Has Cheap Become Nasty?
- May 18, 2014
- Posted by: Value
- Category: Article
In a world obsessed with costs, has cheap become nasty?
We get it. In every business, in every sector, in every market around the world, businesses are obsessed with cost. As a result, the costs of storing, moving, transporting, and distributing products (logistics) has taken front and centre stage under the spotlight. However, in our experience, this has had some significant side effects, the worst of which is loss of life due to cost-cutting, but the strangest of which has been an overall increase in logistics costs.
We respect that the calibre of people we deal with would never be so naïve to think that the best way to cut costs was to cut corners, so let’s not discuss that any further. However, what is critical to understand is that if your pursuit for reduced costs has given you a more expensive logistics bill, we agree, it sounds crazy, but in our experience it happens far more often than most businesses would like to admit. The most obvious culprit is complexity. The total number of things that impact the costs and risks associated with logistics, creates a massive grey area that logistics suppliers can leverage to either offer a more cost effective logistics solution (actual value), or a reduced rate sheet (perceived value). Let’s unpack a few examples of where we have seen this.
Owning the infrastructure means owning the process
At face value, it does cost you less if you own your own warehousing and distribution. What is however ignored most of the time, is the risk and cost saving that comes as a result of outsourcing this to an expert. For example, we recently worked with a biscuit manufacturer, and realised that the design of their packaging was costing them 20% volume utilisation on their pallets. The unused space was also causing damages, as the packing wasn’t flush. A small redesign of their packing would address this unseen cost and risk. At Value we invest in intellectual property and technology that ensure we are always at the forefront of maximising the efficiency and effectiveness of distribution and warehousing. By doing this all yourself, you may save some visible costs, but what are the costs and risks you are not seeing that our experience and expertise could prevent?
Insurance versus accountability
It still baffles us. If suppliers claim to partner with you, why don’t they take accountability for damaged goods if it is found that they are responsible? You see, first and foremost, many damages and returns can be prevented when a business has world-class warehousing and stock management systems. However, when they do occur, surely a ‘partner’ would take ownership of this. At Value we make payments back to our clients if we have been found be negligent. This means lower insurance costs and a more accountable partner. There are at least 5 other areas where cost can be confused with expense.