Promises of quick payback never fail to grab management's attention. But when it comes to selling your great idea, don't underestimate the power of the "soft" returns.
David Maloney has been a journalist for more than 35 years and is currently the group editorial director for DC Velocity and Supply Chain Quarterly magazines. In this role, he is responsible for the editorial content of both brands of Agile Business Media. Dave joined DC Velocity in April of 2004. Prior to that, he was a senior editor for Modern Materials Handling magazine. Dave also has extensive experience as a broadcast journalist. Before writing for supply chain publications, he was a journalist, television producer and director in Pittsburgh. Dave combines a background of reporting on logistics with his video production experience to bring new opportunities to DC Velocity readers, including web videos highlighting top distribution and logistics facilities, webcasts and other cross-media projects. He continues to live and work in the Pittsburgh area.
Ten years ago, Sandford Grossman says, a project manager's job was much easier when it came to getting a new venture under way. In those days, he'd basically decide what equipment he'd need, run his request through a brief approval process and set the acquisition in motion. Today, however, it's a far different story. Before they get even preliminary approval, managers can expect to field a lot of questions about the project's expected payback period. And that's not just true of private corporations. Nowadays, even the federal government demands to know what sort of return on investment (ROI) each project will bring.
Take the assignment Grossman was recently handed: choosing a new warehouse management system (WMS) to replace legacy software at the Herndon, Va., distribution center run by SOC Enterprises. (SOC Enterprises, where Grossman works as a project manager, is the literature distribution arm of the government's Agency for Healthcare Research and Quality.) Besides figuring out which WMS fits best with the agency's enterprise system and material handling design, Grossman and his consultant, Ernie Schell of Marketing Systems Analysis, found they had another non-negotiable requirement to meet: the software they chose would have to pay for itself in three years (a requirement that was later trimmed to two years).
It's not that Grossman doesn't appreciate the need to make the ROI case. "When you can put the dollars and the time for a project to pay for itself in front of management, [that] takes the bite out of it," he says. Still, documenting the projected financial benefits of a new WMS hasn't been easy. What has helped, Grossman says, is that he's been able to identify all kinds of compelling "extras" additional benefits that don't necessarily factor into the ROI equation but nonetheless bolster his case. For starters, he's been able to convince management that a new WMS will allow the facility to use its labor better and increase its through put. "It also gives us a great deal of upward mobility, such as RF, inventory control and greater operating efficiencies," says Grossman. These kinds of benefits are tough to quantify, which means they rarely make it onto the official spreadsheet. But they still can have a significant impact on a project's return.
ROI's still king
In 2005, it seems, obtaining approval to buy technology or equipment has become a numbers game. "Companies are tightening the belts on what they spend on new equipment. They're investigating their options more [thoroughly]," says David Kumle of DLK Consulting in Kirkland, Wash. "Return on investment remains the driving force of any project."
For a lucky few, it's a slam-dunk. Take, for example, a regional LTL trucking company in Wisconsin that loads 90 to 95 percent of its freight using forklifts. Several years ago, a manager noticed that the trucker's customer billing failed to reflect actual weights and recommended that the carrier invest in 20 forklift scales that would allow it to bill more accurately. Given that the projected return could be measured in days, not months (the scales paid for themselves in only 45 days), his recommendation sailed through the approval process, reports Marc Mitchell of Enterprise Information Solutions, a company that served as a consultant on the project.
But most managers don't have it so easy. Often, the more compelling case is not to be found in the "hard" (quantitative) returns, but in the "soft" (qualitative) benefits. "You have the hard economics, which are shown in a quantitative analysis, but then you have a qualitative analysis. How is this going to [improve] our customer service? Is this option going to be easier to implement?" says Dale Harmelink, a partner in Tompkins Associates, a supply chain consulting firm based in Raleigh, N.C.
Typical qualitative improvements include better labor utilization, ease of training and improved accuracy. For example, a new storage project might result in better cube utilization, a smaller footprint or easier access to product. Installation of a new transportation management system might lead to improved freight billing, better route management and denser loads all very real improvements, albeit tough to quantify. For that reason, the soft ROI is usually a "trust me" sell to management, says Mitchell. And though he doesn't discount the soft benefits, he recommends that project managers concentrate first on those things that can be more easily quantified. "You should make your decisions on hard ROI," he says. "Then if the soft comes, that's just gravy."
Running the numbers
Questions of hard or soft returns aside, how do you go about calculating ROI? A good place to start is with the software or equipment's vendor. An experienced vendor is likely to have a good idea of what kinds of returns its customers can expect. Once you have that estimate in hand, schedule a meeting with your corporation's CFO to determine how the company analyzes costs. You'll need to find out how it calculates projected tax rates, inflation, inventory carrying costs, labor costs going forward, salvage value, borrowing costs and depreciation. Depreciation alone can have a big impact on a project's ROI. For example, a rack-supported building that is considered to be equipment can be fully depreciated in as little as seven years a fraction of the depreciation period for a traditional structure.
The ROI calculation should include both initial investment costs and annual operating expense. Figure on spending 10 to 12 percent of the initial cost for ongoing support and maintenance, depending on whether support will be provided by the internal staff or by an outside contractor. If the project involves hardware, the calculation should also include a repair parts inventory as well as costs for storing those parts. If the project requires a software upgrade, be sure to include the cost of integrating the package into the legacy systems.
Above all, take the long view when you run the numbers. Companies whose calculations focus strictly on payback will get a distorted picture of the ROI. Instead, your calculations should reflect any savings that will continue to accumulate even after the software or equipment has paid for itself."It's not just how long it takes to recoup the investment," says Mitchell, "but how much you'll save after the investment is recouped."
before you make the pitch …
Even the best idea will go nowhere if you can't provide the CFO with a clear idea of the project's payback period. But delivering a successful pitch is about more than just identifying the projected return; it's also about conducting a sound analysis and making a strong presentation. Here are some tips for getting it right from the start.
Consider all the options. It's a rare problem that has only one solution. Make sure you consider all the alternatives. If you're looking for a new way to move products, for example, restricting your focus to conveyors could cause you to miss out on an excellent opportunity to use automatic guided vehicles. And focusing solely on a pick-to-light system to boost productivity could cause you to overlook a chance to try voice technology or an RF (radio-frequency) system. After you've weighed the advantages and disadvantages of each option, it's time to narrow the field to three or four possible solutions for more detailed investigation. Remember that your cost comparisons should include the cost of operations if they were to remain unchanged and, if applicable, the cost of outsourcing the task under review.
Plan for the future, not for the present. "Don't box yourself into a corner. You need flexibility if your business or customer requirements change. Make sure you have the equipment and space to adjust," urges Dale Harmelink of Tompkins Associates.
Resist the temptation to take shortcuts. Be sure your presentation includes all the various options considered in your analysis, including the expected costs of each and the payback expected. Also point out how inaction or delayed action may affect future operations.
Have your figures at hand. Review the full installation costs and offer recommendations for when any installation work should be performed. The last thing you want to do is cripple your operations by transitioning to a new system during peak season.
Show how each proposal affects labor needs. Is the current staff sufficient to operate new equipment? Is additional training necessary? How much ramp-up time will be required for your operation to achieve peak efficiency?
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”