Saturday 19th Aug 2017 - Logistics & Supply Chain

CUT COSTS, NOT CORNERS

Sometimes the evidence of your own eyes is a lot more revealing than a whole host of business lectures on an MBA course. When I consider what I’ve learnt about business over the years, I reckon a good half of it must have come from keeping my eyes open and thinking about what I see.

(Incidentally, I’m not alone in this. Back in the eighties – or it may have been the seventies; those far-off and unloved decades seem to merge into one – there was a fad for “management by walking about”. The theory was that you found out more about your business by going and looking at it than by sitting in an office and ringing people up.)

But I digress. The point is that the other day I watched as a “white van man” parked in the middle of a road blocking traffic both ways and spent ten minutes making a leisurely delivery of a box or two to some commercial premises. Now, we all know about the reputation of white van men. But they are the foot soldiers of many supply chains.

So what they have to do – and how they go about it – is important for those organisations that employ them. And, I venture to suggest, especially so in these troubled times. In economic terms, we are sailing into uncharted waters. When that happens, the business instinct is to cut costs to conserve cash. And it’s the right instinct.

But there is a serious danger that cutting costs might also result in cutting corners. No doubt the reason why our white van man didn’t park up properly to make his delivery was that he’s now under pressure to make more deliveries during his shift.

It is especially important that logistics and supply chain operations are careful about cutting costs for a number of reasons. The first is that the kind of thoughtless behaviour exhibited by my white van man is not good for a company that wants to burnish its corporate reputation.

It’s all very well adopting high-falutin’ mission statements and corporate responsibility policies if the people out on the road are cheerfully going to stick two fingers up to Joe Public. The wiser companies latched on to that fundamental point several years ago, but there are still many where it’s not sunk in.

How to change? It’s all about inculcating the kind of attitudes in the workforce that change behaviours. Part of this comes down to thoughtful training that works. Part may be the result of creating a link between performance and pay. So complaints about drivers shouldn’t just be brushed aside. They are an important piece of evidence about how a logistics organisation is performing on the ground.

But there is a more sinister aspect to cost cutting that also chops off the corners. And that’s when safety is concerned. The harsh reality is that much logistics and supply chain work lives in a world where risks are more tangible and more likely than in other parts of the company.

No book-keeper or number cruncher ever caused a motorway pile-up by putting figures in the wrong column because overwork had tired him. The consequences of accidents are increasingly costly to sort out – and I don’t just mean the fatal accidents that lead to police enquiries, coroner’s inquests, large claims for compensation and the like.

Cutting corners also piles up unnecessary small but regular costs. More management by walking about evidence: I recently conducted a small but highly unscientific census on what proportion of commercial vehicles bore signs of collision damage. It was between a quarter and a third. I accept that some of the damage was superficial, like scrape marks down the side of a van.

It is especially important that logistics and supply chain operations are careful about cutting costs.But as anybody who’s had a bill from a garage lately will know, even putting superficial damage right can cost a princely sum. So the idea of putting pressure on drivers to make more deliveries against the clock might not seem such cash-wise sense when these hidden costs are taken into account.

And, finally, there’s the question of customer service. I know of one large online seller, which promises next-day delivery, that’s had a certain amount of customer grief because it’s fallen down on its pledge. Indeed, at one point it sent letters to regular customers apologising for the problems.

How many of those customers moved their custom elsewhere we shall never know. (And, neither, possibly will the company because it’s pretty nigh impossible to track sales your competitors get.)

So the message is clear: cut costs – but think of the implications. Our old friend, the law of unintended consequences, might be lurking in the economic shadows waiting to bite you on the bum.

 

Peter Bartram is a business writer, journalist and author of 20 books.

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