent of sales in 2007 to just 0.7 percent these days—an amazing 50-percent cut. Prakash Menon, Cole's logistics director, lives to keep that stock moving. "If you delay for one day, you're writing a check for write-downs," he says.
Is there a place for premium services that keep products moving out the door quickly and efficiently, even in a downturn? Coles senior management team thinks so. When they made their initial public stock offering in October 2009 in a tough IPO market, the team pointed to its supply chain success. It's one more trend line these folks are bucking—one more benefit of velocity.
Tight control of the inbound flow, matching supply to demand, a commitment to product velocity, all with a minimum of touches, may be more difficult to administer when managing transport costs with a silo perspective. But that strategy can reap great rewards, especially if your competitors are cutting costs by going slow-mo.