January 2012

The New Year is traditionally a time for predictions and resolutions - and this month's Lucidea Letter is no different.  I've set myself two tasks - to guess what the most important trends in our business environment will be this year; and to choose some resolutions that will help you manage the changes.

So here goes.

TREND #1: PRESSURE ON MARGINS

We can be sure that there will continue to be pressure on margins in 2012.  I've checked several forecasts of disposable income, and almost all of them predict it will stay static or fall.  Not only that, it seems likely the Euro exchange rate will shift, and make imports cheaper and exports more expensive.

 What does this mean for us in logistics?  A continuing need to cut costs, of course - and that's no surprise, I'm sure.  That means your most important task in 2012 will be to keep finding those savings - all over again. 

How can you do this?    There aren't any easy answers, but, to give you a start, here's what I always look for when I'm called in to save money for a company.  Make it your resolution to focus on these three things.

First of all, find out where you're spending the money.  It's a lot easier to cut 2% off a £500,000 budget than 20% off £50,000 - but they both save you the same amount.

Now you know where to look, can you change the way you do things?  In particular, can you cut out whole activities?  Remember - the simplest way to cut cost is to stop doing something.  That may sound impossible, but you'll be surprised how often you can find a process that you once needed - but that doesn't add value any more.  Here's my technique for finding these processes.  Instead of asking yourself "HOW can I do that better?" try asking "WHY am I doing this?".

Then, in these activities you're keeping, check that your resources - in particular, your people - match the amount of work you've got.  If you're paying people to be at work when there's not really enough to do, or paying overtime rates because you've got work but no people, you're just throwing your money away.

The other thing we can be sure of is that there will continue to be a shift from the high street to on-line shopping.  As just one example of this trend, take a look at John Lewis's results for December 2011.  Like-for-like sales for their whole business were up by (an amazingly good) 6.2% - but their on-line sales were up by a massive 28%.  That certainly tells a very clear story.

With numbers like this, it's easy to assume that on-line sales are a money machine.  But it's not quite like that.  On-line shopping may increase your sales - but that's not the same as increasing your profit.

Although you don't have all the costs of retail property, staff and stock, it's easy for the cost of picking and delivery to get out of control.  You still need to do all the hard work to make sure that you can fulfil each order for less than your gross margin.  Otherwise you're throwing money away again.  And there are some companies that have made that mistake.

Trend #1 is continuing pressure on margins - which means Resolution #1 is to focus on the three key elements of cost saving: go where the money is; look for activities to eliminate; and make sure your resources are matched to your work content.

Trend #2 is that on-line sales will continue to grow.  And Resolution #2 is to take advantage of that growth - but don't forget to do your planning.  You need to make sure you can fulfil that growth profitably.

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