We’ve all heard extreme examples of how different companies failed to serve their customers, like that time a T-Mobile Customer Service Representative changed a customer’s name on their account to “Idiot” or when an Air Transat flight sat on the tarmac for hours without providing customers any food, air conditioning, or water. But what happens when a company’s inability to serve its customers is subtler, simultaneously more pervasive, and seemingly out of its control? That’s an issue many Consumer Packaged Goods (CPGs) and consumer-focused brands face today. And, often these issues can be tied to transportation shortcomings - specifically the ability to close the gap between transportation planning and execution.
Today’s CPG brands contend with tons of challenges, like inventory availability, sustainability concerns, and rising costs, but customer expectations are a big ticket item too, and one that cannot be ignored. In fact, the way those challenges play out has a direct impact on overall business and customer relationships. So, in terms of transportation, what is the actual cost of not serving your customers? Read on for SemiCab's take on the question.
Losing stock of a particular item is only good when selling out was the intended plan. In almost any other scenario it means dissatisfied customers who will go looking for that item from another retailer. According to a survey conducted by Shopify, when faced with a stockout, 70% of customers will shop elsewhere, and 9% won’t buy anything at all.
Data from 2021 shows that US retailers lost 7.4% of sales in 2021 due to stockouts, that’s $82 billion in lost revenue. Aside from the financial loss, there’s also a chance that the customer will choose to never return again. In an effort to appease customers, CPGs may opt to purchase additional inventory or reposition existing goods on short notice, which usually incurs rush fees, yet another hit on revenue. Clearly, having the right inventory in the right place at the right time is critical in keeping customers happy while balancing your bottom line.
Sometimes stockouts are unavoidable (like if there is a shortage of raw materials needed to continue production), but prolonged production times are just as detrimental. Companies facing a continued shock to production could wipe out as much as 30-50% of one year’s Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITA). All in all, these numbers add up to an alarming amount, and could often be avoided with better transportation planning.
Empty and non-productive miles
Driving empty refers to when a truck makes a trip carrying no cargo, which often happens when a truck is returning from a delivery. Many private and dedicated fleets have no choice and end up driving empty backhaul miles, which results in lost revenue and excess carbon emissions. Plus, it can be unsafe for drivers. As of this writing, 25-30% of miles driven annually are empty miles resulting in $100B in lost value, not to mention the added carbon emissions.
When a truck sits idle, it’s just as bad as driving empty; one hour of idle time is equal to 30 miles of driving. Many fleet trucks spend large portions of their day idling while waiting and loading and unloading. According to the US Department of Energy, passenger and commercial vehicles waste about 6 million gallons of fuel and $21 billion per year, without moving a mile. This waste is happening throughout the day, from domicile to first pick-up, every time a carrier needs a new load, and when the driver makes their way home.
It’s not the case right now, but there will be times again down the road when capacity will be hard to find and fuel prices will erratically fluctuate. When you combine this with trucks idling and being driven empty, this is bad for the environment and business. These added costs impact the retailer, which may then impact the consumer, and possibly negatively impact the CPG brand again if they lose customers - a vicious cycle that could be avoided with improved transportation execution.
As if stockouts and empty miles weren’t enough, major retailers like Walmart also have stringent On Time In Full (OTIF) requirements to abide by, typically of 98%. And when those requirements aren’t met, CPG brands are then hit with fines as high as 3% of the total shipment. And who does this impact? Why, both the shipper and the customer, of course, so once again, nobody is happy.
So, what’s the cost of not serving your customers?
TOO MUCH! That’s how much! The current way transportation is managed isn’t working, it’s siloed, fragmented, and transactional in nature. There is too much back and forth with a carrier or broker, it’s reliant on highly manual processes and prone to significant risk and disruption. If a carrier rejects a tender and moves to a more profitable lane, CPG brands have to react and scramble to find an alternative, which means service and margins are now at risk. And while shippers have the option to address their needs on the spot market, that usually means spending an extra 20%-30% on an often unvetted asset, not a viable option for the long or mid-haul.
Which of these problems are you facing? Are you ready for a change? Reach out to see how the SemiCab solution is closing the gap between transportation planning and the actual execution of mid to long-haul truckload transportation. SemiCab creates and operates efficient multi-enterprise networks for today’s leading CPG and consumer-focused brands.