Part II – Overcoming Dynamically Changing Logistic Costs
This is the second of two articles around managing the rise of transportation costs.
In our first article, we discussed awareness of a logistics company’s true costs, as there can be hidden costs, how to identify them and the structures that can be developed to track them. This article will focus on ways to improve costs once they have been identified.
Taking time to identify and examine the different areas of expenses creates awareness of a company’s true costs and can be a first step to managing the rise in transportation costs. Once this is completed, the next step can be determining holistic cost structure and how to create a robust cost structure going forward.
One focus area in the hunt to determine known and hidden costs can be understood if all cost inputs have been accounted for. One way to determine this is to perform a cost assessment. This is an audit of the list that was created during the cost discovery hunt. Like most audits, this can be done either internally or by bringing in an external specialist. There can be value by conducting an assessment internally. This provides an opportunity for senior leadership and the department leads to have a conversation about the assessment. By doing so, the door is being opened for conversation and awareness within teams. This can create an atmosphere where costs and expense reduction become a priority. As the list of expenses is reviewed, this often creates a brain trust, bringing in a diverse perspective set, potentially generating additional savings ideas.
There are also a variety of third-party expense reduction analysts who can be partnered with to conduct their own review of company expenses and cost structure. In addition to providing their analysis, they will look for opportunities based on benchmarks that they have set while auditing other logistics companies. This extended viewpoint may offer insights that the company may not have been aware of. To build on this, if the company performs both internal and external audits, a joint meeting can be had to consolidate findings. Both points of view may spark ideas between the internal and external teams to produce additional ideas to reduce expenses.
Once a final assessment of expenses has been completed, the company's future cost structure can be created and finalized. One way to do this is to ensure that all costs are accounted for in the budget. With the newly completed assessment, there may be new expenses not previously represented in the budget. The budget can now be updated with these new line items and categories, ensuring the budget reflects all known and previously hidden expenses in the logistics operation. Depending on budget review frequency, this may be an opportunity to review forecasts and actuals more often. With dynamic pricing and inventory volatilities, this can supply an opportunity to adjust and re-establish expectations for both revenues and expenses. This also allows for forecasting revisions based on the most recent cost information.
Another set of tools which often leads to increased profitability is the creation and development of real time tracking tools. These will often take the form of software, visibility boards and mobile apps that provide real-time information. They can provide information on costs, inventory, shipping, labor costs and other areas. Having this visibility means that business decisions can be made that provide an immediate impact, rather than waiting until the next month or quarter to perform a review. These tools can also help identify bottlenecks in flow, allowing for teams to create solutions that increase productivity and further reduce expenses. Artificial Intelligence (AI) software and other automation tools can help create predictive analytics and even anticipate unknown future adverse conditions, allowing time to compensated for ahead of time.
In summary, although fuel prices are the frontrunner in costs increases, there are many other known and unknown costs in logistics, which can be leaned out, increasing profitability in for a company. If the process has not started to clearly determine actual cost structure, taking some of these steps may be transformative to many facets of a company, can streamline efficiency, increase net profit and open new doors of opportunity.