Shippers are rushing to cut costs in a deepening economic downturn, but some logistics industry experts say companies with balance sheets built for survival should look past quick cutbacks and focus on the long term.
A recent study by Ernst & Young, the global business advisers, examined the impact of cost-cutting strategies that major companies pursued after the decline in the economy that followed the dot-com bubble of 2000. Dan Robinson, Americas supply chain leader at the company, said only 30 percent of companies in the survey enjoyed improved cost-to-revenue ratios for at least three years after enacting significant cost-reduction programs.
That’s because “they did not fundamentally change their business processes.” The 70 percent that failed simply “took out the hatchet” so that their earnings could turn around quickly.
Companies that thrived for several years after the downturn made more fundamental changes in their business culture, and their cost-cutting was more strategic. “You have to make structural changes in how your business processes work, how you use technology,” Robinson said.
Rather than make wholesale personnel cuts or shun all spending on advanced technology, successful companies focused on expanding the skills of their managers, and deploying new technologies that made sense for their companies. Successful companies were also more likely to collaborate strategically with their suppliers — to improve product design, development or production — rather than simply slash their costs by paying suppliers as little as possible.
Rather than dampen spending on new technology during the downturn, leading companies also are devoting more attention to improving the way every department in the corporation has “visibility” into key data about each shipment all across the supply chain. That approach may require costly new
technology but should pay off in the long run, Robinson said.
For logistics professionals, all this can be good career news.
Leading companies now value the contributions of logistics professionals not just because of their skill at managing day-to-day operations, but because logistics professionals increasingly play a strategic role in expanding the business. One area where logistics professionals are helping more is risk management.
Sixty percent of senior executives in a new IBM study said that managing risks is just as important as getting the actual goods to their destinations “faster, better, cheaper.” But that means logistics managers also have to stay on top of their game. They need to constantly upgrade their skills to deliver on their promise. “In the last 10 years, there has been a dramatic increase in the competency required” of supply chain managers, Robinson said, because there is growing awareness that “supply chain is where the money is made.”
Some other advice from leading think tanks:
* Focus more resources on managing your risks. Sixty percent of respondents in the IBM study said supply chain risks are a growing concern not just for logistics executives but for senior corporate leaders. Karen Butner, global leader for supply chain at IBM’s Institute for Business Value, said disruptions such as plant failures and product recalls have become an everyday occurrence at many global companies. Supply chain executives need advanced technology and skills to balance the trade-offs between various ways to respond to complex risks. Unfortunately, most companies lack standardized business processes and standardized data that can be shared by every department in the company, Butner said.
* Consider using value-added goods and services that may not reduce your costs right away but could do so over the longer term. For example, a recent report by researchers at Washington University in St. Louis said shipping full containerloads with specific delivery dates could wind up lowering supply chain costs for many shippers by allowing them to operate more efficiently. Until now, day-definite service has been aimed at less-than-containerload cargo.
* Train your staff to focus on the impact each employee can have on the satisfaction of your customers. Butner suggested that companies can develop “customer satisfaction” metrics that every employee uses to measure his or her performance, from the forklift operator up to the senior executive. Rather than rate each kind of employee by a separate set of metrics, these key performance indicators — such as order fill rate, on-time shipment or receipt of product — are the same for everyone. “If we all have the same KPI metrics, we all start to work together,” Butner said.
Contact Alan M. Field at email@example.com.