By Dr. Allen Pinkus

The "more" is enhanced service to customers: faster turnarounds on more accurate orders with more customization. The "less," of course, is cost, which can be reduced by slimming inventory and handling time, increasing productivity, quality and streamlining the distribution process.

At first glance, "more for less" seems to go against the grain of common sense. But in fact, many of the same things you can do to provide better customer service also reduce the cost of moving a finished product from the manufacturing floor to the end user.

Conceptually, the process of getting finished goods to a customer consists of several stages: taking the order, checking inventory, identifying the product in the warehouse, shipping the product to fulfill the order and collecting payments.

Product distribution for wholesale distributors or manufacturers follows this pattern fairly consistently, whether the company is storing products at one or several warehouses, transporting orders in its own vehicles or using common carriers. Companies are complicating the process even more by inserting a new variable in the supply chain process: finishing or customizing the product to customer specifications before delivery.

Companies can squeeze costs from the supply chain by looking at the entire process and looking at each stage of the process. At each stage and overall, there are three basic ways to squeeze costs:

• New hardware
• New software
• Business process productivity improvement

At each stage of the process of getting finished goods to the customer, improvement typically involves some combination of hardware, software focused on applications, and process improvements. Hardware, software and process improvement are also the three ways companies have historically improved customer service.

Let's take a look at the warehouse, a major link in the supply chain, to see how squeezing costs through hardware, software and process improvement also enhances customer service.

The key to squeezing costs out of warehouse operations is developing a real-time intelligent information processing capability. Real-time intelligent information processing in the warehouse uses combinations of the latest automated materials handling and data collection technologies — radio frequency equipment, bar code scanners, carousels, scales, automated storage and retrieval systems and automated guided vehicles.

The intelligent part of the system is sophisticated software that enables management to automate and control all phases of warehouse operations, including receiving, put-away, inventory control, order processing, picking, packing and shipping.

The system helps save costs in a number of ways:

• Faster order turnaround reduces inventory needs.
• More efficient picking schedules and error elimination increase employee productivity.
• Reduced inventory shrinkage and transportation costs reduce the cost of operations.

It is obvious that most of the cost savings also improve customer service. For example, faster order turn-around gets the product to the customer sooner. Error elimination makes it more likely to be the right product delivered to the right location.

Not only do hardware and software reduce costs, they enable the company to look at the warehouse process and remove bottlenecks to productivity. Delays that recur constantly usually signal that a productivity improvement can be made in that task or area. Process improvement can entail optimization of available space, further reduction of shipping costs, reduction of inventory counting costs, and an alleviation of lost or incorrect paperwork problems.

At every stage of getting finished product to the customer, combinations of hardware, software and process improvement can squeeze costs and, at the same time, improve customer service.

But beyond tinkering with parts, a company can squeeze costs out of the supply chain through looking at the entire process. Here the answer is: frequently implementing software that enables you to cut costs and improve process bottlenecks.

Essential to how software cuts costs at the process level is the ability to feed information once into the process and have it readily and quickly available to everyone who takes part in the activity of getting the product to the customer. The faster transmission of information always leads to faster movement of product: be it onto a pallet, out of the warehouse or off a truck, product only moves when it is tied to information.

It may seem strange to suggest spending money on hardware, software and process improvement as a means to squeeze costs out of the distribution system. It is true that the best-laid corporate plans can go awry if the implementation of cost-cutting measures takes too long, costs too much or is too disruptive to the work force.

The plan a company develops to combine hardware, software and process improvement to squeeze costs out of the distribution chain should be as minimally disruptive as possible. The knee jerk reaction is to make the change that will improve the bottom line the fastest. But if that change also makes employees unhappy or confused, it may prove counterproductive. Instead, by making changes that are easy and/or inexpensive, the organization demonstrates that change can actually cut costs while it increases customer satisfaction.

Copyright © 2020 by APICS — The Educational Society for Resource Management. All rights reserved.

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