Supply chain professionals spend a lot of time meticulously outlining engineering services, tooling, and component costs during new product development, as these line items are large investments. But at the same time, we often apply broad brush strokes to inbound and outboard logistics costs. For established products, this approach can work fine, but as many industries undergo rapid changes and their supply chains within morph – e.g., retail and automotive – more granular attention is needed to calibrate logistics costs up front in product development. Further, prototype build shipments and transportation network changes, due to innovation, can create cost areas that’ll undermine long-term profitability if left unchecked.
I recently sat down with Sarah Barnes, logistics expert and host of the “Let’s Talk Supply Chain” podcast, to get her thoughts on the right level of logistics focus and reasons why a deeper level of emphasis is needed earlier on.
5 Reasons to Include Your Logistics Strategy During Product Development
1. Customers’ Demand for Buying Ease
Consumers want to buy a connected device with one-click, Amazon-like ease on their mobile devices, stop into brick and mortar stores to exchange a product for a different color, and return a wrong-sized piece of clothing with prepaid return labels. This intricate web of omnichannel needs across the digital and physical spaces require us to build these critical logistics support considerations into our products from inception. The approach of designing a product without attention to how it should be packaged and shipped is highly inefficient and has significant cost implications that result from patchwork solutions.
“With all of the new innovation coming out, we need to start thinking about diversifying our supply chain teams to vet and seek out new opportunities to increase efficiency and reduce cost,” says Barnes. These new logistics requirements fuel additional complexities like which packaging types are ideal, how much inventory to hold and where, and how shipment statuses are communicated in real time.
“We need to think in new ways, looking to add team members with different backgrounds such as: marketing, e-commerce, technical, sales, etc. as supply chains touch every aspect of a business,” adds Barnes. Details like what skill sets to hire for and what expertise to source from suppliers are causing pause for supply chain executives, but the answers for most will be a mixed strategy to balance both flexibility and costs.
2. Trade Agreements
Procurement teams have been working overtime to identify alternative suppliers within shifting free trading blocks, and the game of strategic sourcing is expected to continue; logistics foresight is needed earlier for new products to uncover the latest import and export requirement tactics. And sourcing decisions in new regions shouldn’t be made in a piece price vacuum, as landed costs need to be methodically reviewed because wrong assumptions can prove fatal.
“Benefits range from using trade agreements to help you determine where to manufacture – including a review of the infrastructure that will determine how easy it is to ship from a location,” says Barnes.
The changing paperwork to support import charges, including duty rates, can prove challenging to vertically ingrate, so partnering with a logistics managed services provider can eliminate this headache. Other major concerns faced by companies are flexibility and speed. The ability to shift resources to the channels and products that gain the most traction will determine the market share winners for future new product launches.
Canada-based Forum for International Trade Training (FITT) is a great resource covering everything you need to know about international trade.
3. Actions Not Insights from Big Data will Determine Winners
Much has been made in recent years about big data and the insights it’ll reveal. As we’ve learned, software dashboards overlaid on top of data can prove overwhelming when we don’t have enough team members in place to take decisive action. “Deeply understand how you can use your data to better collaborate with your extended supply chain team, including vendors – this will increase visibility and help eliminate the blame game,” says Barnes.
Cloud technology paired with business process outsourcing is enabling manufacturers to choose to outsource select channels or tasks to trusted logistics managed services providers that have invested heavily in these dynamic technical capabilities. Data can then be acted on real time to harness the full potential of newer technologies. Artificial intelligence (AI) is starting to automate some of the lower-level tactical analysis, reducing both decision and transaction costs, for example.
These massive technology investments are providing fuel for supply chain leaders to more carefully review their strategic partners, choosing to align with Technology as a Service providers that are more of an integrated 4PL and software supplier to offer seamless “Logistics as a Service.”
4. Access Latest Dynamic Trends
“Market research is key, understanding what cost the market can bear up front, so you aren’t pushing the industry in a direction they aren’t ready to go in,” outlines Barnes.
Access to the latest shipping lane costs and strategies during product development is another strong argument for nurturing closer ties to logistics supply partners. Large manufacturers are better positioned to maintain awareness on market trends due to their transaction scale; whereas small to mid-market manufacturers are better off partnering with suppliers to level the playing field with larger competitors. Appreciating the scale required to achieve your product goals and how market dynamics impact your logistics costs is critical.
This doesn’t mean you should outsource all your logistics operations, quite the contrary. It’s important for you and your team to maintain an understanding of your strategy and core processes; however, the specific day-to-day execution of moving products from point A to B is usually better left to those that have the scale to accomplish your goals.
5. Tap New Technologies to Lower Your Costs
After years of global growth, markets will inevitably cool, but the pace of technological change will continue accelerating, resulting in an added layer of volatility, and market inflection points have historically benefited firms whose supply chains are the most prepared for change. These firms have built flexible supply chains, incorporating the ability to quickly adjust operations, which lowers their cost structures in days rather than months.
As supply chain leaders we need to get out in front of this eventual shift. There are several ways we can do this:
- Partner with Startups
- Tap into innovation that can aid your agility and reduce your cost structure. Specialists in data analytics, artificial intelligence, and blockchain offer potential market disruption opportunities for your company.
- Don’t sit on the sidelines while your competitors learn how to use innovative software technologies in these budding new fields. Instead, seek and deploy tools to address your real-world challenges today. Many newer firms will conduct free trials of their software, so there’s really no reason to skip these trends.
- Divide Up Transportation Spend
- A large established 4PL could be the answer for volume discounts but will likely struggle to keep pace with innovation. Niche, lower-volume product lines and reverse logistics spend areas should provide you with a low-risk sandbox to demo new suppliers and technologies. Once successfully beta tested, you can expand your use of lower cost technologies to larger parts of your business.
- Outsource Non-Core Processes and Tasks
- Don’t invest in “table stakes” operations within your industry. Commodity-support functions where your firm is at or below industry averages should be outsourced to strategic supply partners that can support you, and your customers, better.
Initiatives on your horizon will require more and more resources, so avoiding ongoing investments in areas that don’t provide a unique customer differentiator is a must to free our minds to focus on higher priority activities.
“There is a lot to consider starting with costs – comparing air vs. ocean freight, clearance charges in the import country, lead time impacts from shifting tariffs, how to maximize packaging to minimize shipping, and last mile delivery which affects your customer experience,” says Barnes.
Multiple channel requirements are here to stay, which means we’ll need a deep bench of partners that can cover a wide range of sector needs vital for cost effective supply inputs for manufacturing and shipping our products to customers.
Ensure Launch Profitability
New product launches are an opportunity for firms to establish and grow their brands. As supply chain professionals we must safeguard our customer’s experience by setting out to outline logistics costs, timing, and channel plans as part of a detailed omnichannel logistics strategy on day one.
Our well-laid plans will better serve our customers by giving them the right product at the right time. Further, product availability and the overall customer experience – returns, order confirmations, and shipment statuses – can provide a “halo effect” to our company’s long-term brand equity as a tech leader or straggler.
Customers demand multiple and diverse methods of interacting with our companies throughout their shopping experience, so let’s deliver.