You may not see the link right away, but it is definitely there. Earlier, we wrote about DOAs (defect on arrival) in relation to direct costs. This includes the cost of the part itself, extra transport costs and the effect on your (global) stocks. We conducted research that showed that as many as 30 per cent of DOAs can be directly traced back to logistical causes and that you could easily lose 20 per cent of your profit on spare-part sales as a result.
Besides those very large direct costs, there are also many indirect costs. Those costs may be less visible, but often lead to even greater damage than the former. Currently, together with the University of Groningen (RUG) and at a number of our customers, we are conducting a study into all the activities that are triggered when a DOA is detected. According to the literature, this is called Activity Based Costing (ABC) where the DOA is then the "cost driver".
Below is a small selection of the various people and departments that get moving as soon as a DOA is detected; field service engineers, logistics departments, research groups, customer support, external suppliers, (higher) management and DOA responsibles or QM. In the worst case, this is compounded by things like bin checks, stock purging or stock flushing. As you can imagine, the costs involved can be sky-high.
But that might not even be the worst of it. After all, what about damage to your reputation? Don’t forget, the customer was already angry because their machine had unexpectedly stopped working, but now that same machine is out of action for even longer due to a DOA! An industrial customer is, after all, also a consumer, and you too will recognise that a future purchase will depend heavily on the satisfaction you’ve experienced from your current equipment.
Fairly obvious, then, is that the likelihood that you will sell a machine or system to this customer again diminishes per DOA. Knowing that very often it was not the packaging that caused this, but rather the process around it, explains why there is a link between image damage, failure to meet SLAs and packaging.
I will share the results of our research regarding indirect costs and image damage around DOAs with you on this website.
Ed Klijsen - packaging expert in logistics
