Are You a Cost Effective, Service Excellent Logistics Provider?

In logistics, we usually equate higher costs with better service. If you want faster delivery, or better customer support, you’ll likely have to pay for it.

But in this article, Professor Jochen Wirtz makes the argument that service excellence and cost effectiveness don’t have to be at odds with each other.

In fact, many businesses that provide excellent service are often the most cost-effective as well.

Amazon is the best example, as they offered some of the lowest prices while guaranteeing 2-day delivery and lenient return policies.

Another example is Singapore Airlines where they won numerous awards for their service while also being one of the most cost efficient airlines per seat mile.

For most logistics providers, balancing service excellence with cost-effectiveness is literally a million-dollar question.

So in today’s article I’ll discuss the 3 paths logistics providers have to become cost-effective, service excellent (CESE) businesses, and how technology implementation can help with that.

The 3 Characteristics of CESE Businesses

In Professor Wirtz’s paper, he says that businesses have 3 main paths to achieving CESE:

1. By becoming a focused factory

2. Through operational management

3. Implementing a “dual-culture” in their business

Focused Factory Approach

With the focused-factory approach, you try to solve one problem particularly well for your clients instead of solving everything for everyone.

This type of focus drives service excellence because the experience gained from helping each client will carryover to your other ones as they are likely very similar. 

It also reduces costs because now we can develop turn-key solutions to the same problem over and over again.

One example applied to logistics is if a trucking company only focuses on one type of delivery, like drayage or long-haul instead of taking every haul request.

This focus allows you to understand the intricacies of your specific type of delivery, for example for drayage companies, how the port system works, or the exact type of truck you need to haul certain freight, that other trucking companies don’t have the capability to do.

This allows you to gain expertise, avoid mistakes, and serve your clients faster.

Operational Management

With an operational management approach, you focus on reducing process variability to cut costs. This usually happens in 3 ways:

1. By pushing as much front-office work to the back-office where work can be more industrialized 

2. Modularizing the service to offer pre-defined solutions

3. Deploying self-service technology (SST) to reduce costs

In this case, it’s similar to logistics providers requiring products to be palletized rather than taking in shipments of any size or shape.

The modularity of pallets makes loading and unloading shipments easier and faster, which reduces costs.

Dual Culture Philosophy

The last way to achieve CESE is to promote a dual culture philosophy. This is where you emphasize CESE through your values, culture, and training rather than changing the operations itself. 

Amazon for example, had both “customer obsession” and “frugality” as values for their employees, which embodies this dual-culture approach of both needing to serve customers well while keeping costs low.

Singapore Airlines offer bonuses of up to 50% of employees’ annual salaries depending on profitability, while also cutting base wages by up to 20% when it was in a loss, thus incentivizing CESE culture.

How Logistics Providers Can Become CESE Businesses

So now that we know how businesses deliver cost-effective, service excellence, let’s discuss how this applies to logistics businesses.

1. Do you have between 10 to 200 competitors, and 2,000 to 10,000 potential customers?

This is a test I learned from David Baker in his book, “The Business of Expertise” to decide if a logistics business is well-positioned or not.

If you fit this criteria, then you have niched down enough to be a successful “focused factory” in logistics.

The reason this test works is because if you have under 10 competitors and 2,000 customers, your market might be too niche and small.

But if you have over 200 and 10k customers, your positioning is likely not targeted enough. So this test helps ensure 1) you have a large enough market while 2) not being so broad your messaging doesn’t resonate.

For example, if you’re trying to run a standardized warehouse, at ambient temperatures with palletized products, it’s basically a commodity service with far more than 200 competitors and over 10,000 customers. This indicates it will be very difficult to retain any margin to still deliver service excellence.

However, if you niche down and only focus on a particular type of warehouse, for example cold storage, hazmat, or food, you’re more likely to hit this sweet spot and develop expertise to become a focused-factory. 

Takeaway

Consider doing some competitive analysis as to whether you're within the 10 to 200 competitor range and 2,000 to 10,000 customer range. If not consider, niching further down.

2. Can You Help Your Customers Serve Themselves?

In Wirtz’s paper, he argued how many CESE businesses have self-service technology to help reduce operations because it is essentially automated customer service. And the savings from this type of technology can be immense.

One example of this is Fedex’s Tracking Number, where instead of calling in to ask the status, you can plug it into their website and it will automatically show you the status of your package.

This is actually a huge cost savings because fielding customer service calls is extremely expensive. In many companies, each CS call the company takes is estimated to cost between $5 to $30 dollars per call. 

So eliminating all of these customer service calls by offering self-service is a huge opportunity to offer more transparency and better customer service.

Takeaway

Consider if there are ways to offer your clients self-service tracking or their own client portal to lessen your operational costs.

3. Is It Time to Invest in a WMS?

Lastly, I’m consistently amazed at how large some warehouse businesses can get doing everything manually before they decide to invest in software like warehouse management systems (WMS).

This could be an area for considerable operational management improvements.

Particularly when deciding to invest in software, it’s worth considering not just the cost, but the expected improvements in KPI’s like:

• Picking accuracy

• Stockouts and overstocks

• Fulfillment speed

And more. And the costs that arise from manual errors are likely larger than you think.

For example if an item isn’t picked accurately, the time wasted during packaging, restocking the item, fielding the customer service complaint, and handling returns can all add up quickly!

However, if you can estimate that a WMS or some automated system can improve your accuracy by X% or speed up fulfillment, this can make the software investment worthwhile.

Takeaway

If you’re looking to achieve CESE through operational management, consider implementing WMS systems when your business approaches the $10-20 million revenue range.

Final Thoughts

Service excellence and cost effectiveness are not opposites of each other.

If you:

1. Niche down to between 10-200 competitors and 2k to 10k customers

2. Invest in self-service technologies

3. Weigh the costs of software against the KPI’s it will improve

You too, can become a CESE logistics provider.

📣 And if you have any supply chain software needs…

1. I’m offering a 10% referral bonus (up to $1,000) if you refer any 3PL and logistics companies that need any software help to All-In Consulting.
   
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