Let me share with you one of the biggest myths
in supply chain management.
It's been around for decades,
and it's probably something we all learnt
when we learned supply chain
at college or university,
and it's the cost and service balance.
Now, I don't know about you,
but when I studied supply chain which is
a real while ago now,
I was always taught that as
customer service levels increase,
and typically beyond the sort of 97, 98% level,
so costs increase.
And costs increase exponentially,
the closer you get to a hundred percent
service level for your customers.
That's the myth.
It's not true.
We discovered this probably
8, 9 years ago.
And as part of our business at Logistics Bureau,
we also actually have a Benchmarking business,
so we're benchmarking hundreds of supply chains
across all industries.
And what we did that 8 or 9 years ago
is we started to delve deeper into the companies
that were offering the best service,
those who are offering outstanding service,
and we wanted to look at the cost,
because, you know, we understood this equation
that they must be operating at a much
higher level of cost.
And it wasn't true.
So we looked at them first in aggregate
and what we found was that
the best performers in terms of service
were operating almost half the cost
of all the others, of the average.
That's crazy.
So we dug down again,
and we started to look at it industry by industry
and we found the same thing,
the numbers were the same
right across all industries.
The ones who were performing
with the best levels of service were operating
at almost half the cost of the average in that industry.
How could that be?
It just wasn't logical,
but the numbers were there from almost a thousand
different supply chains that we benchmarked.
And then we started talking to some of these really
high performers in terms of service
and the pennies started to drop,
because all of these companies
were absolutely passionate about service.
They did not want a customer to be disappointed.
They didn't want a customer to get a back order
or to get the wrong product,
and this funny thing started to happen.
They were so passionate about getting
every step of their service right
that they didn't get returns.
They didn't get stock-outs
because they were so good at inventory management,
they were so passionate about it.
They didn't get complaints.
They didn't even need a
customer complaint department.
And so that's the myth that I wanted to share with you
that by providing outstanding service,
your costs don't necessarily go up,
they actually come down.
They'll probably going up a little bit to begin with,
because you'll be a little bit nervous in
carrying more inventory,
but overtime the cost will come down to almost half
of the average in your industry,
so it's a really worthwhile thing to pursue.
And you know the best part of it all?
There's kind of a double whammy to this,
because your service will be so good,
your existing customers will trust you more,
they'll want to buy more from you,
and you'll start to draw customers away
from the competition.
And so your sales grow,
and that gap between you and the competition
just gets bigger and bigger.
It's a wonderful thing.
It's a myth.
Don't think that by providing the best service
possible in your industry,
your costs are going to go through the roof,
they won't,
they will probably come down.
Now to help you on this journey,
what we also developed at over the years
is a wonderful KPI
that is cross functional,
that helps everybody engage and get passionate
about service, and it's called
The Probability of the Perfect Order
I won't explain it here on the video,
but I'll give you a link to it.
So if you're watching this on Facebook or LinkedIn,
the link will be above the video,
If you're watching this on our blog,
I'll put a link to it below the video
and any other links that I think will be relevant
and helpful to you
So
just remember,
it's a myth,
by providing outstanding service,
your costs don't go up,
they go down.