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Question from Robert:

What is the real total cost of load failures and rejected loads?

 
Answer:


Hi Robert,
You have invested significant time and money in developing, producing, and selling a great product, but all that is wasted if your customer rejects a load, or if it arrives damaged. There are, of course, the obvious costs such as the product itself, the transportation to your customer, and the return to your facility (by the way, transport costs have been steadily escalating). But there are some substantial costs that might easily be missed. These include disposal fees, clean up fees, fines, missed customer deliveries (and if you run 24/7, you may not have the production bandwidth to replace failed or damaged loads). There is one other critical impact to your business that you want to avoid at all costs, and that is the loss of your customer’s confidence because of interruptions to their operation or lost revenue. While those costs do not show up on the operating statement or balance sheet, they directly impact the growth of your business.

Here is the age-old challenge; protective packaging is part of the COGS (Cost of Goods Sold), a key metric reviewed by management. The typical objective is to make that as low as possible. Costs associated with load failures are sometimes buried in other GL expense accounts, which may not have the same focus by management. Lowering COGS by reducing protective packaging can make someone look like a hero but is often more than offset by higher indirect expenses. Even though they are related, you may be responsible for one and have no control over the other (which sounds like a typical Catch-22 to me).

So, to put a bottom line on this… the hard cost normally runs in the thousands of dollars for each load failure. While that is bad enough, the loss of customer confidence is far worse (and its effects are long term).

Now that I have totally depressed you, let me give you some good news. We can help you develop a load containment standard that can reduce or eliminate load failures (indirect expense) AND also minimize your cost for protective packaging (COGS). No more Catch-22!   

Thanks for asking!

Steve