In logistics, what we’re really selling is an outcome. An outcome is much different than an output, and it’s how logistics service providers become strategic partners for their customers instead of just tactical providers.
Since a logistics solution typically depends on so many different people, providing a uniform outcome can be challenging. If we’re all using the same information and have the same set of experiences, we might all agree, but that’s hardly ever the case.
For example, picture a conference call trying to get several people to agree on a forecast. With different experiences and different data sets, this can be a huge challenge. But getting that outcome—where everyone is happy, the profit margins are good, and the execution is seamless—can be the difference between a one-off project and a long-term business relationship.
Selling outcomes (not outputs) requires operational excellence at every stage of the deal with a common language of metrics to tie it all together. Without metrics, you’re lost at sea. Or, as I like to say, If you don’t know where you’re going, I guarantee you’re going to get there.
Let’s look at how metrics can drive operational excellence at different areas in logistics.
Using metrics to gauge customers
“The customer is always right.”
This has to be one of the biggest and most prevalent myths in business. Customers can be wrong, and more specifically, they might be wrong for you.
Here’s an exercise I do with CEOs:
I ask them to rank their customers good or bad. They ask me the criteria and I say, “There is none—just list them and mark good or bad next to the company name.” Once the list is compiled, I ask them, “What would happen to your business if you stopped serving all the bad customers and doubled down on the good ones? What would happen if you just loved the ones who loved you?”
Good customers value your work, they respect your profit margins, and most importantly, they refer you to their friends and colleagues. Referrals are absolutely the best way to grow a company—better than a rock star sales team, better than advertising, you name it.
Bad customers marginalize you, they nickel-and-dime you, they create customer service issues, they’re always unhappy, and they’ll drop you the first chance they get.
Nobody wants bad customers, but to avoid or fire them, you have to have a deep understanding of where you make money and where you lose money and you can’t manage in denial. Or, to repeat my initial question:
“What would happen to your business if you loved the ones who loved you?”
In order to actually know who’s a good customer, you need to be tracking things like yield, margin, and profitability. And not just at the customer level, but at a lane-by-lane basis because some profit centers are better than others. If, as an LSP, you can’t measure percentage of yield or profitability by trade lane, how do you know what you’re quoting? With a closer look, you will realize you probably shouldn’t be bidding on all lanes.
Using metrics to accurately measure customer alignment is the key to understanding if you’re building a good book of business or not.
Use metrics to enhance execution
Technology helps us make better decisions and contribute to operational excellence. It can also help your workforce deliver at a higher level.
For example, here’s a test I give dispatchers:
I give them two loads of freight out of New York and two more loads out of Ohio, both destined for Chicago, and I ask them to optimize the routes.
Every time, they consolidate the two loads in New York and run a single truck, and the same for the loads out of Ohio. When I ask about their decision-making process, they always explain that that route was the easiest to coordinate.
When we look at the numbers, we see that the rate out of New York was $0.97, and the rate from Ohio was $1.35. It would have been more profitable to run two trucks out of New York, have each make a pickup out of Ohio, and continue on to Chicago. So, why don’t dispatchers use this route? It’s more difficult to coordinate.
Humans are always going to naturally select the path of least resistance, but as a representative of the corporation, their job is to serve the best interest of the company, and a savings of that magnitude is worth the effort.
What’s being measured here is the amount of effort that it takes to plan a route. Consider what you measure and how you measure it. If they were measuring on profit, the dispatchers may have acted differently. The employee doesn’t always understand or have the visibility to optimize toward the goal of the company—profitability.
If you can provide software that’s pre-configured with the goal of profit, you can roll out tasks and processes that are designed to maximize that, leaving less room for human error and poor decision making. The business outcome will be greater.
Technology allows us to manage complexity simply, instead of managing things simply to avoid complexity.
Without a statistical measurement culture in place that you’re actively monitoring, you can’t expect to be able to manage people through measurement. Instead, you’ll be relying on the entitlement culture of the past.
Since all logistics activities can be measured and reported transparently, there’s no need to allow an employee to ‘guess’ what’s the best way to go about their tasks—you can create systems that force the proper action with accountability.
A lot of technical people I’ve worked with over the years have told me they want a solution that works out of the box—they don’t want to spend the time configuring a system. The issue with the software solution that works perfectly out of the box is: what happens when you’re business changes? Since the software suited your past workflow perfectly, by definition, it cannot be perfect for your new workflow. This is the major benefit of configurable software design—you can adapt it to flex and growth with your business.
Use metrics to proactively evaluate business relationships
The discipline of understanding your results and the contributions to your customers (and focusing your project teams on those outcomes) is what makes the difference in outcomes versus outputs.
There are two things to keep in mind when using metrics to think proactively about your book of business:
- Are you wasting time and energy serving bad customers? As discussed earlier, the ability to look at this objectively using metrics is crucial to your growth.
- Your positioning: Nobody is looking for a company that does everything for everybody—they’re looking for a company that does special things for special people in special ways.
Let’s discuss this second point, positioning, in more detail.
The first step to positioning your company is knowing what to position. Here’s an example using trade lanes.
Imagine you have a trade lane at 80% capacity. If you can get to 90% capacity, you’d increase your profit margin by 45%. Wouldn’t you want to focus your sales force to sell into that trade lane? Isn’t that better than taking the next deal that comes across the bid desk because it’s easy?
To get this level of detail in your positioning, however, you need a culture of statistics and measurement, and the technology to deliver the data you need. You need to know what your customers ship, when they ship it, how they ship it, and what trade lanes they ship it in. Without this info, how can you position your company or manage your sales force?
Lanetix is the only logistics application that can show you what your customer is shipping and in what trade lanes. Contact Lanetix for a demo.
When you’re looking at this level of detail in your projects and customers, it helps you get out in front of the process of identifying a good customer, and whether or not the relationship has a profitable future. When you have that set up, the process for bidding, quoting, and responding to work that fits your needs rolls out much smoother. All this helps you avoid having bad customers at bad prices that produce bad yield.
Expectations are no longer set by the sales process—they are set in the delivery process. This means we need to move from a culture of selling to a culture of serving.
In short, if you want to succeed in logistics: make sure you’re metrics driven and focused on results, make sure your metrics matter, and love the customers that love you. Learn why the country’s leading LSPs are using Lanetix to optimize delivery at every stage of their business cycle.
Arthur Mesher serves as the Chancellor of Clean Sl8 DNA, providing market research, capital formulation, direct investments, strategic planning and operational advisory services. Before that, Art led the creation of the first on-demand logistics network that provides application and communication capabilities as CEO and Chairman at Descartes Systems Group Inc., where he received the 2008 Distinguished Service Award from the Council of Supply Chain Management Professionals (CSCMP). He also launched the Integrated Logistics Strategies Services practice at Gartner Group Inc., a technology research and advisory firm, and built it into one of the premiere advisors to global corporations.