Cost restraints are a shared barrier for businesses looking to improve their supply chain. Russell Pruden, Director of Finance at Körber, tells MHD the financial strategies industry leaders are implementing to continue investing in the robustness and longevity of supply chains.
In November, newly appointed governor of the Reserve Bank of Australia, Michelle Bullock, announced the first interest rate hike since June this year. Intended to combat inflation, the news was unwelcome for many Australian businesses, which are already grappling with high input costs, emerging wage pressure and labour shortages, particularly in critical areas such as warehousing and logistics.
Trade tensions and changing relationships with trade partners like China are impacting exports and imports, all while the dominance of e-commerce and online shopping increases the pressure on warehouse productivity and last-mile delivery services.
Research from KPMG shows 67 per cent of organisations consider meeting customer expectations for speed of delivery is a critical force impacting the structure and flow of their supply chains over the next 12 to 18 months. Supply chain improvements come at a cost, often requiring significant capital expenditures for technology, equipment, infrastructure, and process changes.
Russell Pruden, Director of Finance at Körber explains the current economic conditions make a thought-out business case for new supply chain investments crucial.
“Decision makers need to justify the costs of supply chain investments and ensure a positive return on investment (ROI),” Russell says.
“One of Körber’s differentiators is our ability to partner with our customers to ensure the investment makes financial sense, and we can also leverage our financing partners to assist in aligning financial payments with cost savings over time.
“Businesses are exploring options such as leasing or financing for new equipment and infrastructure, which may reduce upfront capital requirements and align costs with benefits over time. Körber work with financing partners to ensure that we can structure any financing requirements as competitively as possible.”
KEY INDICATORS FOR INVESTMENT
To monitor the health of any business, Russell identifies five key metrics:
- Inventory Turnover: How quickly inventory is sold and replaced within a specific period.
- Days Sales of Inventory (DSI): The average number of days it takes to sell a product after it is acquired.
- Cash-to-Cash Cycle Time: The time required to convert cash spent on inventory into cash received from sales.
- Perfect Order Rate: The percentage of orders delivered with all items in the correct quantity, condition, and on time.
- Supply Chain Cost as a Percentage of Revenue: The percentage of total revenue spent on supply chain operations.
According to Russell, improving these critical metrics is fundamental to organisational and supply chain success, and requires a long-term strategic outlook.
“Looking beyond the immediate wins and losses, organisations need to continuously improve supply chain processes to reduce costs, improve speed, and enhance overall efficiency,” he explains.
“Businesses must build resilience to disruptions by diversifying suppliers, having contingency plans, and investing in risk management. Embracing digital transformation across your supply chain, leads to real-time insights, ultimately bettering supply chain decision-making.”
TURNING TO TECHNOLOGY
Despite the rise of Industry 4.0 and the interconnectedness of technology systems, many organisations still rely on outdated legacy systems, including paper-based filing and data collection.
The old mentality of “if it ain’t broke, don’t fix it” still lingers across some workshop floors and warehouses, but was exposed over the COVID-pandemic, when most businesses realised investing in technology systems is a necessity, rather than a luxury.
“Supply chain professionals are investing in advanced inventory management tools to optimise inventory levels, reduce carrying costs, and minimise stockouts or overstock situations,” adds Russell.
“The investment in technology to enhance visibility, automate processes and improve decision-making can lead to further operational efficiencies and cost savings.”
Cloud-based supply chain software such as order management, warehouse management and transport management systems, with pay-as-you-go pricing models have a low financial barrier to entry, eliminating the need for expensive, on-premises hardware and IT infrastructure. Software as a Service (SaaS) is being increasingly adopted to simplify key business functions and lower costs.
“It is wise to leverage technology investments that have a high return on investment (ROI) and quick payback periods,” says Russell.
“Businesses are increasingly implementing cloud-based solutions, which reduce the need for large, upfront capital investments. Consolidating solutions such as Hardware, Software and Maintenance into one easy monthly fee reduces the administrative burden for businesses and improves ability to forecast cash flows, with no hidden costs.”
THE RISE OF ROBOTS
Russell identifies Robots as a Service (RaaS) as a key strategy, which will help transform businesses heading into 2024 – mainly because of how quickly the financial outlay aligns with ROI.
“If structured correctly, avoiding large assets on the balance sheet can have a positive impact on external requirements such as bank covenants and other financial constraints,” he says.
“RaaS frees up CAPEX investment to OPEX and builds a business case where investment is amortised across agreed terms. Rather than a huge upfront investment, businesses will be able to manage predictable, monthly costs much easier.”
Körber recently launched its RaaS program in Australia, which provides simple access to a global network of robotics service partners for every business size and industry.
In the program, a monthly operating expense model makes the technology more accessible to a different range of businesses. In the lead-up and during peak periods, businesses can increase the throughput of their orders by adding RaaS, and scale it back during quieter months.
“Businesses are looking for solutions which meet spikes in demand and solve the challenges thrown up by e-commerce volumes,” notes Russell. “We want to help provide flexible robotics solutions, which provide customers a sense of scale and sustainability.”
JUSTIFYING THE COST OF SUSTAINABILITY
Sustainability goals often require significant financial investments to achieve. However, when part of an overall solution, a little goes a long way, says Russell.
“A simple idea of embracing technology to eliminate paper or using digital barcoding has immediate positive impacts on the environment, but is also beneficial to a business’s bottom line,” he adds.
“Organisations should engage employees in sustainability efforts to identify cost-saving opportunities and suggest sustainable practices in their day-to-day activities.
“With advancements in solar, battery, and other renewable energy sources, as well as warehouse technology, we should see the total cost of supply chain decrease over time, which is a win-win for both organisations and the environment.”
For more information on Körber, click here.