Have companies under-invested in vital equipment?
By Jean-Michel Boyer, CEO, BNP Paribas Leasing Solutions UK
UK productivity is not quite what it should be, and the logistics industry should be worried. Before the global financial crisis, the country’s businesses were steadily becoming more efficient. Post-recession, the market experienced a sharp decline, and though Q4 2016 demonstrated some growth in this area – output rose by 0.4 percent and was 1.2 percent higher year-on-year – it still lags far behind what it was in 2007.
Productivity is poor by the country’s own standards, and international comparisons are not flattering. The latest figures indicate that output per hour is 16 percent lower than the other G7 nations and that a French, German, or US worker produces more in four days than a UK worker does in five.
For the logistics industry, this problem may well be exacerbated by the UK’s looming exit from the European Union. Since 2012, growth has been a result of employment rather than investment in capital assets like buildings, machines, and computers – to the point where the ONS describes the decline in capital contributions to productivity as ‘striking’. Some 11 percent of the logistics workforce is comprised of EU nationals, and, if their right to live and work freely is compromised, it may be harder for businesses to grow by expanding their headcounts.
To counteract this, the logistics industry may need to look for other ways to boost their productivity – and investment in technology may hold the answer.
There’s an argument that the logistics industry is missing a trick when it comes to technology. A recent PwC report put this in fairly stark terms, stating that while it
“promises lower costs, improved efficiency, and the opportunity to make genuine breakthroughs in the way the industry works… digital fitness is a challenge for the sector, which is currently lagging many of its customers in this respect.”
When there isn’t alignment between the industry and the markets it serves, inefficiency is inevitable – and a potential source of frustration for customers.
So which areas should logistics businesses target for investment and improvement?
International corporations such as Toyota are developing battery-powered electric forklifts that produce zero carbon emissions – and have no fuel costs whatsoever. Hydrogen fuel cells may go one better: they don’t require a business to reserve space for charging, and they take less time to charge than batteries. What’s more, because the business doesn’t have to worry about half-life imposed efficiency issues, vehicles will always function at 100 percent.
Data analytics and automation solutions also promise efficiency gains. Though they won’t remove the need for human intervention, they will make sure that human intervention is strategic, and unencumbered by mundane, manual processes. The Internet of Things (IoT), for example, may well make fleet management more transparent, more effective, and less time-consuming. When vehicles are equipped with sensors, they can relay information about their status, their performance, and their overall condition quickly and easily. If a truck is being operated by an inefficient driver, the fleet manager will be alerted and given the chance to ensure they’re given remedial instruction. If a vehicle requires maintenance, they won’t have to wait until it breaks down to ensure it gets the specialist attention it requires.
Financing the future
Naturally, it’s one thing to say that logistics organisations should invest more in technology and another to suggest where the money should come from. Buying IoT equipment and eco-friendly vehicles isn’t cheap, particularly when the cost is supposed to be paid upfront – and when further expenses accumulate in the form of repairing, supporting, and replacing these products.
The answer is to stop buying equipment outright and start looking at alternative methods of financing these purchases. The relationship between logistics businesses and their equipment needs to change: owning equipment may be expensive, but accessing it often isn’t. Leasing can mitigate cashflow issues and maximise productivity: it offers flexible payment schedules, regular upgrades, and support and maintenance costs can be rolled into the initial contract.
Logistics companies with tight margins and high overheads will certainly benefit from this. Many finance packages can be tailored to their specific needs and requirements, and they would be wise to take advantage. Nonetheless, how they choose to invest in technology is secondary, so long as they actually invest in technology. It is possible for these businesses to acquire new equipment without breaking the bank, reducing their reliance on EU labour and boosting productivity into the bargain. If they can do so sooner rather than later, both the industry and the economy will benefit.
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