Elephant in the room: Aim to optimize, not cut, logistics costs

LAKE BUENA VISTA, Fla. — Ocean rates are up. Trucking rates are high. Airfreight rates are up. And the global supply chain is in crisis. So why does Greg Aimi believe the answer is to eat an elephant?

The Gartner vice president of research and logistics technologies hosted a discussion on Tuesday at the Gartner Supply Chain Symposium/XPO 2022 conference at Walt Disney World’s Dolphin Resort, aptly titled, “If you want to cost-optimize logistics, learn how to eat an elephant.”

His point was that many organizations approach cost optimization through cost cutting, but because logistics is so big — like an elephant — that is not the right approach.

“Cost cutting things are different than what you do in cost optimization,” he said, noting that companies often look to cut line items or limit spending, which ultimately hurts the overall profitability of the logistics operation.

Aimi laid out a strategy to achieve cost optimization that will set up an organization for the long haul. It starts by not cutting costs in a way that hamper logistics, but rather looking to find ways to invest in areas “to set you up for the future.” An example of this would be looking at workflow automation technologies, he said.

A majority of companies — 52% in a recent Gartner survey — reduced their logistics costs by increasing their operational efficiency, not cutting.

Secondly, firms should implement a plan. This can be short term (three to nine months), medium term (nine to 18 months) or long term (18-plus months) and in many cases involves all three steps.

In the short term, the business should work to operate better, whereas a reconfiguration of the business should be conducted over the medium term. Finally, the long term should be focused on transformation.

Companies seeking to operate more efficiently can look at budget items, examine their freight and payment operations, tighten lead times and shorten delivery windows, and improve collaboration on order quantities.

Once the medium-term plan goes into effect, the business should be focused on organizational change, operational alignment and tightening of logistics polices while forming partnerships with 3PLs and carriers to remove waste from the operation.

Over the long term, Aimi continued, businesses should be investing in logistics-specific systems and digital technologies such as robotics that will reduce labor and improve service. Also, now is the time to look at conducting a “cost-to-service” analysis.

“[You] don’t want to overserve where the cost analysis is [not positive],” he said.

“Good logistics is the ability to service on a consistent basis,” Aimi continued. “Great logistics is the ability to do so while optimizing cost.”

Aimi added that companies should not discount upstream changes. Operations in the sales and order departments, for instance, can have an impact on logistics costs.

Logistics, Aimi said, is so big that it always appears to be the elephant in the room. “The way to eat the elephant is to break it up into pieces.”

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Editor: Brian Straight