Deployment funding and inventory management in the economic crisis – situation on the Polish market.

16.11.2009

How could polish companies exist in the time of recession? How could they find new opportunities and chance for development?

How could polish companies exist in the time of recession? How could they find new opportunities and chance for development? What kind of investment funding forms are offered by logistics companies to make the implementations real?

Crisis – threat or opportunity?
Specialists, consultants, salesmen from Consafe Logistics meet customers, companies and their problems every day. That’s why we decided to put all the most important cases and show all future and existing clients that the time of recession could be the time of working out the good market position and finding advantages.

As Consafe Logistics we would like to remind, that we offer not only products and solutions but we try to do our best to support our clients with knowledge and experience.

Let’s ask the question whether the crisis can and should be a pretext to stop investments and the company growth. Will the economic situation ever be so ideal that the managers responsible for strategic decisions come to the conclusion that the external and internal conditions are excellent, the overall economic situation is favorable, and the demand for products is growing and is satisfied by controlled supply?

For many companies, the crisis is an excellent moment to find new opportunities and develop a new offer. You may also look how your competitors cope with the economic slump: have they withdrawn from the market or rather created new offers adapted to the current situation, flexible and modular, allowing the customers to select the necessary elements? Are there new market players ready to take your place?

At this moment, it would be advantageous to conduct the SWOT analysis, to redefine your strengths, weaknesses, opportunities, and threats, to confront yourself with the competitors, and to define goals that can be achieved under the existing economic circumstances.

Each company strives for success
We know that each company strives for success. Effective business depends on many factors, both human and material ones. Even the best managers and specialists will not accomplish miracles if the company infrastructure is not at the highest (or at least satisfactory) level. So the success is the outcome of a well-chosen professional team and the internal systems deployed in the company.

Many companies have the same goal
The customers of logistics services include companies from many sectors, such as FMCG, automotive, food, industry, industrial supply, IT, telecommunications, services, retail, paper, power, etc. All those companies – our customers have the same goal: achieving revenue and competitive advantage. They also have another common goal: obtaining means to fund deployments and innovations to improve their business.

"We are aware of the current economic situation and the problems faced by our customers," said Jarosław Bukowski, Sales & Marketing Director, Consafe Logistics Polska. "Our company supplies mobile and WMS solutions which help not only to improve the company efficiency, but also to make savings in many areas of human work and material expenditures."

Ideally, the solution provider should also be a partner which effectively and actively works with the customer to find budget to fund the solutions. Presented below are some alternative deployment-funding forms from which every company may select the optimal option.

Investment funding forms – possibilities for Consafe Logistics’ customers.

Leasing
There are various investment funding forms. Leasing agreements are certainly among the most popular ones. There are many proven and reliable leasing firms operating in Poland. One advantage of leasing is a fast process of obtaining budget for the deployment. Through leasing, a company can finance both software and hardware (e.g. computers, terminals, barcode printers, etc.). A disadvantage is that the funds are granted only after a thorough analysis of the company’s financial situation. As a result, during the crisis leasing firms refuse granting funds to many companies.

Staged deployment
Another form of investment funding we offer is staged deployment. Each deployment is preceded by preparing a functional description, an analysis of the customer needs, and a plan to deploy the optimal solution. If the customer’s deployment budget is lower than planned or estimated after such analysis, the customer is advised to purchase the standard version and deploy it at the first stage. Then, subsequent stages and features to be deployed are specified, as well as the payment terms. With staged deployment, the customer can immediately take advantage of the standard version of the solution and has a clear system upgrade path.

Installment plan
Another option for funding investments is an installment plan agreed upon between the solution provider and the customer. With this option, the customer can deploy the solution and finance it in installments conveniently spread over a period of time. The title to the system passes to the customer after all installments are paid in full.

Investing in the customer
Many suppliers of WMS or mobile solutions as Consafe Logistics treat the phase of preparing the documentation and analyzing the customer’s needs as a form of investment in the customer and therefore do not charge any fees in the initial phase. The analysis costs are included in the total price only in the final deployment contract, if it is signed. However, such analysis is worth conducting whether or not it is free of charge, because if it is done properly, it provides the company with a wealth of knowledge about its current status, identified problems, and suggested measures to improve its operations. See below for more information about such analysis and about consulting services.

What is interesting for our customer
Before our salesmen start the talks, it is worth considering what information the customer expects from us as the service provider. Many customers are certainly interested in the benefits of the deployed solution. They want to know how fast the investment costs can be recovered and when the system starts to bring profits. The customer should be aware already at the initial stage that the costs will include not only the purchase price of the system, but also the costs of its operation throughout its lifecycle.

Role of the consultant at Consafe Logistics
If a company which plans to deploy a system, the best solution is to take advantage of consulting services. Consafe Logistics often offer this kind of services, and the performed analyses enable identification of resources which can be used, as well as problems in the warehouses, bottlenecks, issues requiring special focus, areas for improvement, and areas of potential savings.

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.

Warehouse management during the recession – JAS FBG S.A. - Consafe Logistics customer describes current situation.
This section presents the issues resulting from the current economic situation, faced by companies which operate warehouses. We asked our customer – JAS FBG SA (they use Consafe Logistics bar codes system) to give a short information about management during the recession.

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.

Summary
The economic recession may be a good time for company development. It is a time to conduct internal and external analyses, define the goals, and determine the tools to achieve them. In case of investments, it is worth considering whether the funding can be found only inside the company or through other means. The ROI calculation, whose examples are provided above, ensures that the incurred expenditures will be recovered and will generate new revenue. So it seems that the issue of deployment funding and inventory management in the economic crisis has been reduced to the following conclusion: the crisis, similarly as any other phase of the economic cycle, may be a good time for a company to achieve a market success.

Consafe Logistics is always with their clients to help and cooperate together to win a goal.