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ID Challenge Report: Improving profitability in the distribution and logistics sectors

Organisations operating in the distribution and logistics sectors have been facing significant challenges in recent years. Margins are tight, costs are rising and legislation and regulations are piling on the pressure.

These sectors are critical to the wider economy in the UK and beyond. So it is vital that they are supported to grow their businesses, boost their impact and improve their profitability.

Our work with organisations in this area shows us that the opportunities to achieve these growth goals are all there. It’s just a matter of understanding where to look, and having the data visibility across the business that produces actionable insights.

In this report

We’ll talk about the five challenges we see businesses in these sectors facing:

  • Pricing strategy
  • Economic uncertainty
  • The labour market
  • Business priorities and cash flow
  • Forecasting and planning

This short report highlights our view of the challenges facing distribution and logistics businesses today. If you’d like a chat about how these challenges are facing your business, you can contact us here to book a call.

The five challenges you face

We know that companies in this space face unique pressures, brought about by the nature of the market and reliance upon economic factors that are largely out of your control – such as fuel prices.

Looking across the companies we’ve worked with in distribution and logistics, we’ve identified five challenges that are common across the board.

Challenge 1: Pricing strategy

Pricing has historically been a challenging area for companies in these sectors. There has been no standardisation of pricing, and a competitive market means businesses feel they must keep prices low. 

This results in lower profitability, and margins have been difficult to calculate because finance departments often still operate with a range of technologies from ERPs to spreadsheets and perhaps other legacy systems in between.

Creating a competitive, yet profit-driven pricing structure requires a clear and accurate understanding of your entire pricing cycle. Without this, it’s very difficult to raise your prices – and therefore to improve your operating profit.

Challenge 2: Economic uncertainty

Whether your business concentrates on the UK or is servicing customers and markets around the world, economic factors have a significant impact on your profitability. Price fluctuations are difficult to predict and can come from any angle – freight charges, fuel costs, additional paperwork, currency variations and more.

The better you can understand the potential impact of these changes on your business, the better you can plan. Access to real-time sensitivity analysis and scenario planning, for example, could help you to head off some issues in the pass. And that in turn can help with forecasting for better profitability.

Challenge 3: The labour market

All sectors are still struggling to recruit the talent they need. From construction to hospitality, it’s hard to recruit good quality, experienced staff. For your profitability, this means two things:

Keeping an eye on recruitment plans and costs, particularly if you use recruitment agencies.

Understanding the efficiency of your current workforce and how you could change things to make cost savings.

This isn’t about reducing your headcount, necessarily. It’s about understanding whether you’re using your resources in the best way. Would different route planning make your teams more productive, for example?

Challenge 4: Business priorities and cash flow

Does your business model support reliable cash flow? Distribution and logistics companies often have different types of contracts – from very short term, immediate requirements to contracts that cover several years. 

Managing the contract terms for payments across this diverse way of working can give you a cash flow headache. So you may need to look at the proportion of your commitment to each type of business, assess the particular benefits and challenges of that market and see how you can plan to make sure cash is coming into the business when you expect it – and when you need it.

Challenge 5: Forecasting and planning

This challenge exists because of the impact of Challenges 1-4. A lack of clarity in terms of cash flow, pricing, efficiencies and economic factors makes it difficult to plan ahead. Yet you need to do this to satisfy stakeholders and to ensure your business is fit for the future.

This is often the area of finance that delivers the most stress to CFOs, finance leaders and their teams. Stress affects the productivity of your department, slows things down and makes for a troubled working environment.

For that reason alone, it’s a good idea to look for ways that you can introduce faster, more reliable and easier forecasting and planning into your business.

Reflecting on your priorities

Every business is different. So while these are the challenges we have come across most often, we know that you may have specific issues that you need to address in order to improve profitability. 

Book an initial no-obligation discovery call with our team to find out how we can help you too.