How businesses can take the bite out of surging freight costs

When costs increase and profits are squeezed, businesses should review their cash flow at a granular level, writes Oracle NetSuite’s Jason Toshack. He shares his top tips to offset rising freight costs and maintain business cash flow.

Transport fuel prices may have dropped from the record heights they have reached this year, but freight and logistics costs remain high, putting pressure on businesses.

According to the Australian Bureau of Statistics (ABS), high freight costs, supply constraints and strong demand have driven price increases for durable goods such as furniture and motor vehicles in Australia. Indeed, the effects of higher transport prices are felt in almost every aspect of our lives, significantly on everyday items such as groceries. Australia’s all-important consumer price index (CPI) – a primary indicator of economic inflation trends – grew by 6.1 per cent during the 12 months ending 30 June, according to the ABS.

This means that businesses are also feeling the pain of higher costs associated with physical products. Each leg of the transport journey is costing businesses more, whether receiving stock to sell or shipping goods to customers. This is putting pressure on profit margins and forcing many businesses to push their prices up to cover rising costs.

When costs increase and profits are squeezed, it’s important for businesses to review their cash flow at a granular level. Access to real-time data is highly effective for businesses to work out how to adjust their pricing and keep their costs in check. This ensures they can maintain a balanced book that keeps them in the black.

This can be a complex process with many moving parts. Here are some of the top tips to keep in mind when attempting to offset rising freight costs to maintain business cash flow.

Firm up finances

It is essential for any business to keep a close eye on cash flow. However, financial performance is sometimes not fully known in detail until after the monthly close. It might not even be clear until after the end-of-quarter close.

In a trading landscape affected by fast-moving changes, you may not have the luxury of waiting to work out how costs are stacking up against earnings. Without real-time insight, a business could begin its next quarter only to realise later that its books for the prior quarter are in the red. This delay can make it difficult for a company to adjust its internal prices and costs swiftly enough to claw back the ground it has lost financially.

However, it’s not always easy to gain clear, granular insight into cash flow in real time. Many companies use multiple business management systems that aren’t linked. This creates data silos that don’t talk to each other. In these scenarios it’s sometimes tricky to work out which figures are correct. It’s also time consuming to reconcile the various figures from disparate parts of the business.

A single business management system that can touch upon every part of the business, or can cleanly integrate with other systems, helps a business gain the visibility needed to stay on top of finances. Real-time financial data from across the business can deliver instant insight that will help business owners balance income and expenses with more agility. They can plan better and keep up with the pressures of fluctuating shipping costs.

Inventory insight

For businesses that buy and sell physical stock, the money sitting in inventory adds up and can be one of the largest expenses for retailers. When stock comes in at a higher price point than usual due to increased freight costs, more money can be tied up in stock than what the business can bear.

This is why it’s important for businesses to get a handle on their inventory management. A comprehensive, up-to-date insight into inventory gives insights into inefficiencies in stock management. You can identify and deal with any surplus items quickly. There’s no point spending more to order stock at a higher price point due to shipping cost increases, only to have it sit in the warehouse.

However, when your business system extends to the warehouse and inventory management infrastructure, you gain greater insight into what’s moving and what’s not at any given time. You can then budget appropriately based on current and anticipated demand.

Historical sales data helps a lot here, too. Every year has its unique fluctuations, but demand cycles tend to repeat year after year. By using a unified business system to incorporate past sales figures and tie them into forecasting processes that also take into account current conditions, a business can gain a clearer picture of how much it should be spending on stock at any given time.

Shoring up the supply chain

While additional freight costs associated with stock delivery continue to bite, it makes sense for businesses to streamline the supply chain as much as possible. That way you remove any potential inefficiencies and expenses that might further increase the impact that freight and logistics prices might have.

For businesses such as manufacturers that may have multiple supply chains to manage in the production of their goods, it’s helpful to have visibility from suppliers’ warehouses, to manufacturing, through to customers’ purchase of those goods.

Using a business system that has procurement management capabilities, companies can gain the insight needed to follow goods all the way through the supply chain. This visibility has the potential to make the supply chain process more efficient and helps identify ways to save costs.

To reduce the cost of freight per item, a simple solution is bundling products together into a larger shipment at a later time if they’re not needed immediately. But you need real-time insight into the supply chain to get this right – something an end-to-end business management system can offer.

Tapping tech to tackle market realities

Transportation prices are leading the inflationary trend in Australia. As a result, many businesses which buy and sell physical goods have been hit with rising costs.

But with the right systems in place to provide real-time insights, companies can adjust their pricing appropriately to help offset increased freight costs.

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