What does it take to be trendy in logistics?

My colleague Magnus Molin recently blogged about Logistics as a profit center after attending the logistics association PLAN’s recent roundtable on the topic. In particular he highlighted the forecast from Gartner that by 2018, 20% of companies will view their logistics organizations as profit centers.

So buying and selling transport services is trendy, but what’s the next step on the trend-o-meter? The basic recipe isn’t hard to understand – sell things for more than you paid. But there are several alternative approaches and the challenge is in hitting just the right way for each specific case.

Primelog has long been engaged in supporting companies whose businesses are centered on buying and selling transport services (3PL and 4PL actors) or else whose logistics organizations have become profit centers. Here are a few lessons we have picked up from these customers.

What has to be defended at all costs is the gross margin. When you have agreed on prices with both the carrier and the customer, there are primarily three processes that must function with very high internal efficiency, so that profits aren’t eaten up by overhead costs:

1. Checking and verifying carrier invoices
2. Invoices to customer
3. Analysis and follow-up

Checking carrier invoices

The first step in defending gross margins is checking invoices, because it’s important to make sure that you’re not paying your suppliers too much. It’s especially important if you are selling transport services at fixed prices.

Invoicing your customers

Which invoicing method should you choose to pass on your costs? The two most frequently used are adding a percentage or surcharge on top, or providing a fixed price from a pricelist. The latter method makes it possible to invoice just as soon as the booking is made, which benefits cash flow, but then you have to handle any extra costs that might come from the carrier’s invoice. The process is thus integrated with checking incoming invoices!

Invoicing customers with a percentage surcharge has the disadvantage that you have to wait until all your suppliers have invoiced you, before invoicing your customer – but it is easier from an administrative perspective. A bigger disadvantage is that if your own costs go down, your reward will be lower revenues (as long as the surcharge to the customer is unchanged).

Analysis and follow-up

Being proactive and being able to easily identify logistic flows with poor margins is central, of course, along with measuring your internal efficiency. What contribution margin do we get from parcel shipments to Amsterdam? What’s the average time from booking to invoicing? These are examples of KPIs that have to be analyzed on a running basis!

So what is the short answer to how you can be the next trend-setter in logistics? Maybe something along the lines of: “Secure a good contract with customers and suppliers, and then make sure that you watch your margins through checking invoices on the buy side and choose the right invoicing model on the sell side. And then pay attention to high internal efficiency.”

Lena Ridström
CEO
lena.ridstrom@primelog.com