Operating profit can melt away in an instant. The CFO's biggest dilemma is how to adjust costs to the collapse in sales. Or, conversely, how to respond to a sudden increase in order volume and the resources needed to meet it. If personnel and machinery are not truly variable costs, they will not be flexible in the face of fluctuations in business volume.
"At the beginning of the week, the production status is alarming. We have too few people to handle orders and material flow. Or vice versa: the order book is collapsing, not enough work for everyone. What adjustments need to be made? How can the bottom line in relation to turnover remain the same? How easy is it to scale costs? How do you solve the problem of idle staff? And how to avoid massive overtime payments and staff overload?" asks Janne Kylmäoja, Sales Director at Transval Group. Janne believes that every financial and business manager even evaluates the end-of-year economic situation and the change in gross national income on a daily basis.
"For logistics operations, I would quickly recommend to use the possibility to shift fixed costs to variable costs. This will free up significant resources on the balance sheet, reduce the need for provisions and reduce market risk," says Janne Kylmäoja.
10-30% cost savings through logistics outsourcing
Logistics is the optimal movement of information and material flows. For example, shelving and picking is done in stores, factories, warehouses, terminals, production plants. Any company with more than five people working in logistics should take a critical look at costs. Outsourcing is not right for every company, but it is something to evaluate. "At the very least, open up the structure of in-house costs. Logistics can turn more than forty percent of fixed costs into variable costs and at the same time reduce overall costs," says Janne.
Share the risks with a partner
Partnering is another way to outsource risks. Companies' own resources are often sized to meet the needs of high workloads, and there is not enough exploration of what other opportunities exist in the market.
"Make sure you have a partner to share the load. If there is a sudden drop in volume, you need to adjust quickly. Similarly, if demand increases unexpectedly, ensure security of supply without overtime costs. Your logistics partner must have the ability to shift human resources to match the volumes at different sites. The logistics partner and the size of the personnel pool must be significant to ensure that labour can be directed quickly to where there is demand," says Janne.
Inventory rotation and decreasing inventory values, as well as faster lead times in manufacturing, wholesale and e-commerce are directly reflected in the last line of the profit and loss statement. Continuous improvement is an essential part of process development. Janne highlights the benefits of work management, the production bonus model and the development of Lean Six Sigma based on process measurement. Finance managers also need to understand the laws of logistics. "Logistics contracts should take into account the possibility of converting capital expenditure (CAPEX) into operating expenditure (OPEX)," says Janne.
MAKE THE LOGISTICS OUTSOURCING DECISION
- Decide to make the change quickly enough, rely on facts and figures
- Focus on your core business
- Choose a reliable and competent logistics partner
- Ensure that the partner has the skills to continuously improve operations
- Build and test the logistics cost structure and operating model together with your partner
- Choose the level of logistics outsourcing that suits your business
- Buy warehouse and services from a partner, reducing space costs, removing machinery and equipment from your balance sheet
- Outsource logistics work, partly or fully, continue with a partner on your own premises
- Outsource your own logistics workers to a partner. No need for redundancies and always the right amount of talent and skills for the situation and the moment.
Contact us. Transval is a reliable and competent logistics partner. Backed by more than 25 years of experience in logistics.
