Should organisations invest in IT during uncertain economic times?  

In the wake of the current economic downturn, organisations are facing difficult decisions about budget allocation and investments. This is leaving its mark on various sectors, with the logistics industry being no exception. Companies are grappling with the dual pressures of maintaining operational efficiency and managing cost-effectiveness amidst tightening budgets.  

During tough economic times, companies unsurprisingly examine all planned investment and start cutting costs. Often IT budgets can be harshly slashed – but is this short sighted?  

It’s a difficult question for any decision-maker in the logistics sector. It’s not just about balancing the books; it's about strategically planning through tough economic times to ensure long-term survival and competitiveness. In this blog will explore the implications of making IT investments during turbulent times and whether it’s a business risk or a prudent strategy.  

The importance of IT in logistics

In modern logistics operations, IT has been instrumental in propelling businesses into new levels of efficiency, accuracy and speed. The integration of IT solutions has revolutionised traditional processes, enabling companies to meet the growing demands of their customers. At the core of this transformation is the ability of IT to streamline operations.  

Transport Management Systems (TMS), for instance, offer a comprehensive approach to route planning and optimisation, proof of delivery, instant notifications and fleet tracking. These systems provide real-time data, allowing for immediate decision-making and enhanced operational visibility. Transport Management Systems can optimise delivery operations, enabling businesses to complete more deliveries efficiently, while significantly reducing operational costs and fuel consumption.  

Other technologies, such as mobile data capture solutions, are increasing operational efficiency and accuracy in logistics by playing a key role in streamlining data collection and enhancing real-time accuracy. This includes slashing operational costs by ensuring that every product, every package, and every pallet is accounted for in real-time.

Challenges during economic downturns

Economic downturns present a unique set of challenges for logistics companies, significantly impacting their operations and strategic decisions. One of the most pressing issues is the tightening of budgets. As revenue streams become unpredictable and profits dwindle, companies often turn to cutting costs and this leads to reduced capital for essential upgrades and investments. This financial pressure can hamper their ability to maintain, let alone improve, their operational capabilities.  

Another significant challenge is the reduction in demand. Economic downturns typically lead to a decrease in consumer spending, which in turn affects the volume of goods being transported and stored. This can result in underutilised resources and excess capacity in warehouses, leading to increased operational costs relative to revenue.  

Amongst these financial constraints, the dilemma of investing in IT becomes particularly noticeable. On one hand, IT investments can lead to long-term efficiencies and potential cost savings, for example with a TMS that streamlines operations and reduces operational costs.  On the other hand, the immediate financial burden of making an investment can be daunting, especially when funds are limited, and the business outlook is uncertain.  

This creates a challenging situation for decision-makers, who must weigh the short-term financial pressures against the potential long-term benefits of IT investment.  

Investing in a speedier recovery

In tough economic times, it can be tempting to scale back IT investment viewing it as a non-essential expenditure. However, strategic IT investments can be hugely beneficial, delivering cost savings in the long term and setting the stage to rebound faster and stronger. For example, implementing a TMS can optimise route planning, leading to lower fuel consumption and reduced wear and tear on vehicles but it also promises swift returns on investment.  

Our experience with customers reveals that the implementation of a Touchstar EPOD TMS can yield tangible benefits, such as 25% increase in productivity, a 10% reduction in shipment costs, a 75% decrease in auditing time, and a 90% cut in paperwork, with some clients achieving ROI in just one year.  

Implementing a TMS can significantly boost your business's financial health and streamline administrative processes. Touchstar's EPOD TMS enables faster invoicing, leading to improved cash flow and fewer debtor days. It provides detailed insights into individual resources or vehicle productivity, helping you pinpoint profit or loss sources. One of the key features is the instant emailing of Proof of Delivery (PODs) to all relevant staff, eliminating delays caused by drivers returning or the manual transfer of paperwork. This efficiency not only reduces the volume of credit notes but also allows for immediate action on onsite disputes, either resolving them on the spot or quickly rectifying mistakes at the depot. Moreover, customisable discrepancy descriptions help minimise errors due to poor driver handwriting.

