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Back to Basics: Cutting Costs and Saving Time to Beat a Tough Economy

Thursday, October 29, 2009

By: Ron Cain, Chairman and CEO of TMSi Logistics

Business philosopher Chin-Ning Chu observed that “without the strength to endure the crisis, one will not see the opportunity within. It is within the process of endurance that opportunity reveals itself.” This wisdom is particularly applicable today, when many companies are fearfully watching the environment around them rather than pursuing growth opportunities. Successful companies are realizing that creating opportunity through streamlined procedures, such as a lean execution of supply chain operations, and getting back to the basics of good business practices is the best way to combat the economic environment.

Knowing the value of lean operations is important; however, knowing how and where to save time and trim down costs is the true benchmark of successful supply chain management. This can be a challenge for companies that have been forced to increase their efforts in operations and production to remain profitable in these trying times. Enlisting the help of a third party that can identify and improve problem areas within the supply chain operations has become more common in companies looking to find effective and innovative ways to prosper against the odds.

Shrinking profit margins mean that companies can no longer afford wasteful practices on any front. Fortunately, there a number of often overlooked areas where costs can be cut and time saved. One such overlooked area is staffing and workplace culture. In the present economic environment, office culture is more important than ever for both management and staff. Management must combat the specter of soaring national unemployment rates in order to maintain productivity, while the competitiveness of the job market is pushing staff to work more efficiently than ever. The answer to these threats is a cohesive, values-based culture with clearly defined mission statements, goals, and company values. Difficult times must be a catalyst for a more unified culture through the empowerment and support of individuals rather than a culture of displaced blame, worry, and suspicion. Since companies are able to be extremely selective of employees in the present economy, some businesses begin a relationship with a 3PL in order to improve their workplace culture. A 3PL is able to implement aggressive staff changes that are sometimes difficult for a company to make. Workforce changes can improve performance particularly when incentive-based, motivational tactics are leveraged in the new culture.

In addition to a values-based workplace culture, the most basic of all successful business practices, good customer service, must be flawless in all aspects. One of the areas of customer service most prone to wastefulness and inefficiency is reverse logistics – the management of returns of faulty, damaged, or mis-shipped items - which Forbes identifies as amounting to seven percent of a company’s gross sales or $100 billion annually. While these product errors are inevitable, lean management of reverse logistics can minimize cost and, more importantly, ensure that one faulty shipment or product does not amount to the loss of a valuable customer. The rise of internet retailing has made a competitive and efficient system of returns all the more important. Many companies offer generous return policies for products purchased online to appeal to clients more comfortable with shopping in stores. In order to make these online purchases as profitable as possible, reverse logistics must be streamlined through the use of end-of-life planning for durable and high-tech goods and the retrieval of valuable and re-sellable goods, while ensuring no added inconvenience to the consumer. By focusing on the basics of customer service, particularly through lean reverse logistics, companies can maximize profit margins on returned products while ensuring customer satisfaction, and therefore encouraging customer loyalty.

Many companies respond to the shrinking profit margins of the current economy with fear, and therefore view any changes with apprehension, no matter how appealing they may be. Unfortunately, as so many have already found, a company cannot rest on its laurels or do things “as they’ve always been done” if they hope to outlast these hard times. For companies looking to cut costs and gain more time to devote to core competencies, outsourcing supply chain logistics to a 3PL may be the answer. A partnership with a 3PL allows companies to focus on what they know best while also ensuring that areas where costs can be cut and time can be saved do not go unaddressed. The success of 3PLs has been driven by the understanding that outsourcing to a 3PL can create a higher performing supply chain. The infrastructure, relationships, and skill-set necessary to make logistics as efficient as possible are at a 3PL’s disposal. This is one reason why sixty percent of all Fortune 500 companies outsource their supply chain services to a third-party logistics provider according to the Council of Supply Chain Management Professionals. This represents a growing trend. As corporations increasingly strive to cut costs in the face of thinning profit margins, more and more firms are utilizing the specialized expertise that 3PLs apply to supply chain challenges.

In a tightening economy, the inefficiencies that a 3PL can identify in their clients’ supply chains can mean the difference between ending the year in the red or in the black. With 3PLs able to reduce the costs of supply chain operations by as much as 20%, companies facing shrinking profit margins owe it to themselves to investigate outsourcing their logistics. In this economy, efficiency matters more than ever, and 3PLs are uniquely able to stimulate efficiencies, savings, and profitability. In lean times, every dollar counts, and partnering with an experienced 3PL can help you save the dollars necessary for your company’s success.

Ron Cain, author of “Back to Basics: Cutting Costs and Saving Time to Beat a Tough Economy ” is the Chairman and CEO of TMSi Logistics (www.tmsilog.com) with corporate offices in New Hampshire. He can be reached at 603/373-7233 or at ronc@tmsilog.com.

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