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Are Invisible Costs Hurting Your Company?

Monday, August 12, 2019

Logistics has long been thought of, by most companies, as an operating cost that must be minimized. This is a very short-term and, frequently, dangerous viewpoint, not only in assessing logistics costs, but in analyzing costs for other functions as well.

What are invisible costs?

These are the costs that do not show up on a profit and loss statement as attributable to the given function since they are buried within other line items. For example, your company has assigned a mid-level manager in your purchasing department to spend 20% of his time on managing incoming and outgoing deliveries. His entire salary and benefits are allocated to the purchasing department. However, 20% of that cost should be allocated to your logistics costs. There are many other similar examples of allocating costs this way since it is not feasible for most companies to determine actual use of time and money for every function.

However, if you were to do such an analysis for your company, you might very well find that it would save you money if you outsourced some or all of this or other functions where possible. The ability of that manager to put that 20% of his time back into his primary functions might well save or earn your company far more than the cost of outsourcing the function. It is impossible to accurately measure the cost of lost opportunities if that manager had been able to focus on his main priorities for that additional 20 percent of his time.

Invisible costs are to a company like an undiagnosed disease is to a person. It is harming the company, yet no one is aware of the harm, sometimes not until it is too late. Make sure you analyze all functions and systems in your company regularly to determine whether it is better to keep it in-house or to outsource it.

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