The Role of Transportation in Supply Chains and Business

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customer. I said what's your customer service policy? Usually it's we want to have a hundred percent availability of a hundred percent of the products a hundred percent of the time. Sound familiar? Sounds expensive. Yeah there's a hundred percent chance you'd go out of business if you really did that. So you got to back off from that. Alright so what I'm talking about here is something we put numbers to. It's segmented by A, B, and C customers. It addresses things like time windows and response time and delivery frequency and fill rate and things like that. So let me just ask you this. If the customer service policy is like a contract between your supply chain organization and your customers, what issues have to be addressed in that contract? Response time is one. The definition of on time delivery frequency, time windows. That's when are you going to show up? What else needs to be addressed in a customer service policy? Returns. How are you going to deal with returns? Can you return anything? If you do, where do you send it? Fill rate. Are you going to satisfy a hundred percent of the customer's demand? Ninety percent? Ninety-eight percent? Is it going to be different for A, B, and C items? Anything else you want to add? Value-added services. How much packaging, labeling are you willing to do? Kidding. For the sake of time we'll stop right there. Now once you get the numbers around this, planning logistics gets a whole lot easier because then it just becomes a game of how do I minimize the cost to provide that level of service. Suppose I've not defined the level of service that needs to be provided. How do you plan logistics? It's the same answer as what's the best way to go from Atlanta to Orlando? What's the best way to go from Atlanta to Orlando? Fly? Anybody want to suggest something else? Suppose you really like to ride your bicycle. What's the best way to go to Orlando? Ride your bicycle. I really like to go on the train. A friend of mine, he really likes trains. One day we found him lost like over in Macon, Georgia because he took the wrong train or something. Suppose you have to be there within two hours. What's the best way? Get on an airplane. Suppose you only have $50. What's the best way? Maybe. Bicycle, walking, hitchhiking. So if all I say is what's the best way to go from Atlanta to Orlando and there's no constraints, there's no way to make a decision. Every answer is right, and every answer is wrong. And if you try to design a transportation strategy and you don't have a customer service policy, guess what? Every answer is right, and every answer is wrong and you wonder why is there so much friction around these issues? That's the reason. You don't have a customer service policy. The customer service policy plays a very important role in transportation and logistics planning. They form the constraints in something called optimization. What is optimization? We're going to talk a lot about that.

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