Delivery

Delivery is one of the legs of the QDC (quality, cost, delivery) acronym. It is a very simple concept—to get paid, you have to get your product to your customer.

For such a simple concept, delivery plays a large role in a company’s performance. Doing well at delivering quickly can give a company a competitive advantage. Doing poorly can cost a company its customers.

Delivery is both a goal and a byproduct of continuous improvement efforts. Lean, and the transition from batch to flow, can greatly reduce the lead time for a product. Reduction of cycle time further speeds up throughput. This enables a company to promise delivery sooner than they had been doing, and hopefully sooner than their competition.

Companies compete with each other regarding delivery in a variety of ways. One is to emphasize the ability to deliver products or services quickly. Another is to focus on the reliability of delivery. Consider the following two situations. Which is “better”?

1. A company that promises delivery in 3 days but is only on time 60% of the time. About 10% of the time they take over 10 days.
2. A company that promises delivery in 6 days but hits their target 99% of the time.

Each would likely have an advantage in certain situations. Company A is likely to deliver sooner than company B, sometimes much sooner. But it promises incorrect information to a customer about when it can deliver. In the modern business world, expectations are getting much, much higher. Companies are carrying much less inventory. Reliable shipments are critical to those efforts. In the case above, a Lean company might be best served placing frequent small orders with company B, knowing that the product will be there when needed. It would be hard, though, to manage spikes in demand due to the long lead time. You would have to know 6 days in advance if you were going to land a big order.

The takeaway is that the delivery performance of a supplier has to match the expectations of a customer. Keep in mind that customers are often willing to pay extra for additional delivery performance. This is true in both the business world, where “red” deliveries are used to compensate for running out of inventory, and in the private sector where people compensate for poor planning with last minute gifts.

Online Retailers and Delivery

Over the years, online retailers have changed their approach in competing with bricks and mortar stores. Initially, they used favorable pricing and sales tax breaks as competitive weapons. As those advantages eroded, they began competing with faster delivery options. Amazon.com is the most aggressive at this and has even developed their own robust fleet of delivery vehicles to get items from the browser to the porch in incredibly short times.

To remain relevant, most online retailers now offer some form of expedited service for consumers. But as regular shipping gets faster, it diminishes the value of expedited shipping. The premiums for fast shipping are much lower than they were even a few years back.

Bottom line: ship quickly or lose out.

Of note, if you are a manufacture who sells your own products, you will be held to the high standards major retailers have established. You will also be pushed to be extremely responsive to those same retailers who sell your products and are under intense pressure to deliver quickly.

Measuring Delivery Performance

Most businesses rate their vendors’ delivery performance. The variety of metrics used is broad, and will depend upon what is important to the purchaser. These metrics track things like:

• Average delivery time
• Average delay
• % of line items on time (or percent of late items)
• % of orders shipped complete on time
• Order accuracy

Note that is some overlap between delivery and quality. The accuracy of an order, for example, can arguably fall into both categories.

It is important for the vendor and purchaser to agree on what is important. A company may think it is providing 96% on time delivery by line item, while its customer thinks the 87% on time metric at the order level is more relevant. If the two do not understand how each is measuring performance, there can be strain on the working relationship.

Vendors should also be careful about gaming the metric system. For example, if a product is in short supply and backordered, every new product might go to fill a late order and leave an on-time order unfilled, ticking towards another late ding. If the metrics are done wrong, there might be an incentive to fill the current order first, while letting the late order get even later.

Using Delivery for Competitive Advantage

Business customers often request customized delivery options—reduced package size, specialized packaging, or periodic deliveries. This sort of customer focus can make delivery a competitive advantage for a company.

Lean companies are at a distinct advantage in industries where specialized delivery is important. Without having large amounts of finished goods or long lead times to deal with, customization is much easier to support.