Who’s Minding the Store?

With the intense pressure to control expenses today, it’s interesting to discover who, if anyone, is in charge of looking after the logistics processes and associated costs at many companies.

There are companies that have a senior level buy-in to the importance of logistics in their organizations. These companies tend to understand that logistics processes touch most aspects of their organization’s ability to handle customers from the time they order until they obtain the products they purchase. They also understand the need to continuously support their logistics managers and empower them to make decisions, sometimes across many departments or corporate entities. In turn, good logistics managers understand their firm’s corporate goals and service requirements and are able to shrewdly balance the trade offs and the risks.

Logistics managers can assist senior management in establishing performance objectives and strategic planning. They can lead, train, motivate, and develop transportation and distribution personnel. They can develop logistics partnerships, optimize total logistics costs, negotiate rates and oversee the implementation of logistics process improvements.

In the Hands of Other Departments

Yet there is still a tendency in a number of companies to have their logistics costs handled by the finance department, as freight payments are highly transactional, particularly on prepaid shipments. Finance sees logistics costs mostly as payments to vendors and consequently their ability to properly control these costs tends to be a function of how much less they can spend and not necessarily a proper understanding of logistics processes.

Or sales management might control the company’s transportation coordination and costs. Their focus is the “sale” and margins they make on the sale can be impacted by the cost of transportation so many will look at cheap rates. Some go to the other extreme, spending oodles to get the sale and servicing the heck out of the customer with little regard for cost.

Purchasing may also end up buying transportation services because they buy everything else on behalf of the company. But the skills needed to understand buying transportation services are quite a bit different than most other products and services. Many purchasing departments are too busy buying products to properly look after the logistics buying as well. The general tendency is to see it as just another item to buy.

It has been my experience that having other departments look after your transportation costs as a secondary consideration will tend to keep costs higher than they need to be and result in service levels different from what they should be.

In the Hands of Shipping/Warehousing

It is quite common for organizations to have their transportation rates and services negotiated as part of the shipping or warehouse departments. Do these people have the proper skill set to look after this important buy? Do they understand your company’s entire service requirements well enough to balance costs and service requirements or are they simply shopping for the cheapest rate? Is the handling of these processes a “secondary” concern when it comes to their already busy schedules? Perhaps some training or guidance is needed to help them understand the bigger picture.

In the Hands of 3PLs

Some companies look toward outsourcing their entire logistics management to skilled professionals on an on-going full- or part-time or project basis. When doing so, consider the strengths of the third-party provider, particularly in terms of management and the 3PL’s ability to provide customized solutions. Does the third-party provider keep abreast of the latest in logistics methods and issues? Are the 3PL’s corporate philosophies consistent with yours? Does it have references that support its claimed abilities?

Or in No One’s Hands

It is hard to believe the number of companies that do not have representation in logistics at any level or do not understand its importance. Companies that spend in the hundreds of thousands or the millions of dollars in transportation, distribution and/or warehousing, but will have either no one dedicated to the management of these costs, or people without the skill set to do so. I find that such failure to embrace the management of a company’s logistics dollars usually stems from a failure to recognize the need and importance of controlling these costs.

You cannot afford not to have your organization’s transportation, distribution and warehousing costs properly controlled and managed. Success comes from understanding these costs; how important they are to the firm’s bottom line; and how they integrate with the other costs and services that impact your company. If you lack that skill set then make it a point to go out and get it. It’s your store – who’s minding it?