Worried about supply chain issues? Make sure you're looking at logistics spending.
Originally posted on StrategicCFO360.
With logistics spending reported to have hit $10.6 trillion last year alone, it’s surprising that some executives still focus attention on manufacturing processes, and not the supply chain as a whole to benchmark productivity. When doing so, organizations miss out on staggering cost-reduction opportunities.
It’s common for financial teams to look at logistics only as a hefty, but necessary, line-item within the annual budget. And unfortunately, due to outdated technology and lack of actionable data, logistics—in particular, freight procurement—continues to be one of the leading areas of financial waste for many companies.
Logistics operations and infrastructure are renowned for being slow to adopt innovative technology and/or process changes. In fact, many companies are still using a decades-old approach to freight procurement. Why? Maybe logistics isn’t seen as a company priority, or maybe logistics insiders stand their ground and say the current process works just fine, or it’s too hard to change. Whatever the barrier, without continuous improvement, there’s a high probability your silent peril is working against you.
So, what can be done?
Here are some things that CFOs should keep in mind when reviewing their yearly logistical spend, and ways they can better collaborate with—and empower—logistics teams to drive success.
Ask the Right Questions
Finance teams need to understand how transportation issues can impact business success. They don’t need to be logistics experts, they just need to know which questions to ask. Asking the following—and ensuring the logistics team has the right data set to answer these questions—will quickly uncover logistics weaknesses and opportunities:
- Are transportation costs in line with what the market is paying?
- Are transportation costs impacting COGS? If so, how and why?
- How much revenue are we losing due to transportation delays?
- Is headcount/salary appropriate, or are there new solutions to automate logistics processes?
- Does the team have the real-time tools/data needed to effectively manage today’s market challenges?
If it’s difficult for the transportation team to answer any of these important questions, financial teams must ask why, and then be prepared to set aside additional innovation/optimization budget to fuel evolution.
Integrate Logistics into the Entire Business
Logistics impacts every department across the company. CFOs need to make sure that logistics—which sometimes operates in a mini-silo away from other business units—is fully integrated to understand how logistics impacts other departments. For example, production bottlenecks occur when there is no carrier to haul the final product to the warehouse, which impacts the operations team. Or not delivering sales orders on time, and in full, can lead to expensive chargebacks and even worse, customer churn. Identifying interdependencies across teams will hold individual teams accountable.
Leverage Automated Technology and Real-Time Data
To be successful, logistics teams need to manage swift market shifts and disruptions. The key, specifically for freight procurement, is to effectively manage truckload cost while maintaining industry-best service performance. Traditional freight procurement processes are static and no longer effective in managing today’s market volatility. Finance teams should ensure that logistics is equipped with technology that supports dynamic pricing and automatic sourcing of compliant carriers.
One tell-tale sign is to ask if the freight procurement process has been updated in recent years. If not, chances are your company is still relying on an antiquated system, while your competitors have moved forward. Organizations that embrace intelligent automation technology, along with real-time analytics, will generate internal efficiency and a better sense of the competitive landscape so they can grow or maintain a strong competitive advantage.
If managed correctly, logistics can be a major boon for organizations. However, unless shifts in operations and strategy begin to take place, it can also be a silent peril or money pit. By keeping these things in mind, CFOs and financial teams can help fine-tune their logistics operations and drastically cut down on the amount of waste generated.