9 November 2016

It’s not about the money, money, money

Research from Barclays and Moore Stephens, in conjunction with specialist sector research agency Analytiqa, has found that confidence in the UK Logistics sector has dropped to its lowest point since the index began (2012).

Continued, but slow growth, in the economy combined with a pressure to cut costs is considered to be a key factor for the slip in confidence, and this has been intensified by other difficult business conditions such as skills and warehouse shortages. But is it all about the cash, or is it about the customer? Our latest blog explains…

Many retailers and manufacturers have found themselves under pressure to reduce their costs; largely driven by customers’ demands for more flexible delivery and returns options but also their unwillingness to pay for them.

Yet, while price is still a prominent factor, is cost really the only factor brands should be considering as we move into 2017?

There is no denying that conditions are difficult – and particularly uncertain in light of the recent Brexit vote – so it is understandable that there may have been a drop in confidence. 25% of operators from the UK Logistics Confidence Index, for instance, say they expect no change in their profits over the next 12 months, so perhaps it’s not surprising that these same businesses will be unlikely – or at the very least, less likely – to make any significant capital expenditure in the coming months. This ‘significant expenditure’ could however refer to investments in major assets in such things as technology and more warehouse capacity.

While we must point out that the research still clearly indicates a willingness invest by the majority of operators (71%), the level of those who are likely to invest has dropped overall. Our interpretation, is that this research could point to the start of a very worrying trend of extreme caution when it comes to investment for the logistics sector in the future.

What could go wrong?

Cost savings are a short term gain but this short-sightedness could bring long-term problems. As the UK Logistics Confidence Index makes clear, “the sector needs to continue making investments in technology in order to drive greater productivity and efficiencies, reduce costs and improve client service – critical for winning and keeping new business.” It also found that “respondents are concerned that a sustained price war could cause long-term damage to the logistics industry.”

So is a focus on cost going to do more harm than good?

Value added service has always been a key factor in the logistics sector, yet this research makes clear that price competitiveness is rising to become the top priority (31% vs 26%). It would be potentially damaging to the industry – and to UK businesses – if the priority of services was shifted completely to cost, with less importance placed upon value-add. Value added services can, after all, also found to bring higher profit margins, as can investment in improved technology solutions.

What do we know about value add?

Our research, also conducted this year in conjunction with Analytiqa, looked specifically at the aftermarket and again shows both the benefits and importance of value added services…

We found that there are no longer ‘standard’ aftermarket supply chains, as businesses continue to try and meet the growing demands of their customers. Instead, there are increasing layers of requirements and therefore providers must prioritise a greater range of services and demonstrate sector best practice across all areas in order to meet the needs of these individual customers. 

Cutting costs cannot be done at the detriment of the customer and this means there is a careful balancing act that needs to happen between capability, efficiency and customer service. Logistics partners must also be able to keep pace with today’s increasingly consumerised landscape to add value and support aftermarket practitioners achieve customer service excellence.

Brand loyalty is the overarching element here that businesses must never lose sight of. If a delivery or returns service is poor, customers will quickly tell you in one way or another if they are unhappy. In a best case scenario this is verbally by making a complaint or worst by taking action, and this could result in a loss in sales.

Looking closer at the aftermarket specifically, here are just a few examples of how value can be really be added to the services that business receive…

With requirements being driven by customers’ demand, and at such as pace, flexibility and the ability to offer a range of services in key. This might include deliveries and installation, or a completely bespoke pick pack and dispatch service.

A technology enabled solution is also crucial and this will offer more visibility, flexibility and reassurance, reducing valuable management time on the part of the business who previously might have struggled to measure and monitor.

Improvement in visibility via technology and real-time reporting will also enable smoother communications and deliver greater foresight into potential pitfalls. Providers can also add value by drawing upon expertise from other businesses and industries to bring greater value too.

Final thoughts

Pressures from customer demand for reduced costs and a greater variety of service is one that will surely continue into 2017; and one that businesses can no longer ignore. Customer satisfaction is key, and crucially this means a bigger focus on value-add and not simply a blinkered view merely on cost. Investment and innovation is critical to help businesses offer a better service, that could mean they make it or break it in the potentially difficult and uncertain economy of 2017. Intense competition and higher costs are likely to impact on profit margins, however, businesses need to keep their eyes on the long-term gains to ensure they are not left behind.

If you’re struggling to meet the demands of your aftermarket, or to offer value-add services to your customers, then give us a call today to find out how we can help you. To speak to one of our trusted experts simply contact 01795 413602 for a friendly chat.