Electronic Cash News

For global companies, transportation costs are souring to the extent that shipping costs are fundamentally changing the value-added proposition of off-shore outsourcing. For companies with high freight costs (steel, cars, and so on), these companies can now be extremely more competitive manufacturing locally than overseas.

E-Sourcing Forum’s posting, Reverse Globalization, provides a good overview on how transportation costs are creating a fundamental change in how global companies do business. Cost examples include:

“…the cost of shipping a 40ft Container from the Far East to the Eastern Seaboard of the US, has almost tripled since 2000 ($3,000 to $8,000). This will double again once the price of a barrel of Oil reaches $200.

Furthermore, at Today’s oil prices, every 10% increase in a trip distance, translates into a 4.5% increase in transport costs.”

Not sure if it is the downturn in the economy or just a Perfect Storm, but companies are in great need of supply chain talent. Our current economic climate is increasing the need for companies to drive significant costs out of a company’s supply network, continue to cut-order ship time, optimize supplier / outsouring relationships, assure business continuity of changing supply sources, and manage / gain visibility of globally dispersed operations. This is what supply chain professionals do best.

See SupplyChainer posting, Lucas Group Reports Substantial Hiring Growth in Supply Chain Logistics.

With talks of recession corporations naturally focus more on cost-cutting opportunities. Many companies will just make across-the-board cuts in General and Administrative (G&A) costs, but the big opportunities are in looking at corporate business processes. This is especially true in the areas of supply chain and technology. Reducing costs through use of best practices, standardization, elimination, or simplification offers companies more opportunities than blanket cost cuts. Having a lean G&A is good, but having superior, cost-effective business processes are better.

In reading The Hackett Group’s research article, G&A Spending Cuts Offset 21%-41% of the Anticipated Decline in Pre-Tax Profit During Recession, they talk about global corporations that “lift and shift” business processes to reduce costs. In their examples, they basically talked about outsourcing organizations overseas such as call centers or consolidating data centers. These are good example of optimizing business processes versus just taking an organization approach of dictating across-the-board cost cuts.

I continue to see automation technology as the best enabler for reducing costs in corporations that focus on continue process improvements. For corporations focused more on organizational structure than processes, technology just becomes another cost center.

Also, see Sourcing Innovation’s posting, Hackett Hacks Away at Recession Declines.