Warehousing – Profit And Loss
For a logistics company to be sustainable and competitive, there are a lot of factors one needs to consider. However, on a high level, it boils down to 2 aspects. Increase revenue (top line) and reduce cost (bottom line). Indirectly, this will maximize profit and minimize cost. This general rule applies across all businesses.
Generating new revenue is the lifeline of the business. Sales has to continuously bring in new businesses to ensure that there is cashflow.
In the logistics industry, most customers are price sensitive. Customers tend to place a heavier weightage on the price component as compared to other factors. Competition is fierce and in order to gain an advantage, the company has to have a strong unique selling proposition (USP).
USP can come in various forms such as strong presence in different countries (if it is a regional contract), state-of-the-art IT systems with analytical capabilities, and established track records with good feedback from customers.
Different customers from different markets will require different capabilities from the logistics service providers (LSP). As an example, FMCG (fast moving consumer goods) customers require the company to be able to move the inventory in and out of the warehouse fast. On the other hand, medical customers require the warehouse to have high quality standards.
Controlling the cost of running the business is another aspect one needs to take note of. Running the operations require resources such as space, utilities, manpower, MHE (material handling equipments), IT hardware and software. If the operations does not manage the cost, it will gradually balloon, eroding the profit margin.
Imagine after some time, the cost rises till it becomes higher than the revenue. This means that for every additional transaction the operations does, the more loss is incurred. This is detrimental and ultimately will impact the P&L of the company.
Typical life cycle to win a business
- Sales to get invitation for request for quotation (RFQ) from customer
- Tender team to analyze the data provided to derive the space and manpower required
- To ensure the gross profit (GP) is sufficient and agreed by the management
- Assuming the business is awarded to the logistics company, implementation begins
- Once the operations is stabilized, continuous improvement projects (CIP) begin to streamline and improve the processes
The above may sound simple, but lots of efforts from various departments have to work together to ensure the success of the business.
- How can Sales pitch successfully to get an edge over the competitors?
- How can the tender team analyze to provide a competitive pricing for the tender?
- Are there good solutions proposed to run the operations smoothly at a lower cost?
- What is required for the implementation to be executed smoothly?
- Can operations fulfill and meet the KPI set by the customers?
- Are there better ways to run the operations more efficiently with higher productivity?
Only by getting more businesses in, at a decent margin, will the company be sustainable.