Improving Logistics Improves Your Business

Improving logistics is vitally important, if a company wants to stay profitable in today’s economy. Today, it is more important than ever that a company produce a great product and deliver it at the lowest possible cost. Many companies fail to recognize the impact of logistics improvements on revenue growth, operating expenses and capital utilization. Concentrating on logistics can improve growth and increase market share. The role of logistics in driving growth and market share is increasingly understood and accepted.

Operating Cost Reduction has been the most common area of focus and the area of greatest measurable logistics value for most companies. It has been the primary driver of TMS and WMS implementations and other logistics technology. The most common sources of value relative to cost reduction are:
1) Transportation expenditures
2) Administrative costs
3) Distribution and Fulfillment labor costs
4) Total network expense
5) Inventory carrying costs

Working Capital Reduction is also an important benefit that your business can derive from improved logistics. Improving logistics can have a significant impact on both financial performance and shareholder value. Working capital reduction should be of prime interest to all corporations, as it has a direct link to shareholder value. Logistics can affect working capital in many ways:
1) Increased inventory turns
2) Reducing receivables through improved order accuracy and information completeness.
3) Reducing safety stocks and network inventory levels
4) Improved cycle times, which increase inventory turns and accelerate the cash-to-cash cycle.
Supply chain and logistics excellence is increasingly defined by process velocity. Delivery speed, or the ability to reduce the time between order taking and customer delivery to as close to zero as possible, is one of the key goals sought by today’s organizations.

Return on Assets (profit divided by fixed asset value), is one of the primary metrics targeted for improvement as a result of supply chain management initiatives. Improved logistics directly improves a company’s Return on Assets. Better distribution efficiency and throughput can reduce requirements for capital for physical facilities and equipment (lowering the asset base), while simultaneously increasing the profit from distribution center operations. In this way, both the numerator and denominator of the ROA ratio are positively impacted.

Attempting to measure the ROI of the intangible benefits of logistics services indicates a need for new metrics that measure more than just the cost and savings of the investment. These new measures should focus on such things as how improvements will speed up business processes, improve communications, increase customer satisfaction and assist in decision-making and quality control. These factors reflect performance improvements and what is important to customers, not simply short-term profit.

Improving your logistics strategy (combined with operational excellence) will provide measurable benefits for your company, as well as for your partners and customers.