The Impact of Transportation Services & Logistics Costs on Corporate Profitability
Posted by Rob Snowdale on Tue, Feb 17, 2009 @ 04:07 PM
Surely the days of viewing freight shipping services and logistics costs as a fixed cost are behind us right? Key corporate decision makers who are tasked with the measurement and management of all line item expenses surely understand the impact of and cost reduction opportunities represented by freight savings and logistics related expenses, don't they?
Believe it or not, even in the devastating economy we find ourselves in, most companies miss the boat completely on this critical area for improving corporate profitability. Many key financial players at the "C" and "V" level assume their companies are doing all they can to directly reduce and control costs associated with delivering their product to market and sourcing and delivering materials used in manufacturing their products. Having asked, "so what do you spend per year on transportation services?" countless times of the person or persons within a company who is/are charged with buying transportation services, the usual answer is " I don't know". The old, but spot on adage in our business is, "if you're not measuring it, you're not managing it". The best way to measure it is through a freight bill audit and freight bill payment service that can allocate costs down to the sku level and provide a wealth of data useful in managing costs and insuring proper pricing strategies for your product.
Transportation and logistics related costs as a percentage of sales range from 9% to 14% depending on industry sector for companies who do not adopt a ‘Best in Class' management approach. These percentage ranges include all logistics related expenses such as warehousing, dedicated personnel, and transportation expense. Transportation costs alone comprise the vast majority of this expense for most companies.
By adopting a ‘Best in Class' logistics management approach, logistics related costs as a percentage of sales drops to 4% to 7% depending on industry sector. That's a delta of 5% to 7%. For a company with sales of $10,000,000, that's a contribution to corporate profitability of $500,000 to $700,000. How many widgets do you have to sell to net that kind of return? Maybe it's time your company adopted a ‘Best in Class' management approach to your transportation and logistics costs.