Strategic cost management is when a company applies management methods to minimise costs while maintaining profitability and quality. Two components of strategic cost management are supply chain analysis and value proposition analysis. This section of the report examines Aramex’s supply chain and value proposition.
Supply Chain Analysis of Aramex
Aramex considers Supply Chain Management (SCM) as central to organisational efficiency and focuses on maximising the effective flow of clients’ products to consumers. Aramex identifies the importance of managing information flow, inventory, processes, and cash flows from suppliers to consumers. For example, Aramex uses ICT systems to connect its international, which facilitates a unified flow of information with suppliers and consumers. The system is run by the advanced dedicated tracking system, which is the pillar of Aramex’s business procedures. Through effective supply chain analysis, Aramex creates solutions for logistics and supply, distribution, and freight solutions. Logistics in Aramex offers solutions for clients’ logistics, which comprise local skill, advanced technology and international ethics. Through an endwise supply chain system Aramex manages all clients’ supply chain stages from supplied inventory to product delivery. This supply chain system is supported by a broad freight forwarding system and extensive transportation system.
Value Proposition Analysis of Aramex
An effective strategic cost management system combines efficiency with value. Aramex ensures that clients enjoy speedy and safe inventory management by using human resources and technology for logistic management. Aramex dedicates a business development manager for each client. Business development managers manage clients’ accounts through effective interaction. The business development manager ensures accuracy, cost management, accountability, problem solving and provides service assistance. Aramex also provides insurance for all general shipments it handles. Considering the importance of packaging, Aramex provides packaging services for clients.
Aramex adds value to client’s products and reduces overhead cost of labour by using an automated mailroom system. Aramex can automate clients’ mailroom thus optimising operational stability. The automated mailroom ensures better KPI reporting, mail flow, and web tracking.
Although Aramex provides these values to its clients, it maintains profitability. Through a cost leadership strategy, Aramex gains competitive advantage by minimising its cost of logistics. For example, Aramex transfers costs associated with inventory management by ensuring clients deliver inventory to Aramex warehouses, a cost that would have been otherwise incurred by Aramex.
How does the company classify its purchases in the practice?
Different tools may support strategic cost management. Aramex may use cost analysis to support its strategic cost management services. In using the cost analysis tool, Amarex will assume a zero-cost position and identify all the costs it will incur managing the clients’ logistics. All expenses made by Aramex will be covered by the client it is servicing. Cost analysis is an effective tool for Aramex’s strategic cost management because it keeps Aramex profitable. Aramex’s cost of production (the cost of logistics service) will be covered by the client. Cost analysis eliminates costs and minimises the investment risks incurred by Aramex. Aramex considers factors such as distance, inventory weight, and delivery time during its cost analysis for every inventory order it gets. The cost transferred to the client depends on the cost associated with each factor of the factors. This strategy ensures continuous profitability for because it helps Aramex avoid the effects of varying operational costs.
Factors that influence supplier classification include, purchase type and the supplier relationship. Under the purchase decision matrix category, Aramex considers the significance of the supplier’s technology to the future of its services. For example, Aramex uses this decision factors when selecting the supplier of its IT support system. In terms of supplier relationship, Aramex considers whether it would like to share information with its suppliers. Aramex uses this decision factor because of the competitive nature of the logistics industry. Aramex improves its strategic cost management by distinguishing between its suppliers. The company delegates the tasks of product supply to its clients. When consumers request that their products should be shipped through Aramex, the suppliers must deliver products to Aramex’s warehousing systems or outlet units. By distinguishing its suppliers, the company maintains a unified shipping cost since the location of the supplier does not affect the cost Aramex spends to deliver products to consumers. Suppliers that have trucks will be offered favourable prices over suppliers that cannot handle their supplies.
To determine its performance, Aramex-UAE measures its operations, logistics processes, and customer contentment. The company measures the price value and customer satisfaction of its logistics services to derive strategies that reduces operating costs and increases revenue growth.
The measurement of operational costs, which focuses on overhead expenses, shows the healthiness of Aramex-UAE logistics and supply chain performance. Aramex measures its operational cost-effectiveness by comparing the cost of technology with the cost of using human resources.
It also aids in the discovery of the areas of improvement. In the effort to attract and retain its customers, Aramex-UAE emphasises increasing price value of the services it offers. Customers’ satisfaction is measured from their feedback on their experience with the Aramex-UAE. This kind of customer communication is achieved through IT tools such as aramex.com, ePOD, and PACK. Besides, Aramex-UAE also conducts customer surveys aimed at collecting customer feedback to help in measuring client service satisfaction in areas such as professionalism, speed, flexibility, competitive pricing, friendliness, and the provision of a variety of services (Aramex, 2014).
