Logistics: a forgotten cost that can yield major savings
Most businesses require some form of logistics, but some are better at managing the associated costs than others. The good news is that many SMEs can make significant savings if they borrow the ideas and approaches pioneered by large corporations.
Although it could be argued that email and the Internet are the ultimate in streamlined delivery, generally speaking what we mean by logistics is the process associated with physically moving goods around an organisation and its supply chain. This process of receiving supplies and delivering goods includes packaging, warehousing, transportation, and the administration of these tasks.
Logistics costs really add up
All these tasks can add up to quite an expense for a business. Just how much is illustrated in the findings of a national report by the Australian Logistics Council.
Finding that logistics was not well represented in the national accounts, the council undertook its own study a few years back to highlight the sector’s importance. It found that logistics made up 8.6% of Australia’s GDP in 2013, employing 1.2 million people and moving about 26,000 ’tonne kilometres’ of goods for every person in the country.
But the most telling statistic was that an increase in logistics productivity of just 1% would add $2 billion to the economy.
For businesses involved in the manufacture of bulky items, or the supply of services such as construction that require large equipment, the proportionate impact is likely to be even bigger. However, it is not just these firms who should be concentrating on logistics: companies with less obvious or immediate transportation and storage needs often neglect the area and end up overpaying.
SMEs lose out in logistics
Modern multinationals have become masters of logistics. By necessity, the links holding together these corporate behemoths have to be highly effective and efficient. That’s why they employ whole teams of experts to manage their logistics needs and ensure everything works smoothly.
In doing so, they have also become adept at keeping their costs down. Obviously, big companies spend a fortune on transportation and storage. But on a per unit basis, they are often able to eke out a competitive advantage over SMEs operating in the same field.
This is because they analyse their logistics needs and costs tirelessly. On the other hand, economists have found that SMEs have the most to gain by adopting these techniques themselves. Auditing your logistics can significantly improve your profitability, but you need to be wary of what the true costs and issues are.
Hidden costs of logistics
Getting goods to your customer is everything: therefore, if you have a sub-par logistics set-up and as a result your product is not on shelves or orders go amiss, you are paying a high opportunity cost in terms of lost sales. Similarly, if your supply lines sometimes let you down you will end up paying for idle workers while orders go unfulfilled. It’s worth noting this when attempting to cut costs: you’re aiming for maximum efficiency, not rock bottom prices.
One area that may be worth exploring when seeking improvements is the small print in your contracts with transport and storage companies. Does it enshrine great service for your customers? Similarly, it’s worth checking that any insurance around logistics adequately covers your business, rather than just the delivery company.
One final aspect to consider is how you pay your logistics suppliers: if you are having to fork out money in advance of being paid for major orders, that might be costing you significantly more than the nominal sum. This is especially true if you rely on expensive funding methods such as a business overdraft or an unsecured business loan.
Supply Chain funding however can be a very effective way of paying B2B suppliers such as logistics firms: by arranging for immediate payment of your invoices once an order is dispatched, you will have cash in hand to pay your haulier or warehouse provider promptly, and perhaps negotiate better terms as a result.
It’s well understood but once you master the art of Supply Chain Management you can look forward to significant savings and thus improve your business trading margins and at the same to improve your working capital position.
tim’s Accelerator and Accelerator Plus solution provide SME’s with a smart solution to achieve significant gains.