September 20, 2021

Logistics Automation and Your Company’s Valuation

When you digitize, connect and automate your supply chain’s logistics function, chances are you’ve improved not only your operational economics, but also the big-picture value of your company.

A lot of factors are at play when determining valuation. And at the end of the day, it’s worth what a buyer is willing to pay. But there are some methods used to calculate a valuation. You can use a Price-Earnings (P/E) ratio for public companies. You can base the value on revenue; “times revenue” style valuations are popular, and paying two times annual revenues is a common method. Or you can base it on the value of assets or some appropriate cash flow arrangement. But however you do the math, automating your company’s logistics function truly can impact these numbers significantly. Let’s look at three specific ways.

1. Protecting your brand—and your book of business

Your customer base impacts not only revenue calculations but also overall perceived and actual value of the enterprise. When old-school manual logistics are in play, you can put customer retention at risk with every single shipment. This, in turn, puts your entire brand, and the value of your enterprise, at risk.

Take, for example, interfacing with carrier operations. Digital supply chains can connect you with real-time carrier data so that you know when a customer delivery has occurred (or hasn’t). These systems can let you track shipments visually on a map, understand in real-time how phenomena such as traffic or weather could impact your delivery and even get real-time alerts at different delivery milestones. If there’s a problem, your team can get in front of it while there’s still time to take action. You might even be able to work with the carrier to resolve things before the customer even knows there’s a problem. And if there’s no easy fix in the field for your carrier network, at least you’re able to proactively contact the customer to explain the issue, reset expectations and manage the customer’s experience.

Conversely, without the carrier visibility afforded by a digital supply chain, you might not be aware of the issue until you get a call from an upset customer. By then, the damage is done. While it’s unfortunate and sometimes unfair, companies do lose high-profile, long-term customers over everyday carrier performance issues. And if these issues happen at a bad time or go on long enough, brand perception can suffer. Your customer base could thin. And your company could be worth less as a result.

2. Reducing SG&A costs and improving profitability.

Digitizing and connecting your logistics function across the supply chain helps make your business more profitable—and valuable. One example? Using connectivity to take control of freight costs. In 2017, companies spent a record $1.5T on shipping —and that was before COVID. Supply chain connectivity means being able to plan freight spend more strategically, get information you need in real-time and better manage risk and cost every step of the way. Penalties. Expedited shipping. Inventory delays. Manufacturing bottlenecks. All of these potential pitfalls are minimized when your enterprise is digitally connected to carriers and trading partners.

We’ve seen digital logistics systems save shippers up to 10 percent on overall freight cost through automated:

  • Scheduling, time slot management and rate negotiation
  • Consolidation of orders and shipments
  • Matching of invoices to avoid mistakes
  • Streamlining of accruals for fewer surprises
  • Elimination of the need for freight auditing

It can also keep you from overspending on a transactional basis, helping nail down the most favorable terms with carriers. Because carrier data is all digital and available for real-time analysis at any point, you’re able to get hyper-accurate performance data for more efficient performance assessments. That means you’ll be in a better position than ever to negotiate rates and terms. All of these reduced costs make your business more attractive to potential buyers.

3. Optimizing return on capital and inventory investment

There is also a significant amount of value to be found in the overlap between logistics management and inventory management. One way this value can be realized is through improved visibility into terminals, warehouses and other third-party facilities. Typically these places each have their own distinct digital enterprise environment, making it tough to suss out shipment and inventory data accurately. But by digitally integrating third-party shipping and inventory data with these facilities at scale you can give your team the data it needs to optimize resources and inventory.

While not strictly a pure logistics function, another way digital supply chains can optimize return on capital is by enabling vendor-managed inventory. At predetermined inventory levels, interconnected back-office systems generate an order automatically, which is shipped via digitally-connected carriers to the manufacturer or warehouse where it’s needed. The new facility updates its inventory in real-time. No overspending on inventory that’s not needed. No shortages or production bottlenecks. Return on capital is optimized and waste is minimized.

Recent studies have shown that in a hyper-competitive, post-COVID world, companies are working much harder than in recent years to leverage logistics automation for more durability and uptime—as well as to leverage these tools in a way that will improve total cost of ownership, return on investment and customer service levels. So whether you’re just starting to assemble patchwork solutions to reach basic carrier visibility or looking for ways to take a global network from good to great—know that you’re investing in more than just improved operational KPIs, tactical efficiency or better customer service. You’re also investing directly in the overall value of the company.