Tag: logistics

Logistics Tops 10% of U.S. GPD

U.S. logistics costs just topped 10% of the country’s gross domestic product (GDP) in 2007. The recently released 19th Annual State of Logistics Report revealed that logistics costs for 2007 were just under $1.4 trillion. The report is sponsored by the Council of Supply Chain Management Professionals.

GDP figures for 2007 were up from 9.9% in 2006 and matched 1998 figures. In the intervening years, only 2000 resulted in a GDP figure above 10%. With the exception of 10.3% in 2000, total spending as a percentage of GDP declined steadily from 1998 to a low of 8.6% in 2003 before beginning a slow rise. Financial experts predict a drop in GDP spending figures for 2008 citing the slow economy, high fuel costs, the mortgage crisis and the resulting credit crisis.

The report indicated significant increases in total business inventories. In 2007 inventories rose 8.7% and an additional 3.7% in the first quarter of 2008. At 5%, commercial interest rates were at 5-year highs. Commercial paper rates were just 1% in 2003 and 2004.

Not surprisingly, motor carriage led logistics spending at $671 billion or 79% of transport costs and 48% of total costs. Motor carriage costs rose 6.1% in 2007. With diesel prices edging past $5 per gallon, 2008 carriage costs are expected to be significantly higher. Logistics companies and shipping firms are feeling the pinch of rising fuel prices. With no relief in sight, shipping companies are hurting and many smaller firms are going under.

Increased fuel prices are expected to have a deleterious effect on 2008 GDP figures. Logistics industry gains realized in 2007 may well be lost. How desperately the overall economic picture will be affected remains to be seen, but experts don’t think it’s looking good. Losses are expected across the board.

Part 3: Why Businesses Fail

The business section of the newspaper seems to carry daily notices of failing businesses. Despite tighter requirements, bankruptcies are up. Businesses are succumbing to a combination of the economic slowdown, tighter credit and high fuel costs. Today we continue our series on why businesses fail (see our July 14 and 16 posts).

Most business fail for a combination of reasons, including:

  • Poor collection practices. It’s not enough to make the sale; you have to collect the money. While this should be obvious, many businesses fail to initiate or maintain good collection practices. Just like sales, collections should be a daily task. The biggest mistake many businessmen make is to allow late accounts to go too long before starting the collection process. Many customers will take advantage of the traditional 30-, 60-,  90-day payment schedule. Try aging your accounts receivable by the 15th and month end or even weekly. The sooner you start collections, the better the chance of collecting and the faster your money turns over.
  • Lack of experience in basic business know-how. On-the-job experience is an effective teacher, but the lessons can be costly. Develop an ability to learn from the experiences of others. Education, keeping up with industry journals and publications and attending professional conferences and seminars can offset a lack of personal experience. Meeting with other businessmen through professional organizations or social/community service groups provides a valuable opportunity to discuss common business problems and issues.
  • Poor location. For retail businesses that depend upon walk-in or drive-by trade, poor location can be disastrous. Manufacturing and industrial concerns require easy access to freeways and other transportation routes for both delivery of raw materials and shipment of finished product. Convenience and visibility are key. 

    To be continued

Part 5: Why Businesses Fail

At DJ Products we believe in the value of learning from experience — ours, our customers and the business community at large. It’s not necessary to reinvent the wheel. The savvy businessman will learn from the experiences of others and turn that knowledge to his advantage.

With that in mind, we’ve been talking about why businesses fail (see our posts starting July 14). The economy is down, credit is tight and fuel is up. Times are tough and many businesses are struggling to survive. Taking a look at the most common reasons businesses fail may help us all to avoid the same pitfalls.

Continuing our list of why businesses fail:

  • Unwarranted personal expenses. The news is fully of greedy or sloppy businessmen (and politicians) who now find themselves fired or even jailed for using their business as a personal expense account. Hard-working businessmen deserve to profit from their labors, but they also have a responsibility to set an example of fiscal responsibility for their employees and create a profit for their shareholders. You need to be profitable to earn the perks. Set clear policies for charging expenses to the company that follow IRS guidelines and regulations. Set an example for employees and monitor expenses regularly to curb abuse.
  • Unplanned expansion. Entrepreneurs eager to capitalize on every opportunity may be tempted to expand quickly. However, unplanned expansion is the quickest way to run out of cash fast. Expanding a business should involve careful, long-term planning. Take sufficient time for market analysis to ensure that expansion is warranted and can continue to be supported by future sales. Develop an implementation schedule and don’t cut corners on the implementation process. Proper implementation is pivotal to the success of an expansion plan. A good plan, poorly implemented, will turn out to be a poor plan.

 To be continued