CSI study can lead to process improvement (hub delivery)

The other day I was writing a  customer satisfaction report we had just conducted for a client. The report asks customers what is important to them and how the client performs on each of the attributes. It covers all aspects of a distributor’s business.

We’ve deployed the survey previously for this client, but what I found interesting is that issues of delivery have increased in importance for customers.  Three of the top four most important attributes were delivery related (and salesperson relationship is now #10!).

Which got me thinking, “if delivery is increasing in importance to customers, is it because distributors are not structured to meet new demands or have fallen in their performance?”  I don’t know the answer, but occasionally we invite guest columnists to share their thoughts. I received the following article earlier this fall from Mike Loonie at Tag Logistics, a firm that specializes in distribution logistics system, may help some distributors improve their service.

Hub Delivery Model – Improves inventory turns, customer service and delivery expenseAs distributors wrestle with growth plans and customer demands, more attention than ever is being paid to the distribution system. Moving product in a timely and cost effective manner has never been more important.

There is a new logistics model being implemented by distributors that is increasing inventory turns, improving customer service and lowering cost. It is called “hub delivery”.

The number one logistics issue in the distribution industry is the over handling of product. Hub delivery allows for a distributor to deliver customer orders, transfer branch inventory and make vendor pick ups for a given market out of a single location.

Here is how it works. In a 100 mile market radius, a single location will make all deliveries, vendor pick ups and service transfer needs of all branches within the area. It is recommended that one truck be left at each location to handle emergency shipments.

The hub location would need to have sufficient warehouse space to support the inventory needs of the market area. In many cases, optimization of the existing hub warehouse will provide the additional space necessary to support additional inventory.

The branches in the market area would have both delivery and inventory support from the hub. As a result, over time, the branch inventories fall and inventory turns increase.

Slower moving C and D items can be stored in greater quantity at a hub location. With overnight delivery support through an integrated transfer and delivery system, each branch can have their C and D items the next day if counter pick up is required. Otherwise, the hub will deliver these items directly to the customer next day.

Many branches do not start making deliveries until after 7 or 8 AM. With the hub model, transfers are part of the delivery load. With many transfers being sold orders that a customer will pick up at the counter, the hub model will deliver the transfers to the branch prior to opening.

After the transfer product is delivered, the hub truck will continue on to make customer deliveries on a route that is designed to service customers of that branch as well as the hub’s customers. As most counters are open for business by 7 AM, the hub truck has already dropped the transfers and goes on to make customer deliveries.

This improves early AM customer service in the areas where customers were not getting deliveries until later. On average, this system will push delivery times up as much as 90 minutes. This creates a win-win. Customers report better service and the distributor makes better use of delivery assets.

It is not unusual that within a 100 mile radius, each branch would have 2, 3 or more trucks to make customer deliveries. The hub delivery model pushes most deliveries into a central location. Trucks and drivers are better utilized and loads are fuller based on a greater concentration of shipments.

As a result, branches that are assigned to a hub can reduce their delivery fleet. The normal ratio of equipment savings is 3 to 1. For every additional truck that would be needed at a hub to support a wider service area, 3 trucks are eliminated at the branches.

The average annual cost to operate a distributor delivery route in the United States is $72,500. This amount includes equipment, driver wages with benefits and operating costs. The reduction in delivery assets results in significant savings.

Another cost benefit to hub delivery is the reduction in handling time gained from eliminating branch transfers. The transfer of product from one branch to another on a sold order that is delivered to a customer has nine steps involved. A delivery made directly from a hub requires four steps. The time saved in warehouse transfer processing can now be put to more productive use.

In an ongoing effort to improve the business process, it is imperative to challenge the way things are done. Is there a better way? Hub delivery is worth a look!

Perhaps this stimulates some ideas that can improve service, generate cost savings and possibly facilitate the development of new services (i.e. earlier delivery times)?  This is an example of how process improvement can drive marketing strategies and differentiable competitive advantages.

And if you’d like to learn more about our customer satisfaction approach  that can help you quantify performance and sent benchmarks, click here to contact me.