From Efficiency to Effectiveness in the Cold Chain: Working on the Right Improvements
Efficiency is a key driver for supply chain and cold chain managers. And rightly so, because there is still much that could be optimized. But there seems to be less interest in effectiveness. Maybe this is because of some confusion between efficiency and effectiveness. What is efficiency and what is effectiveness in logistics? And how can the cold chain become more effective?
Efficiency versus effectiveness
Efficiency is an internal performance standard. It expresses the extent to which the processes are designed in the best possible way within the chain, including finances, personnel, technology and equipment. However, none of that says anything about service, customer satisfaction or sustainability.
Alternatively, effectiveness is a more externally focused measure. It considers the extent to which the chain can meet the needs of customers, partners, suppliers and sellers. We need to take things a step further if we really want to satisfy customers and business partners. In other words, not only do we need to do things right, we must also do the right things. But what are those 'right things'?
The 8 effectiveness aspects
Those ‘right things’ are what VebaBox defined in the research 'Opportunities, challenges and trends in the cold chain.' The current level of effectiveness in the cold chain sector was mapped out using a model to measure the key aspects. That effectiveness model includes:
- Leadership: creating an innovative culture and a focus on optimization
- Procurement: the extent to which purchasing serves higher strategic goals than just price
- Process: the efficiency, effectiveness and flexibility of the process
- Governance: the application of procedures to comply with legal requirements
- Cooperation: the degree of internal and external cooperation, such as systems integration
- Capabilities: having the right – and future-proof – technology, materials, equipment and knowledge
- Monitoring: the real-time collection of data and its use for predictions and optimization
- Sustainability and electrification: organizing storage, transport and process for the minimum possible impact on the environment
Effectiveness in the cold chain
According to the research, aspects such as governance and cooperation are very important, as are optimizing processes and having the right capabilities in house. However, the overall score on effectiveness in the cold chain (importance x rating) is meager. With scores ranging from 5.1 to 6.4 out of 10, it is clear the industry has not yet done enough to achieve optimal effectiveness. Effectiveness in the cold chain could be improved considerably, especially on the aspects of capabilities, monitoring and sustainability.
The most effective companies in the cold chain
Of course, some companies in the cold chain are more effective than others. Nearly one-third of the market scored higher than the rest. This group of frontrunners tends to work more strategically by following a clear strategic plan. They also invest more than others. In addition, they concentrate on unlocking valuable data and business intelligence. Companies that are leaders seek out solutions through technology, and they are much more advanced when it comes to cloud computing and process digitization.
That powers their effectiveness. For example, the leaders report a significantly higher level of customer satisfaction, better agility, higher scores on sustainability and more optimized processes.
Better success with five simple ingredients
The leaders are not magicians, of course. There are five powerful ingredients they use in their recipe for optimal effectiveness:
- Scan the environment regularly for innovations, competition and opportunities
- Develop a strategic plan
- Provide room for investment
- Focus on technology
- Look to collaborate with third parties wherever possible
The result of this recipe is powerful: fewer incidents, happier customers, more effectiveness and greater resilience when confronted with new market entrants.
Free research report
Want to know more about how to improve your own effectiveness? VebaBox offers the research report free of charge to any interested parties in the industry. The report can be downloaded from here.