Cost-cutting is an art and science at the same time (updated)

Cost-cutting initiatives are increasingly important for transport / postal companies in the current market environment. Companies must take steps to ensure that their operational and financial performance remains competitive, and cost reduction measures are instrumental in achieving this goal. By streamlining processes, identifying areas where spending can be reduced, and optimizing the use of resources, transport companies can realize significant expense reduction.?

Reduction initiatives can often be a double-edged sword. On the one hand, reducing costs can improve profitability and make the company more competitive. On the other hand, cost-cutting has several challenges and risks that should not be taken lightly. Firstly, it may result in reduced quality of services. Secondly, rebuilding resources after the recession may be even more challenging, and the cost-cutting effect will be harmful in the long term.?

Optimizing back-office functions is a great way to reduce costs and boost efficiency without negatively impacting core activity. Centralizing functions related to the functioning of the holding structure can be a first step to success. By consolidating activities such as accounting, payroll, human resources, and other back-office operations into a single unit or department, companies are able to streamline processes and cut down on redundant tasks. This helps improve productivity while also reducing overhead costs associated with multiple departments performing similar functions. Next, consolidating procurement activities and reviewing subcontractors can ensure that all purchases are made at the best possible price while maintaining quality standards. We can also identify areas where services could be outsourced to third parties to reduce labor costs.?

Operations is also an area where significant cost cuts do not have to be accompanied by lowering service quality and removing substantial resources. Reviewing the own or outsourced fleet will allow for the consolidation of first and last-mile service and reduction of rates for this part of costs, which usually accounts for 60% of the total. Optimization of delivery areas and delivery routes will also reduce costs for subcontractors. Developing and implementing the rules of "economic" driving style for drivers is essential in reducing fuel consumption, emissions, and other costs associated with vehicle operation.?

Postal operators often have a process stretched over many intermediate stages, which means that each shipment is touched and reloaded many times. Simplifying the process by reducing the steps will eliminate costs related to sorting operations. Reviewing the logistics network structure allows for finding these unnecessary intermediary points.

Often there are enormous costs associated with air operations. Possessing its own infrastructure at the airport usually is optional, and moving the office of exchange from an airport can bring significant savings.?

In the medium and long perspective, additional savings can be reached by the implementation of Robotic process automation (RPA) that businesses can use to streamline back-office functions such as data entry, customer and subcontractors service, payroll processing, and development of out-of-home delivery networks (PUDOs and parcel lockers), which significantly reduce the number of stops in the last mile.?

These are only examples from a long list of potential cost-cutting initiatives. However, due to habits, companies often don't see inefficiency in their processes. This means that when a business has been operating the same way for some time, it can become challenging to identify where improvements and cost savings could be made. In this case, hiring external consultants to support the initiative is highly desirable. If it is a team of industry experts, they will provide the third-party view; they will not be afraid of unpopular decisions and take some discontent, which usually is part of cost-cutting changes.??

The recommended approach is to formulate an independent team with a short decision-making process. Next, developing cost-cutting initiatives, testing, and validation. When developing initiatives, do not forget that employees have many recommendations but are afraid to share them. They will be more than ready to implement their own ideas. After validation, the team should be able to decide which of them go to the pilot phase without seeking approval from all stakeholders but with the strong support of an internal project sponsor. After piloting in selected regions or business units, the team decides on the final implementation together with a list of carefully selected and tracked KPIs.

Appendix:

Deutsche Post und DHL, following other postal operators, pushes regulatory bodies to change universal service regulations. Will it really bring any savings? With this move, there are associated some additional costs. Some of them are processing volume in different logistics streams, storage of deferred mail volume, and finally, one-off costs of restructuration. Not to mention the role of Unions in it. On the other side, there is a big promise to cut last-mile costs by decreasing daily delivery routes.

It may appear that our current delivery operations don't look as we thought, and in reality, e.g., the number of stops per day is reduced at the moment, or our change will only decrease the daily workload per person. The worst thing is to fire mail carriers/drivers and to notice that we need more people to deliver these two tiers of mail products.

The decrease in universal obligation service level is not only a no-brainer solution for cost-cutting in the postal World but implemented in a smart way should bring savings.

If you want to know more about the cost-cutting approach, you can always contact me.