Balancing Customer Service with Logistics Costs

Like death and taxes, rising logistics costs seem to be a certainty for the next several years. Many causes have converged to prop up prices at or near historical highs.

And they’re coming at an inconvenient time. Of course, no time is opportune. But rising prices during peak season are especially painful for shippers.

Along with that, consumer expectations are rising, never mind increased challenges and costs. This creates a dilemma for shippers. How do you improve customer service and keep logistics costs low?

That’s the subject of this blog post. It’s a difficult situation for shippers and one you cannot overlook. To maintain your competitive edge, you cannot afford to neglect this issue.

In looking at how you can tackle this with success, we’ll look at several factors. First, we’ll examine the background of logistics costs compared to sales. Then we’ll explore the reasons costs are rising. Following that, we’ll delve into what’s behind the rise of customer service. Finally, we’ll conclude with how to balance these competing concerns.

Logistics Costs Drive Product Planning

In pre-pandemic times, logistics costs factored heavily in planning. When companies launched cost-cutting initiatives, logistics costs were popular targets.

Why is that?

Well, historically, logistics costs make up anywhere from 10% to 20% of a product’s costs. So, if you can cut a few percentage points off your logistics costs, you could easily boost your bottom line.

Industry stakeholders developed lean logistics principles to eliminate waste.

  • Industry stakeholders also adopted Just-in-Time (JIT) principles to reduce inventory costs.
  • To improve efficiency, industry leaders leveraged analytics and business process re-engineering to improve process flows.
  • Improving process flows improved effectiveness and efficiency, but cutting costs was the primary driver.

Plus, customer service factored into these initiatives, but only as a secondary concern. That, however, has changed in the post-pandemic environment.

Now we find ourselves in a demanding and complicated market, consisting of relentless supply chain disruptions.

Supply Chain’s Perfect Storm of Relentless Disruptions, Dislocations and Rising Costs

If you thought pre-pandemic times were challenging, you’re right. But they pale compared to today’s post-pandemic disruptions. The pandemic magnified supply chain weaknesses, exposing global supply chain vulnerabilities. That led to a more challenging market environment than before.

Beside the pandemic, we had trade wars, cyberattacks, and adverse weather. We also had to deal with the global impacts of one-off events like the Ever Given’s blockage of the Suez Canal.

Of course, as you might expect, rising costs came with these disruptions and dislocations.

  • Transportation costs increased as capacity became scarce.
  • Inventory costs rose as consumer demand increased, causing shippers to boost their inventory stock levels.
  • Waste resulted from extended processing times caused by supply chain bottlenecks.
  • Lack of synchronizations between ports, warehouses, and distribution points further added to rising demurrage and detention costs.

These issues will have to work themselves out before we see some relief. Addressing these, let alone fixing them, unfortunately, won’t happen quickly. They will take time to resolve and require thorough planning and flawless execution.

That said, one critical path to mitigating the pervasive chaos and confusion lies in a renewed focus on your customers.

The Unstoppable Rise of Customer Service

Customer expectations are rising, amid these supply chain disruptions,. That’s because consumers have rising expectations of value and recognize the benefits of technology.

Despite the increased challenges to supply chains, customers are demanding more product quality and enhanced customer service. That’s a double blow. But it’s one you can turn to your advantage.

How can you do that?

You can do that by adopting a customer-first strategy. In doing so, you would design your business processes and your supply chain with your customers at the center. In simple terms, it means doing what’s best for your customer without consideration of costs.

That seems counterintuitive.

In reality, customer service and cost considerations are not mutually exclusive. Customers now put more value on service and support. As businesses realize this, it can become a source of competitive advantage.

Supply chain visibility of customer orders, timely delivery, and 24×7 availability have become essential. Businesses that cater to this emerging reality will outmaneuver their less responsive competitors.

But this comes at a cost—likely an increased cost. So, you must balance those increased costs needed to enhance customer satisfaction.

Customer Service vs. Costs: A Delicate Balancing Act

How do you achieve maximum customer service and minimum costs?

To begin with, you must pursue a customer-first strategy. Doing that will differentiate your business from your competitors who focus on cost.

Like sustainability, affordability is key. It’s not one or the other. That means you must take both factors into account. Again, these factors are not mutually exclusive.

As you consider how to satisfy your customers, you must also weigh the costs. Several factors will bear on the eventual outcome. You need to consider the overall benefits and their costs. That’s your guiding principle.

You will likely have to compromise where cost outweighs service. But your overarching attention to customer service will keep your strategy intact.

Strategic planning is shifting from a focus on cost to a focus on the customer. This shift, however, does not omit a consideration of costs. Instead, it elevates the priority of customer needs over cost.

The most important take away is that this strategic shift will improve your competitive edge.

As you work your way through the supply chain’s perfect storm, consider partnering with a customer-minded 3PL.

If you think that makes sense, then contact American Global Logistics today. Customer service is our watchword. Customer service is our driving force and the source of our competitive advantage.

We seek long-term partnerships and would like to partner with you because today’s challenges demand a long-term focus.