Logistics of Growth

Building a business requires a variety of strengths and specialized skills, tailored specifically to your industry. One area that is ubiquitous though is logistics. For our purpose, we will define logistics narrowly as being the part of your supply chain where you bring inputs into your firm and then the outputs that leave your business to meet the end customers needs.Often, we think of this sort of distribution only applying to sellers of physical good but it is important for service based firms to think about this as well given the dramatic impact logistics can have on customer experience while growing your business.

First, it makes sense to think about how you will bring in raw inputs into your company as you continue to grow sales. Looking at it through the lens of a physical goods producer, there will be a need to expand warehousing capacity but the question now becomes “by how much do we expand capacity?” since this can dramatically affect costs.

This is where it pays to understand what sort of inventory turnover you would expect and how you can optimize your storage space so that it holds the exact right amount of inventory. Most firms target as high an inventory turnover rate as possible but for planning purposes I think planning on three inventory turns per year allows ample space for inventory storage as well as a way for you to expand you to have enough raw materials and inventory on hand.

I have often found that people purchase the largest space they can afford for warehousing and then just fill it to the brim with inventory and raw materials but we know that is not the most cost effective way to grow a business, especially a cash strapped startup. This is where I think it makes the most sense for businesses to plan inventory and warehousing capacity based on expected sales, not based on available budget. Additionally, having a safety stock of the raw materials in your warehouse can be a great “insurance” against stockouts, allowing for a more lean raw material storage process which will free up space and cash for finished goods inventory. With a bulked up finished goods inventory you can then drive down customer wait times and better accommodate spikes in demand, critically important for early stage firms that are still developing their reputation in the market.

Those of you who run service based firms may be thinking that this logistics focus doesn’t apply to you but that would be missing an opportunity to stand out from the competition. By treating your service business like a physical goods business and carefully managing the flow of inputs you will be well positioned to deliver exceptional customer experiences.

To demonstrate this we can look at the operation of a lawn care service. By having a safety stock (ie extra workers) on hand they will be able to fluctuate their service levels upon demand. While this extra staff may increase costs, the ability to quickly respond to a lawn emergency (like when a swarm of grubs awaken to start destroying your grass root system) and resulting positive customer experience can be well worth the costs.

Once you have gone through your value add process and are ready to deliver the female product to the customer there are several choices to make that will have lasting impacts on your customers experience and impression of your firm. The first to consider is what will the final product be delivered as. While this may seem straightforward I think this is an incredibly important part of the process since what you deliver will be more than just what the customer is paying for. This is where you decide if you will include a coupon incentivising future purchases or maybe add in a thank you note to personalize the experience for your customers. Think of the delivery as an opportunity to wow your customers and you will increase the likelihood that they will purchase from you again.

Once you decide what is being delivered, you now need to consider how it will be delivered. This is much more than just deciding if it will be next day or ground delivery. This involves deciding the “unboxing” experience for your customer. How will they feel while opening your package? Small details make a big impact here. For example, using a protective layer of artfully designed tissue paper as opposed to plastic film can be a way to signal value to the end customers. This also comes across when delivering a service, having workers show up in nice uniforms and having small extra touches for the end customer can go a long way (such as how hotels have started placing fresh baked cookies out for their customers to enjoy during check in).

Fully understanding your customer journey involves having a strong understanding of how logistics play a key part in their experience. By knowing how you can leverage this part of your supply chain to deliver outstanding customer value, you are able to wow customers and generate advocates for your firm.

Consumers are looking for more than just a product or service, they are looking for an experience. Leveraging your logistics to deliver small surprises for your customer is a great way to build brand loyalty and reputation among your target customer base. Remember, every aspect of your business must work in harmony to deliver outstanding experiences, even something as mundane as logistics is an incredibly powerful tool.