While most companies know how much logistics costs them, they may not know how much it could earn them. Leading logistics company, Dachser, has developed an innovative methodology that articulates the positive financial impact logistics performance can have for a company’s bottom line.
With 409 branches worldwide, Dachser has finely honed the delivery of intelligent logistics through a sophisticated interlocking of real-time IT platforms and skilled teams across the globe. Now, a concept has been developed that indicates how intelligent logistics can contribute to financial gains for clients.
Detlev Duve, managing director of Dachser South Africa, explains that the logistics balance sheet concept was for instance implemented at Block Foods, a long-standing Dachser client in Germany. This was done together with a leading logistics researcher – Professor Martin Göbl from the Kempten University of Applied Sciences in Germany.
Duve says that the initiative sought to understand the value of logistics in the same way that a company’s value is reflected in its balance sheet. “A company’s balance sheet is easy to follow,” says Duve, “given that it represents a holistic view of a company’s equity, assets, and liabilities and how successful it is. The bottom line shows figures that make this clear, even to third parties.”
However, in logistics, decisions are usually based on the transport costs alone. “These costs make up only a fraction of all the logistics metrics,” says Duve, “yet a comprehensive logistics metrics could be used as a kind of marketing tool to measure its effectiveness and efficiency.
The exercise began with a comprehensive knowledge inventory of Block Foods, which is an importer and distributer of high-quality beef but also various other products that go with the steaks and burgers in the Group´s own steak and burger restaurants: sauces and spices, potato and vegetable products, beverages and restaurant supplies such as plates, glasses, cutlery, cups, and napkins. Duve says that a data analysis was undertaken in which all the logistics-relevant KPIs were gathered together into a synoptic presentation and then re-evaluated. “This was fascinating,” he says, “precisely because Block Foods was taking a couple of steps back, looking at the big picture of its logistics operation.”
Duve explains that when generating a logistics balance sheet, it is crucial to determine all the factors that affect costs and revenue. The research posed central questions such as: How much profit can a company generate through logistics? What kind of losses will it incur due to poor logistics or logistics that have not been thought through?”
Block Food’s logistics requirement rests on both the internal flow of goods between their own restaurants, and the external supply of beef and convenience products to various partners and customers in the food production industry and retailers. Duve says that logistics acts as the backbone of Block Food’s internal and external supply chains and was thus a crucial pillar of the company’s business model.
However, the company had only measured delivery performance in terms of a ratio. Duve provides an example: “If a delivery didn’t arrive on time at a customer’s premises despite all plans and schedules, this had previously been reported internally as a ratio and wasn’t evaluated in terms of financial impact. Yet for Block Foods it was a fact that if the level of service was less than 100 percent, this would lead to complaints, returns, and subsequent rectifications that would result in the company losing money. Using the logistics balance sheet enabled Block Foods to evaluate the logistics performance and its potential for the entire company in terms of financial impact.”
While service levels can only be determined in a form that is specific to the company, for Block Foods, says Duve, the quality lever was seen to be far more effective in achieving a positive bottom line on the logistics balance sheet than the cost lever. This was an essential insight for Block Foods’ process management and how they can create value.
When oriented toward financial impact, the logistics balance sheet can be instrumental in identifying future strategic projects. In addition to the actual logistics balance sheet Duve says that Block Foods prepared a target balance sheet for the near future, which required consideration of how the company’s logistics would have to change in order to achieve those targets.
Duve says, “A logistics balance sheet can be a complex undertaking in that it requires assigning a value to every item. However, successful implementation can demonstrate a clear relationship between input and output and control these in the company’s interest. It is thus a compelling planning instrument for any company in ascertaining the true value of their logistics processes.”