MGT 325 Mitigating Risk in Transportation Costs
Mitigating Risk in Transportation Costs
Derek Aguilar
MGT 325
Stephen Griffith
January 26, 2015
Mitigating Risk in Transportation Costs
Managing a supply chain is filled with risk. Local economic trends can cause the costs of production and transportation costs to fluctuate frequently. Companies that operate on a global scale can see these costs multiply exponentially due to the volatility of global socio-economic markets. Organizations can use financial data to optimize their efficiency, identify weak spots in their processes and develop strategies to cut costs and mitigate risk. There are three core costs the organization can analyze to collect usable data: accounting, economic and social costs. This paper will analyze these three different costs and discuss how they can be used to mitigate risk in transportation. Accounting costs are the most basic and straightforward of the three that we will consider. These costs make up all cash expenditures associated with running the business. This would include the cost of supplies, asset acquisition, labor, fuel, maintenance and depreciation. The final price of a product or service is largely determined by these costs. As an organization identifies how they are spending capitol, they can then understand how to adjust their model to become more efficient and cost effective. If labor costs are high, the firm could evaluate their processes with the intent to eliminate redundant processes and combine departments that have similar functions. Redistributing responsibilities is one way to cut payroll hours and reduce overall costs. A transportation firm could also address their approach to the maintenance of their fleet. Excessive wear and tear on equipment can reduce the time an asset is in use and shorten the timeframe for when it needs to be replaced. Increasing spending on the maintenance budget and focusing on preventative maintenance could increase the life of the fleet and reduce
Derek Aguilar
MGT 325
Stephen Griffith
January 26, 2015
Mitigating Risk in Transportation Costs
Managing a supply chain is filled with risk. Local economic trends can cause the costs of production and transportation costs to fluctuate frequently. Companies that operate on a global scale can see these costs multiply exponentially due to the volatility of global socio-economic markets. Organizations can use financial data to optimize their efficiency, identify weak spots in their processes and develop strategies to cut costs and mitigate risk. There are three core costs the organization can analyze to collect usable data: accounting, economic and social costs. This paper will analyze these three different costs and discuss how they can be used to mitigate risk in transportation. Accounting costs are the most basic and straightforward of the three that we will consider. These costs make up all cash expenditures associated with running the business. This would include the cost of supplies, asset acquisition, labor, fuel, maintenance and depreciation. The final price of a product or service is largely determined by these costs. As an organization identifies how they are spending capitol, they can then understand how to adjust their model to become more efficient and cost effective. If labor costs are high, the firm could evaluate their processes with the intent to eliminate redundant processes and combine departments that have similar functions. Redistributing responsibilities is one way to cut payroll hours and reduce overall costs. A transportation firm could also address their approach to the maintenance of their fleet. Excessive wear and tear on equipment can reduce the time an asset is in use and shorten the timeframe for when it needs to be replaced. Increasing spending on the maintenance budget and focusing on preventative maintenance could increase the life of the fleet and reduce