Deployment funding and inventory management in the economic crisis

The ROI calculation, ensures a controlled investment with the focus to generate new revenue. Maybe the issue of deployment funding and inventory management in the economic crisis has been reduced to the conclusion –"that it may be a good time for a company to achieve a market success".

Warehouse management during the recession – reflections from JAS FBG S.A.

The logistics service market is a reliable barometer of the economic situation, because a reduction of production volume is the first signal of an imminent crisis and increasing stock levels of final products are only a momentary illusion. In consequence, the progressing recession influences the profitability of the warehouse space per square meter. With decreasing rotation, decreasing amount of additional services, and low stock levels, the warehouse space becomes only a cost, which is increasing along with the increase of the Euro exchange rate (as this is the currency in which warehousing costs are settled). If such situation continues, the logistics operator faces bankruptcy.

"At our company, we believe that the crisis is an opportunity to verify whether we are competitive on the service market and manage the warehouse properly," said Adam Jędryczek, logistics specialist, JAS-FBG S.A. "This is a test of customer satisfaction with the logistics services we provide. With the reduced volume of orders and moving stock, we can perform necessary optimization of such parameters as working hours, amount of equipment, and (which is the most painful aspect) employment, although the latter issue is not always connected with reductions, as proper personnel shifts may be sufficient. The fluidity of our customers’ situation and our flexibility in addressing it enables us to deploy new IT solutions."

That was the case with a customer which is a supplier of automotive parts to factories throughout Europe. Despite implementing barcodes in the warehouse, the procedure remained complicated, requiring administrative check of the lot number and part number and random checks of the part quality. In cooperation with the IT department of JAS-FBG S.A., an application has been developed which reads all necessary data from the labels and generates a file which can be easily checked against the order documents. This seemingly small improvement resulted in reduction of the palette storing time from two or more days to one day, reduction of the costs incurred by our customer, and reduction of labor in the warehouse. So the improvement was beneficial to both parties.

"In the present economic situation, labor costs are lower and qualified warehouse personnel is more available, which enables us to undertake projects with a high growth potential that could not be deployed previously due to the large volume of handled stock. Warehouse infrastructure and service providers currently offer a higher standard at lower costs, so it is a good time for entering into long-term contracts with service providers. Contrary to appearances, for a logistics operator the recession is a period of intensified efforts to introduce new solutions which will ensure smooth and profitable operations when the situation improves," added Jędryczek.

ROI and TCO: the costs and how fast they will be recovered

ROI (Return On Investment) and TCO (Total Cost of Ownership) are two indicators which realistically reflect the deployment costs and benefits. There are various definitions and formulas to calculate ROI and the calculation method is selected depending on the data expected by the investor.

With mathematical formulas for calculating ROI and TCO, it is possible to demonstrate how fast the company can make savings, which employees may be shifted to other tasks, how to reduce errors, and how to operate faster and more efficiently. Thanks to such analysis, we can offer the customer the so called "build-to-suit" solution, i.e. a solution adjusted to customer needs.

What is more, the ROI and TCO analysis uses precise data to calculate unit costs of operations. This enables the customer to obtain very detailed information on the operation costs and amount of labor. The consultant role includes not only preparing the report, but also suggesting changes.