Business executives in need of a logistics solution often hear a price quote and stop their hunt, thinking that a lower price tag is always better. However, when executives look beyond price and focus on the total value their solutions deliver to the bottom line, they can obtain bigger benefits for their companies.
In my three-plus decades of experience in the supply chain industry, I’ve come across this scenario more times than I can count and I’ve seen dozens of companies who adhere to the price-only model of decision-making miss out on what I call the hidden gems of value in logistics.
These gems offer quantifiable benefits and lead to more satisfied CEOs, COOs, CFOs, CPOs and ultimately, and perhaps most importantly, more satisfied customers. These solutions usually remain hidden, often overshadowed by price. Price is important, but in the long run, businesses can often generate higher revenues, reduce expenses, and win and retain more customers if their leaders consider price as only one of several important factors to consider. The benefits are derived by how they directly impact each component of the return on assets (ROA) formula: revenue, expenses, and both current and fixed assets. I’d encourage all logistics decision-makers to take these four gems into consideration.
Gem #1: Process Improvement
Selecting a logistics solution that also improves a company’s processes is nearly always worthwhile. Although there may be short-term costs, by eliminating unnecessary steps from existing processes and/or providing an opportunity to either reallocate or eliminate labor, companies can gain efficiencies and save money in the long-term.
There’s no need to try to avoid the short-term costs as it isn’t possible to discount your way into process improvement. But, when adopted prudently, the contributions of these improvements affect the overall savings metric.
GEM #2: Improved Transit Times
Contracts that offer a lower transit time for a slightly higher cost can be worth pursuing. Solidifying an improved transit matrix checks several boxes that are sure to excite members of the C-suite. This provides value on the expense, revenue, current and fixed assets sides of the ROA formula.
Improved transit times reduce in-transit inventory, ultimately lowering financing costs. Less in-transit inventory reduces the use of inventory holding locations, slimming down the use of fixed assets like warehouses and equipment as well as lowering labor costs and overhead. This leads to fewer accounts receivable days of sales outstanding (DSO) and lowers cash-to-cash cycle times.
Additionally, improved transit times get the product to the end customer faster, which leads to repeat buyers, thereby increasing revenue as a result.
Gem #3: Information Availability
Fred Smith, founder and former CEO of FedEx, once commented that the information about the package is just as important as the package itself. The ramifications of understanding the status of a shipment impacts every aspect of business and I recommend that businesses consider the accessibility and extensiveness of information when evaluating logistics options.
Information arms the customer satisfaction team with the information to quickly update their clients. Conversely, it provides the customer with what they need to effectively execute their business. Ultimately, it creates customer satisfaction that results in retention, increased brand reputation, and outstanding consumer reviews and increased revenue from repeat buyers.
Gem #4: Consistency
Changing course to take advantage of a short-term opportunity at a lower price can lead to unintended consequences. Making calculated decisions, especially in times of turmoil, is crucial to not upsetting the consistency of your business. Focus on implementing solutions that not only reduce fixed costs, but implement process improvements that will yield long-term savings. Making radical changes in your business based on radical, mid-cycle shifts in the market is not advised.
Invitation to the Boardroom
Although transportation has always been one of the leading spend categories in an organization, the heightened focus on reducing these costs is driving supply chain professionals to have a seat in the boardroom to strategize this effort. Utilizing and quantifying the savings yielded from uncovering the hidden gems, in addition to reductions in commodity costs, will help fully quantify the savings that are derived from any solution. Differences in organizations and solutions will certainly unearth different gems. Nevertheless, it is imperative to uncover your hidden gems.
By utilizing the lessons learned from the global supply chain challenges of the last 24 months, supply chain professionals can better assess, prognosticate and quantify value—the goal is to provide guidance on making sound, fiscally responsible decisions that deliver quantified business value to the bottom line.
David Pollard is assistant vice president of logistics at CoreTrust, a commercial sourcing agency.