The Economic Value of Trust in the Supply Chain

In the 4th Quarter issue of Supply Chain Quarterly is an article entitled “Off Hours Delivery Project in the Big Apple” by Jose Holguin-Veras, Jeffery Wojtowicz and Stacey Hodges. It tells of the success of the evening and night delivery program in Manhattan. If you wish to see this article, write me in the comments section of this email and leave your email and will forward it to you.

The surprise in the article was what caused the program to be successful. Trust by both consignee and carrier with each other were crucial to make this program successful. Urban congestion is not new problem. The article makes note of Julius Caesar banning day time deliveries 2000 years ago in Rome.

The “before situation” was that day time deliveries which resulted in congestion, slow delivery times and lack of reliability for the carriers.  Some statistics of interest, trucks averaged $500 to$1000 of fines for parking violations in New York per day. In the 10 busiest zip codes in Manhattan the demand for parking spaces exceeds the linear capacity of the streets.

Interesting, the authors contend congestion pricing has not worked because customers demand daylight delivery.  For the process to change, customer’s requirements and demands on the carrier had to change.

Testing of an evening and night delivery program was tried with two different scenarios, one where the consignee provided personnel on site during unloading and the other deliveries where made with no employee on site.  After the end of the test, almost none of the consignees which had stationed personnel to receive the freight continued, because of the extra labor costs. However those consignees that had delivering truck carriers they trusted, continue deliveries without personnel stationed on site, by either giving them keys or key codes continued evening and night deliveries.

Why did they do so? Many deliveries were to restaurants. Due to variability of day time delivers the restaurants needed an average of 1.5 days of inventory. Night time deliveries not only were less costly to deliver but inventory could be brought down to an average of one day. Food was fresher. Working Capital costs went down.

This delivery processs only worked if the consignee trusted the carrier in their facility without their own personnel. Here trusted relationship could be quantified to saving transportation costs, lower inventory, and fresher food.  There were consignees who did not have this type of relationship with the carrier, making night time delivery impossible.

There is lots of literature on the value of trusted car relationship. Many times the absolute rate of a trusted carrier partner is higher but the overall cost is lower.  To make this relationship work, management has to see there is economic benefit in the relationship.

Figuring these things out is one of the places where trust adds value a supply chain / logistics manager is something a person can do that software can not. Executing these decisions is another place software can help but can not do it all. In short, where “trust” relationships are of economic benefit to the firm, it is also an economic benefit for your career.

 

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