Our experience, and the experience of most logistics companies that are helping folks within supply chain is, speed to market isn't so much a cost reduction process as some may view it.
The true focus of speed to market is growth and the ability to get into new markets. Consider the example:
Company X is mid-sized manufacturer located in California. They have a good western-state distribution model, however, they are struggling to break into the Midwest and East coast and get their product to market quickly.
Company Y has a similar product to Company X, and is located in Georgia. Company Y can serve the Midwest and East coast faster than Company X and has a speed to market competitive advantage.
To remove the competitive advantage, the Company X can look at leveraging other distribution channels, setting up another distribution point close to the east coast, work to better consolidate shipments, or explore expedited transportation programs that reduce the transit time to the specific end clients.
WHY IS SPEED TO MARKET SO IMPORTANT AND WHAT'S THE DOLLAR VALUE?
Your customers want it. Competitors are delivering it. And, most importantly, the end-consumer demands it. So it doesn't matter what segment of business you're in, speed to market is important. The dollar value of speed to market is going to change with each unique company and business situation. It boils down to is a battle to gain market share. This is where you are going to see the dollar value as an increase in sales by delivering your product, faster and cheaper than your competitors.
Amazon Prime is an exact example of a company using speed to market to gain market share. In major metropolitan centers, they've already built distribution centers that can get you product within two hours of ordering online. There are of course varying results, but it is a massive improvement over their competitor's supply chains. To have this competitive advantage puts Amazon at a different playing level. When a company is able to deliver specific value such as Amazon Prime as done, your competitors are forced to catch up and compete or fall out.
SPEED-TO-MARKET TIPS AND KPIs
So you know you want to increase your speed to market and there are numerous Key Performance Indicators (KPIs) to help you track your progress. Some KPIs to consider:
- On time final delivery
- Cost Per pound
- Freight cost per unit shipped
- Claims as a percentage of freight cost
- Freight Bill Accuracy
- Truck turnaround time
- Number of carriers per shipment
- Outbound freight cost as a % of sales
- Accessorial charges as a percentage of freight
- On-time pickups
Before settling in on the top KPIs, You must always focus on, “What is the goal?” What are we looking to achieve? Do we Do we want to promise 24-hour delivery? Are we wanting to do two days? Are we going to do a cost-to-serve model where 80% of customers are getting delivery in two days and the other 20% are getting it in standard transit for LTL?
Lesson #1: Always start with a strategy before you try to drill down to specific KPIs.
You could measure the on-time performance. You can measure freight cost per unit shipped. But what you really want to measure with speed to market strategy is: "Did we increase sales in this market? Did we get more flow-through?" You're not doing it to measure on-time transit for example—that's a function of it. Aside from that end measurement of growth—you could make a dozen functional KPIs that are better tracking the progression.
UNDERSTANDING KPIS IN CONTEXT
KPIs are great measurements to quickly gauge your performance in the speed-to-market realm, but they shouldn't be taken as absolutes in every situation. Understanding the context of KPIs, their individual important, and their variance is key.
For example, if your KPI is "I want to deliver everything to my customer within 48 hours" and you want to improve the percentage of deliveries that meet this requirement from 95% to 97.5%, it may be easy to immediately act on that desire and start putting changes in motion to meet this customer demand.
Lesson #2: There is a possibility that your company may hit the law of diminishing returns for given KPIs. Spending vast resources to marginally improve a metric will impact your overall efficiency. Bottom line, understand what you're measuring and make sure you have the right KPIs in place to drive what your customer is asking.
SPEED TO MARKET BOTTLENECKS
One common mistake that we've seen with companies is the temptation to measure everything which leads them into the classic case of paralysis by analysis. Whether it's inventory, transportation, purchasing, demand planning, supply chain efficiency, it's pivotal to boil it down to the 8 or 10 metrics that are most important to your business.
It's important for people at a high-level to understand their value chain and having a way to visualize where those bottlenecks are at. Value stream mapping is a great method for this visualization. It will help identify waste in your current process and implement efficiencies to build an ideal future state. Look at value stream mapping as a river flowing downstream, you can see where the water has to speed up to go around certain rocks (bottlenecks). The next step is focusing on how moving those rocks builds speed and efficiency to ensure smooth delivery to the customer.
Lesson #3: In many cases those bottlenecks are internal issues and outdated processes. "We've done X this way for this long," or "We've allowed this vendor of ours to ship to us this way, but it's actually inhibiting our on-time delivery." Be conscious of these pitfalls and make internal adjustments to meet the need of the customer.
HOW TO IDENTIFY YOUR TOP KPIS TO FOCUS ON
Once again this will all come down to defining your strategy and goals. Ask yourself, "What do we hope to accomplish by making adjustment in speed to the market?" So let's say your company goals is, "To get from production in China to all of our 142 stores across America within 36 days." To get to your KPIs, you will want to break this down further. Consider the following:
- "Where is the product being finished and how are you delivering it to ocean/air freight?"
- "What's the process we are following for clearing customs and delivering to the domestic distribution points?" How long will this take? How can we optimize?
You will whittle down to a strategy and look at on-time percentages, freight costs per unit, etc. It is imperative to do a cost/benefit analysis and find the right partners that have the right people to meet your service needs and KPIs. This is about an investment for speed to market, for growth, and so you may need to understand that it costs 5% more across-the-board to make this delivery, but your return may be 10X beyond that to deliver the competitive advantage your business is seeking. Speed to market is an investment versus a cost-cutting initiative.
THE IMPORTANCE OF STARTING WITH A WELL-CRAFTED STRATEGY
Strategy and starting with goals is crucial, and that strategy needs to have a defined process. It is not, "Here's a goal, and let's achieve it." Your strategy needs to follow a clear defined path through the entire process to ensure you reach your specific goal. It is imperative that you share your strategy with all involved operators so there is a clear understanding of how important their piece of the business is, and how far you're willing to go if there are adjustments that need to be made.
The final and often overlooked aspect of developing strategy is taking a step back and consulting with your end customers. What are their expectations of you? What do they want to see changed, improved, or maintained? Ultimately you exist to serve them so don't forget to pick their brain and gain a true understanding of your customers before finalizing your strategy.