Touchstar's EPOD TMS also optimises delivery runs using historic route intelligence, leading to less manual route planning, fuel savings, and the ability to complete more jobs. All these benefits culminate in a streamlined, more efficient, and profitable operation, which ensures a rapid return on your investment.  

Staying competitive is another critical benefit. In an era where speed, efficiency, and accuracy are vital, logistics companies equipped with the latest IT infrastructure can offer superior services. For example, real-time delivery tracking is something customers want and often expect. Providing this enhances customer satisfaction and loyalty, which is crucial for survival during tough times.  

Additionally, investing in IT prepares logistics companies for the eventual economic bounce back. Companies with upgraded technologies can scale up operations more efficiently and capitalise on emerging market opportunities.    

Risks and considerations

While investing in IT can be a strategic move for logistics companies, it’s crucial to understand the associated risks and uncertainties. The primary risk lies in the allocation of limited financial resources. Diverting capital towards IT projects can strain cash flow and impact other areas of business operations. This is particularly risky if the projected returns on IT investments are overestimated or if the downturn lasts longer than expected.  

That’s where careful planning and thorough risk assessment comes into play. Companies should conduct a review of their operational needs and potential ROI from IT investments. This includes evaluating how new technology aligns with current business goals and its adaptability to changing market conditions.  

To mitigate these risks, one effective strategy is phased implementation. Instead of a complete overhaul, logistics companies can prioritise key areas where IT improvements can deliver the most immediate benefits. For instance, starting with upgrading their TMS or automating a specific part of their supply chain can provide quick wins and lessen the financial burden.  

Choosing scalable IT solutions is another important consideration. Flexible solutions, such as a cloud based TMS, allow companies to expand or scale back their IT capacity in response to the changing business environment, ensuring that the investment remains aligned with current needs.  

Strategies for Effective IT Investment

For logistics companies looking to make smart IT investments, especially in times of financial uncertainty, strategic planning is key. It’s important to keep in mind your budget, your IT priorities and seek flexible solutions that yield maximum ROI without overextending your resources.  

Budget management is the first critical step. Companies should set clear limits for IT investments and understand the total cost of ownership. This involves not only considering the initial cost of IT solutions but also factoring in ongoing maintenance, training, and upgrade expenses. Establishing a clear ROI expectation for each IT project can guide decision-making and prevent overspending.  

Prioritising IT wants and needs is another important strategy. Logistics companies must assess which aspects of their operations will benefit most from IT improvements. This should be based on factors such as potential cost savings, efficiency improvements, and enhancements to customer service. For instance, investing in a TMS might take precedence if delivery operations and fuel consumption have been identified as key areas needing improvement.  

Seizing the opportunity

The decision on whether a company should invest in IT during tough economic times is a complex yet critical one. On one hand, the immediate budgetary concerns can make IT investments seem an unnecessary business expense. On the other hand, IT investments can be a gateway to long-term operational efficiencies, cost savings, and competitive advantages.  

Ultimately, the question isn't whether to invest in IT but how to do so in a way that aligns with your company’s long-term vision and immediate financial plans. Whilst it is tempting to pull back and play safe, this could be a greater risk than the investment itself.  

In a changing business landscape, the choice to invest in IT is not just about surviving the present - it's about shaping the future. Companies that push forward to maximise their growth and efficiencies are better positioned for a faster and stronger recovery when the economic climate improves. By making the right strategic choices, logistics companies can mitigate the risks while setting the stage for future growth and success.                

About the author – Sohil Ahmad  

Sohil (41) has 15+ years’ experience supporting customers with complex, field based, mobile technology solutions.  He has been with Touchstar Group for over six years, having previously worked for Masternaut and Barclaycard. In his spare time he enjoys family life and is a very active individual! His main passions are football, motor racing, karting, travelling and hiking. 

Contact Sohil at Sohil.ahmad@touchstar.co.uk