Distributor - reduces costs & increases customer service levels

Background

One of Australia’s largest privately owned distributors of medical devices, consumables and service providers with a turnover of $34m per year and staff of 230.

Problem

We calculated that 69% of all supply chain activity was fulfilling orders of less than $500. After applying activity based costing principles we discovered that this was costing the business $4.3m in cash per year. Fulfilment errors resulting in credits were costing $726k in cash per year. From a stock list of 3,000 line items, the average number of lines per order was 1.75. The average value per invoice was $711. The average delivery income per order was only $3.96.

Solution

We formed a partnership with a shipping company to assist the business in implementing an efficient and cost effective delivery schedule, based on state and regions. We segmented like customers into various categories. Instead of shipping every order on a daily basis we simply asked customers when they expected the order. For urgent orders we shipping daily, but for non-urgent orders we consolidated orders on the following basis: category A customers, 3 days, category B: 5 days and category C: 7 days. We increased the minimum order from $0 to $500. We automatically applied a $10 delivery fee on each order. We also implemented a process to ensure that customers confirmed the details of each order before items were, picked, packed and shipped.

Result

We set a bold target to improvement 100% across all measures within 12 months: we exceeded all expectations. The average value per invoice increased 113% from $711 to $1517. Delivery income increased 152% from $3.96 to $10 per order. Lines per order increased 177% from 1.75 to 4.82. Fulfilment errors reduced from 2% to less than 0.02%. Warehouse headcount reduced by 20% and customer service reduced by 25% through natural attrition. The most pleasing result was that customer service levels also significantly improved.

Customers were receiving fewer on-time deliveries with less and error-free paperwork.