How much will it cost you to serve your newest customer? Is every customer you currently serve profitable?
These are tough questions to answer but they are critical. It would be normal to think that food distributors should be celebrating every new customer they bring on board but, in actual fact, not every customer is always right for every business. With customers continuing to demand tighter time widows, more frequent deliveries and later order cut-off deadlines, this is only going to increase. Keeping track of the cost to serve individual routes or customers as you respond to these new demands is therefore crucial.
Here’s an interesting use case about how one food manufacturing and distribution company used Paragon’s route optimization software to keep a careful eye on cost-to-serve, while reducing overall costs and improving efficiency and customer service.
The company in question is a family-run business that provides frozen and non-frozen snack products to convenience stores, gas stations, country markets, sports arenas, and schools nationwide. Its delivery fleet of nearly 90 vehicles serves 3,500 customer destinations in 19 states from 24 distribution depots, mostly on a fixed, weekly schedule. Most of its trucks are 60 percent refrigerated and 40 percent dry by volume, and on average each delivery driver makes 15-20 stops per trip.
While the company’s delivery schedules were largely predictable, it had little visibility of the actual cost to serve individual customer locations or wider regions, resulting in below-par driver and truck utilization. In addition, the company was expanding, organically and via acquisition, into new regions so the problem caused by lack of visibility of the actual cost to service specific routes and customers was just going to get bigger and bigger. Its supply chain leader sought to address this information gap by expanding use of the company’s current routing and scheduling software from Paragon.
The company invested in a Paragon route optimization solution that included both Multi Depot and Route Execution software modules.
One of the immediate benefits was a reduction in variations from the planned route from 20 percent to less than 5 percent. But that was just the beginning. Over a 12-month period, the company was able to trim a million miles from its routes.
Next, the Paragon team helped the snack food company enhance the accuracy of its data, and to make use of Paragon BI tools to accurately calculate and predict the cost to serve existing and new customers.
Today, the company can pick a route and compare revenue with the cost of delivery, in order to find the true profitability. As a result, the company has been able to either consolidate districts or counter higher-cost routes with increased volumes. The supply chain team can also make better strategic decisions on consolidation or growth in a region, since they have highly detailed and accurate information about what it actually takes, or would take, to serve a district.
Further, the ability to capture total transportation costs, along with storage and handling costs, allows this food manufacturer and distributor to get a clear view of its total supply chain costs, along with the ability to recognize opportunities to improve.
When we talked this through with the snack food company’s VP of supply chain, he commented that many businesses may fail to realize the broader benefits offered by routing software. “It controls your costs and improves your supply chain,” he said. “Paragons’ route optimization solution is a very easy system to implement and a very easy system to understand.”
As the company expands its geographic reach further, it intends to use Paragon to help determine the best location for new distribution warehouses. Furthermore, it now has the ability to offer excellent service to its growing base of customers at a cost that makes sense to the business.
The benefit of visibility of what it costs to serve a new or existing customer is a powerful advantage that could mean the difference between a profit and a loss. Your routing software is the key to gaining this advantage.
If you’d like to know more about how to leverage Paragon’s route optimization software to gain critical business intelligence, contact us.
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