Supply Management Performance Indicators
Aramex uses various indicators to measure its supply management performance. KPIs are a group of measurable variables used by a company to evaluate its performance with regards to achieving strategic objectives. Using KPIs help Aramex identify loopholes, save costs, and identify strengths. The Key Performance Indicators of Aramex are broadly classified into facility management, service delivery, and supplier/purchaser satisfaction. Examples of KPIs include warehouse, labour utilisation, material safety, delivery rate, timeliness, material security, IT integration, and employee satisfaction.
Aramex-UAE deploys various tools for measuring its supply chain management performance. A good example is using performance ratings. Under this approach, the actual performance is rated using a base figure. For example, in 2014, the company computed its SCM performance rating out of 3 as shown in Table 2. The table only shows SCM performance rating for freight services and express services.
Table 2: SCM Performance Measurement for Aramex-UAE
|Performance rating on express||Performance rating on freight|
|Satisfactory delivery |
|2.62||Door to door pick-up and delivery||2.53|
|Shipment tracking||2.5||Specialised storage and warehousing||2.56|
|Invoicing problems||2.61||Customer service||2.59|
|Customer care||2.64||Credit terms||2.53|
|Range of services||2.58||Tracking||2.45|
|Network of offices||2.66||On time delivery||2.5|
Source: Aramex (2014)
Table 2 shows an average of 96% in express and 94% in freight services. The findings show a highly performing supply chain and logistics organisation. From these figures, it is sound to claim that the performance in SCM of the Aramex-UAE is aligned well with the strategy of being a leader in the supply chain and logistics services within the UAE and being listed among the top-five leading companies in the industry on the global platforms.
Aramex’s core competency is its ability to minimise clients’ operational costs while reducing delivery periods. The company’s cost reduction strategy influences its core competencies because it includes its suppliers in the logistics process. Faster delivery periods, lower prices, and product line-ups can contribute positively to a business’ growth and can differentiate it even in the most populated industry (Cox, 2009). Aramex reduces suppliers’ delivery times, hence increasing efficiency in their distribution processes. Aramex maintains communication between suppliers and consumers and monitors behaviour trends of clients through big data analysis. This enables Aramex to apply predictive analysis in positioning and managing the operations of company.
Outsourcing is the procedure of shifting an area of production, business task, or service from within a company to an external supplier. The management of an organisation may outsource if it considers it a better option. However, the decision to outsource is to save costs, converting capital, improving performance, accessing low-cost labour, and enjoys external expertise. Although Aramex is the place other organisations outsource their supply chain and logistics services to, it outsources some of its secondary functions. For example, it outsources its software maintenance and updating to organisations such as BEAT. Aramex’s strategic partnership for the delivery of products with various liaison delivery centres, especially where the company does not have operational offices, also comprises outsourcing. Amarex may enjoy the benefits of outsourcing however, there are some associated risks. For example, Aramex may lose important activities to suppliers and higher dependence may weaken its bargaining power. This would increase costs for Amarex hence, sacrifice the purpose of outsourcing.
Make-or-buy decisions are influenced by marginal cost analysis. This influence is illustrated by the case of developing a software application in-house or outsourcing from a third party, such as Aramex’s outsourcing to BEAT. While developing the software, Aramex may have to recruit and train additional IT staff members to develop and maintain the software. Since technology is dynamic, the organisation will also need to invest in a continuous training and development of the staff officials. However, since technology is outsourced, Aramex technology is supported by the outsource company and Aramex will not invest in continuous training. A third party may absorb such costs, thus making outsourcing more attractive to reduce an organisation’s operations cost in the long-term compared to adopting the in-house approach.
Several factors prevent companies’ intentions to maximise their supply chain using mathematical models. The change in networks over time, complicated network designs and socio-economic factors influence the supply chain. Aramex is yet to optimise its supply chain because of these factors. For example, the socio-economic instability and the highly competitive nature of the logistics industry have influenced Aramex’s ability to optimise its supply chain. Logistic optimisation is achievable by integrating IT with the system. While Aramex actively developed its IT infrastructure, the fast-paced nature of the IT industry makes it difficult for the company to implement the optimal networking model per time.
Companies may switch roles amongst employees or suppliers to concentrate on core activities. The survivability of a company depends on its ability to assign unique roles to suppliers. For example, supplier certification plays a role in Aramex’s role switching processes. Aramex optimises supplier performance and ensures operational confidentiality by frequently switching suppliers’ roles. Role shifting helps Amarex identify suppliers most suitable for various outsourcing functions. Eventually, this will improve supply chain efficiency and enhance value development. Through role shifting, Aramex-UAE will have the bargaining power when negotiating with existing and potential suppliers. Functional transferability will allow Aramex outsource its activities to firms with unique capabilities.
Aramex. (2014). Aramex Sustainability Report. Web.
Cox, A. (2009). Managing with power: strategies for improving value appropriation from supply relationships. Journal of Supply Chain Management, 37(2), 42-47.