Pay 10,000€ now or 450,000€ next quarter?
Material shortages and global supply chain disruptions used to be rare.
Now they happen almost daily. And if you’re not properly equipped to handle them, they can be extremely costly affairs:
- Production stops
- Unfulfilled orders
- Dissatisfied customers
- And the list goes on…
We have all heard stories of manufacturing companies that were crippled by unpredictable shifts in global logistics. And it seems almost as if it can hit anyone without rhyme or reason.
But is that really the case?
We would beg to differ. Because we have found that a lot of logistics is reactive and always attempting to catch up to demand but never quite making it.
If that’s the case, then any disruption in the supply chain is just going to send them even further back – to before the stone ages.
And that does seem to be what has happened to countless businesses from retailers to producers to shipping.
However, what would you do if you were asked if you were willing to pay an extra 10,000€ for shipping right now to avoid a production shutdown next quarter?
Hopefully, you would answer yes.
Since that exact scenario actually played out for us.
Heidi Krag Kristensen who’s responsible for Global Logistics & Supply Chain at Kohsel made that proposition to one of our clients that produces variable frequency drives.
She discovered how a change in the forecast for the coming 6 months, combined with longer delivery times for shipping by sea, would lead to a shortage of critical components for the client.
So Heidi asked them:
“Would you be willing to pay an extra shipping expense of 10,000€?”
They were hesitant.
Who wouldn’t be?
But the tune quickly changed once they realised the significance of the proposal. Because, while no one is particularly happy spending an extra 10,000€ on anything, that kind of short-term thinking has brought countless companies to their knees.
So they acquiesced.
The plan changed from slow shipping with cargo ships to immediate transportation of the essential components by air. And that swift action made a huge difference since a
production shutdown could have cost more than 450,000€.
In the end, Heidi’s proactive approach to logistics and experience with interpreting forecasts saved the client from an expensive shutdown for the cost of only 10,000€.