Despite the fact that traffic delays due to congestion and roads in disrepair are on the rise, manufacturing executives maintain a very limited understanding of the importance of infrastructure to their bottom line. The cost of traffic delays is typically captured in one of those squishy-sounding line items on the balance sheet, like ‘Overhead allocation’ or ‘Cost of goods sold.’
In pursuit of continuous improvement, leading manufacturers today are highly skilled at reducing waste and taking unnecessary cost out of their operations.
But that’s not the case when it comes to the impact of transportation delays.
The manufacturing industry understands that all companies would be better off if our roads and bridges were fixed. In fact, the National Association of Manufacturers has taken up arms and is calling upon the Trump Administration to “Undertake an infrastructure effort that seeks to modernize our aging systems, put to work private-sector capital to increase efficiencies and deliver results, prioritize and expand public investment and make a long-term federal commitment to infrastructure.”
But the cost of doing nothing about our transportation infrastructure seems to elude companies.
In a recent survey of manufacturing companies, IndustryWeek – a sister publication of Icons of Infrastructure – asked executives to name the primary benefits of fixing our transportation infrastructure.
Top of the list were benefits that would directly impact their bottom line, including “A more efficient supply chain” (#1) and “Creating demand for and products” (#2).
But in the same survey, half of the respondents acknowledged that they were unable to account for traffic delays in their accounting systems. Others indicated that they capture the cost of delays in one of those squishy-sounding line items, including “Overhead allocation” and “Cost of goods sold.”
So why is it that such an important cost is so unaccountably accounted for?
“Very few companies actually know their logistics costs at the CEO level. It gets hidden in the current budget and they only notice it when it is increasingly rapidly,” says George Stalk, Senior Advisor, The Boston Consulting Group.
Stalk’s expertise is in helping companies create a sustainable competitive advantage and has advised the top management of many manufacturing organizations. He is also the coauthor of the article “Is Your Supply Chain Ready for the Congestion Crisis?”
Stalk says that what usually catches the attention of executives is something like rising oil prices, which he terms a first-order impact—essentially a direct cost that is easily captured. “But unless you are actually in the logistics business, you are just not going to be all that astute at understanding the impact of something like a transportation delay.”