I interviewed Noel Courtney who discussed Capacity and Utilization.
It's good to speak to you today Noel. The topic for today is capacity and utilization. Can you first provide a brief background of yourself.
Well, most of my career has been spent in logistics. I was in customers within the distribution and logistics arena, customers ranging from fast-moving distributed goods, bulky goods, food, [inaudible 00:00:31] goods, electrical components, lighting, and everything in between. Obviously, in the last five, six years and moving forward, the logistics is moving down towards e-parcel, e-logistics, if you like. From my experience, particularly along capacity, as a 3PL capacity is assigned to particular customers, based on forecast provided by the customer, and that forecasting is traditionally either 20% over or 20% under, forcing the 3PL to act rather aggressively to try to service their customer, through no fault of their own.
With your experience in the 3PL space, can you talk about some of the problems that you've seen with forecasting?
Yeah, sure. I guess one of the clinches for a 3PL I see is the forecasting might revolve around a certain volume, and then that volume is certainly over and above the expectations above the 3PL, which then is setting 3PL up to fail, fail to service the customer. Depending on the size of the truck that the 3PL have assigned to their particular customer, the 3PL is then required to incur significant costs at an operating level to service their customer to within agreed parameters, if you like.
And on the flip side, as I alluded earlier, on the flip side, the forecasting could be way under. So again, a 3PL could incur significant costs by over supplying of fleet, which then is underutilized, sitting around, costing money, doing nothing because the volume of work is not necessarily there. And the 3PLs pick up as costs as well. So two of the things I see with forecasting.
And the third I see, I guess, is some customers tend to not provide forecasts at all, or are not able to provide forecasts. So again, as a 3PL, the 3PLs need to guess what their volume might look like and supply the required fleet based on educated guesses, if you like. Costly, yes.
How do you recommend that these problems be effectively addressed?
From an outsider looking in, the bulk of the challenges I see reside within the customer or within the organizations and its internal communications within those organizations. Some organizations have systems that might not be the best systems in the world, but from my perspective, I don't see the systems being the issue. It's the communications within the organization as such. And I guess, to give you an example, one of our larger customers for a 3PL that I used to work for had a promotion on, a national promotion. And the 3PL that I worked for, we were advised of that promotion some two and a half weeks out from when the catalog for that promotion was going to drop. Now, the contact that was advising us of that promotion had only just been advised themselves, and unfortunately for the customer, their inventory was centralized in one state, and the catalog promotion was country-wide. So it forced the business, their business, and the 3PL to react in a rather aggressive way, trying to get this inventory to where it needed to be to meet the promotion. And that came down to, not necessarily forecasting within the customer's business but the communications within the business itself, as opposed to what are the marketing team doing? What are the sales team doing? Are they feeding it into their own sales and operating, planning team? Or have they communicated very well.
And I've seen it numerous times where that's not necessarily the case. So internal with the customer.
Thanks. And do you have any final recommendations?
Final recommendations -- from a 3PL perspective, I would recommend that as a 3Pl can continuously ask questions about the volume, continuously challenge the customer regarding the volume, obviously in a polite manner and not too aggressively, until businesses get their internal communications addressed, in my view, I don't believe that that particular issue that I've just raised will be resolved adequately. And so 3PL would just need to keep asking the question.
Thanks for sharing today.
About Noel Courtney
Senior Logistics Professional/General Management/Leadership