We Love Your Product, but Where Is It?

Abstract

Customers increasingly demand on-time delivery from their suppliers. If they don't get it, they go elsewhere. The best suppliers continuously up the ante: the standard delivery window in supermarkets used to be four hours; now top suppliers deliver within an hour of their promised times, sometimes within 15 minutes. More important, their trucks are at the receiving dock within this tight window over 95 percent of the time. Little wonder that most of these top suppliers are also industry leaders. The trend toward more reliable delivery times reaches across all industries. Unfortunately, most companies address this problem either with quick fixes that don't work or with complete redesigns that take too long to show results. This article describes some medium-term solutions -- ways to make a difference in your company's delivery system within a year. By tackling just a few of the areas discussed here, companies can improve their on-time delivery rates and set the stage for future, more complex changes. EVERY FRIDAY at 7:30 am, top managers of Dell Computers gather for an hour-and-a-half customer advocacy meeting to pore over that week's performance statistics. What makes this unusual is that every performance measure under scrutiny relates to customer satisfaction, and this meeting is the most important one on the corporate schedule. The vice presidents discuss several measures, including on-time delivery (OTD), product returns and their causes, and abandonment rates for calls to Dell's toll-free number. OTD is a true cornerstone of Dell's competitive strategy. The company promises product shipment within five days of order and two-day delivery. In February 1989, management decided to make Dell first in its industry in customer satisfaction. Surveys indicated that reliable delivery was the second highest concern to customers, after product attributes. But the company was already expending a disproportionate effort on getting production to match demand. Dell responded by simplifying products and components, adapting production lines to handle just a few configurations, pushing customization to the end of production, and transmitting order information to the shop floor within 24 hours. The business was transformed into a made-to-order manufacturing operation with three- to four-day cycle times. The results are apparent. Dell's OTD records are among the best. Sales have increased by 70 percent in less than two years. Dell ranks first in customer satisfaction. In stark contrast, a $750 million US consumer electronics division of a multinational conglomerate failed miserably in a similar situation. In 1988 the division committed to five-day delivery. It launched major control and planning systems projects, including materials resource planning (MRPII), distribution resource planning (DRP), master production scheduling (MPS), and order entry management. Management was saddled with a complicated network of seven plants, five supply warehouses, 13 field warehouses, and 50 stocking locations in all. Efforts to contain expenses were unsuccessful. After two years, logistics-related costs increased to about 12 percent of sales.(1) Worse still, the five-day schedule was rarely met. Meanwhile, competitors could guarantee delivery in less than five days, and the division lost business rapidly. Fundamental measure OTD is being used as a key competitive lever in just about all industries. In Europe, Nissan guarantees its dealers 10-day delivery. Caterpillar delivers replacement parts within 72 hours, 99.7 percent of the time. UPS, itself a major customer of bulk freight carriers, keeps close track of its carriers' OTD performance and pays bonuses to carriers that exceed performance targets. Raises customer expectations It can't be sheer accident that industry leaders are also OTD leaders. And they keep upping the ante. What was once premium service in some industrial sectors has instead become the standard. …

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