Customer service through optimized distribution

Organizations require a new approach for making decisions in their distribution network, since they represent between 30 and 40% of net sales and are directly related to the level of customer satisfaction. Finding new mechanisms to optimize them will be key to ensuring competitiveness.

In the past, organizations approached distribution network decisions with low levels of collaboration and limited analytical capabilities. As a result of this, organizations today have an oversizing of their distribution network and low visibility of the possible impacts on customer satisfaction when looking for efficiencies. In this context, the question arises: how to optimize the distribution network by improving customer service levels?

The key definitions in the distribution network are highly connected with the commercial strategy of the business. Recently, the integration of advanced analytics and the digital revolution have allowed the evolution of components in the commercial strategy, which require a high level of integration between the commercial and supply chain teams, to capture its value and build true competitive advantages.

Currently, organizations have traditional collaboration mechanisms such as S&OP (sales and operations planning), which is illustrated in the following diagram: (See attached PDF)

S&OP has demonstrated the ability to generate results in organizations under typical conditions. However, in a context where new business practices are causing disruption, this model must evolve to contribute to the solution of some fundamental questions posed by the new competitive reality: (See attached PDF)

To answer these questions and enable organizations to make a relevant leap in their current performance, it is necessary to understand the new commercial capabilities and their equivalent in the supply chain, which are marking a new competitive landscape in the market.

Capabilities for better customer service and efficiencies in the distribution network

The new commercial capabilities to improve the level of customer service are made up of:

1) Micro-segmentation. Ability to create a commercial proposal more personalized to the needs of customers and not only based on its current and potential value.

New analytical models allow evaluating the relevance of thousands of variables that influence customer satisfaction, as well as revolutionizing the way companies approach the market.

2) Product portfolio. Ability to define the ideal product portfolio for each client and to maximize business profitability.

Today it is possible to define the appropriate product portfolio through the consideration of multiple factors such as: consumption occasions; point of sale potential; competitive intensity; and socioeconomic profile.

3) Channel Strategy. Integration of digital sales channels as a key pillar in market development.

Leading organizations are creating mechanisms to interact directly with their consumers. This ability is not only essential for the potential insights for marketing processes, but also to compete in an ecosystem that requires greater proximity between suppliers and customers.

4) Reimagine the sales force. Clients and consumers are more complex and in order to capitalize on better results, it is necessary to understand a new market context:

• The information to be handled and acted upon by the vendor is more complex in order to captivate their customers. Its complexity must be reduced for the seller by enabling digital channels.

• A portion of the future demand will be generated through digital media, mechanisms must be designed so that the vendor coexists in this new environment.

5) Predict centers of gravity of future demand. Ability to evaluate large amounts of information to identify the most relevant points of current and future demand.

On the other hand, the new capabilities in the supply chain to maximize the impact on the business and customers are made up of:

a) Integrated planning and execution. Development of processes that allow the construction of new capacities to respond to the new realities of the market.

b) Enabling control tower. Management of transportation planning and execution operations, which allows cost reduction through a centralized command that provides end-to-end visibility of the business, robust analytics, real-time monitoring and control.

c) Distribution network optimization. Optimal network configuration minimizing the costs generated by product transfers and storage.

 

d) Inventory planning and optimization. Advanced planning tools that ensure product availability and reduce waste at each multilevel distribution node.

e) Supply and purchases. Strategic supply methodologies and purchasing model that allow the COGS (Cost of Goods Sold) of the product.

F) Synergies with ecosystem. Integrate third parties as distribution points or to carry out distribution in the last mile.

g) Routing optimization. Dynamic redesign of delivery routes to maximize the use and capacity of the units, as well as explore the backhaul and define new strategic routes.

h) Static routing (monthly / quarterly). Route design with granular geographic information; capacity planning of delivery units and operators (equipment conditions, driving hours, current location of the equipment and mode of transport).

i) Dynamic routing (Daily); constant updating in the execution of delivery routes based on the real demand confirmed in the system; asset availability adjustment.

j) Real time routing. Responds to emergency delivery or order cancellation algorithmically, recommending the best course of action, taking into account customer rules and restrictions.

k) Make product delivery more flexible. Organizations have set up their distribution network in the same places where they have their sales force. However, there are mechanisms where organizations have expanded their footprint through innovative approaches: Amazon lockers; door to door models in consumer companies; and use of convenience stores and changarros.

These approaches allow to enable business models that allow organizations to compete in the physical and digital world.

l) Strategic network design (1–5 years). Ability to model the current distribution network vs. the future needs of the business through analytical models that allow the creation of zero-based scenarios and that enable decision-making in the distribution network in the short, medium and long term.

m) Network structure. It answers the question: where and how many distribution centers are needed?

n) Network flow. Establishes in which distribution center the customer will be served.

The evolution in capacities between the distribution network and customer service has been accompanied by the development of advanced tools, whose main characteristics are the integration of data, systems and processes supported by best practices.

Currently, there are different cloud-based models that allow you to incorporate these high-performance capabilities with greater agility and lower total cost of ownership (TCO). There is a wide range of providers of technological solutions that partially or totally support the new demands in the market.

The following list was taken from the Gartner study "Market Guide for Vehicle Routing and Scheduling" and based on the size of the fleet that companies have, as well as where said technological tool has been implemented, with the sole purpose of having a classification:

• Large providersyes They offer services to very large fleets with a presence in several regions.

• Medium/regional providers. Focused on small and medium fleets, as well as a specific region.

• Small (local) providers. They focus on small fleets and specific areas.

The evaluation of these technologies must consider the level of flexibility to adapt and respond to daily reality, as well as the best alignment between the present and the future needs of the organization.

The path to build competitive advantages through differentiated customer experiences and at the same time achieve efficiencies requires an effort where organizations need to reimagine their operating model by incorporating new capabilities that can be transferred to reality, through the evolution of current collaboration mechanisms.

The companies that decide to take this path will be those that will prevail in a competitive environment, where anyone can challenge conventional business models.

 

* Supply Chain Manager of Accenture Mexico./ m.becerra.hernandez@accenture.com 

** Senior Manager-Digital Customer of Accenture Mexico./ valentin.trujillo@accenture.com

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