Cost Reduction Through Shipping Optimization
Circumstance Description
While working as a controller in ABC and its three sister companies, one of my accounting responsibilities was to analyze operating expenses and identify areas where cost savings could be made. Thus, one of the recommendations I had to make was a cost-saving suggestion. The circumstances for the recommendation were as follows: ABC imports and exports hospitality furniture, and as part of my job, I assessed the transportation costs. The company collaborates with shipping companies inside and outside the country because 80% of the imported products come from overseas.
After my assessment, I concluded that a significant amount of money was spent on transportation costs and that this amount could be reduced. Thus, it was necessary to develop a recommendation for the management team to consider alternatives to reduce these costs. The final recommendation was to reduce the number of shipping companies to a minimum by negotiating with a couple of companies to handle most of the orders.
Factors and Information Considered in Cost-Saving Recommendations
Several factors needed to be considered when developing this recommendation. Firstly, it was necessary to consider that most of the company’s business is done with foreign companies. Thus, some shipping companies might not operate in all of the countries involved in the operation.
Therefore, analyzing the scope of the shipping companies’ operations was essential. After conducting this analysis, I concluded that collaboration could be broadened with several companies operating on the national and international levels. Thus, other companies that dealt with only a small portion of orders could be excluded.
Secondly, it was necessary to consider how exactly the costs were distributed and to what extent it was possible to reduce them. This was done by analyzing whether it was possible to consolidate orders and ship them in larger quantities to reduce transportation costs per unit. This factor was especially important to consider when stopping collaboration with certain companies.
At this point, it was concluded that consolidation was possible in most cases. However, for some products, it would be impossible. Therefore, the shipping processes could be made more cost-efficient overall by negotiating with several companies to amplify the collaboration. In contrast, a portion of shipping processes would remain the same.
Information Sources Researched
Some of the sources of information that I accessed when considering possible recommendations include the company’s financial records, shipping invoices, data on customer orders, and shipping preferences, as well as other additional sources of information. The financial records were the basis for considering needed changes, while shipping invoices confirmed the necessity of reducing transportation costs. Data on customer and shipping preferences were later accessed to assess how the shipping processes could be made more cost-efficient.
In terms of additional sources, I also had to research the standards in the furniture shipping industry and what shipping practices are most preferred by the company and in the industry in general. Other members of the company’s operations team were also involved in the process, particularly when analyzing data on shipping rates, bulk discounts that shipping companies offered, and the scope of their shipping.
Alternative Options
When it was concluded that transportation costs needed to be reduced, some other options were considered. The first option was not to reduce the number of collaborating shipping companies but rather to negotiate better deals with each one. This option was later excluded, as negotiating for better conditions with a lower number of companies was found to be more efficient. I also considered outsourcing shipping to a third party, but the company’s collaboration preferences excluded this option.
System Adjustment for Accurate Financial Tracking
Situation Description
One more area I was responsible for while working at ABC was maintaining and balancing subsidiary accounts, and one of the difficult decisions that I had to make was related to this responsibility. The situation was the following: the company’s operations had recently been expanded due to a new line of luxury furniture being added to the business. Thus, there were changes in the subsidiary accounts, which I needed to monitor and balance.
The expansion led to an increase in sales and revenue; however, after carefully looking at the subsidiary accounts, I concluded that there were significant discrepancies in the records. The discrepancies included problems with recording transactions, as they were not done properly. In particular, some transactions were repeatedly included in the records while others were absent. During that period, those discrepancies did not affect profitability. However, they complicated the process of tracking profits and losses considerably, making it necessary to consider adjusting the system or implementing a new one to avoid potential losses.
Decision Made
The decision, however, was not easy to make because implementing some minor changes would not be enough to fix the problem. Changes to most of the system’s components would be necessary, potentially leading to significant delays in financial reporting. Additionally, additional resources would be required to adjust the system.
Considering the increased workload that followed the beginning of new operations, the system was insufficient for the new conditions. Thus, in order to implement all the necessary changes, a significant amount of time was needed. As this issue had not been predicted previously, it was possible that the company would not be prepared to provide time and resources for this matter, and all the operations could be affected one way or another.
Pros and Cons
After considering all the pros and cons, I concluded that the best decision for the company at the time would be to allocate the necessary resources to implement the necessary changes in the system. I had to take into consideration all the disadvantages, such as additional costs and lost time, that could affect the company’s profitability in the short term. It was also considered that the negative effects of the changes could include difficulties with operations related to the new furniture line. The pros, however, outweighed the cons of the decision.
Firstly, the adjusted system would contribute to the long-term profitability of the new line. Secondly, the consequences of keeping the old system would eventually be impossible to ignore, and the costs of adjusting the system would be even higher. Finally, the company planned to expand the business and secure contracts with more partners, increasing the workload even further. Thus, it was logical to prepare for the expansion and adjust the system at that moment.