Understanding Warehouse Costs and Risks

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					                                                                                   VOLUME 24 • NUMBER 7 • jUNE 2009
                                                                                   VOLUME 24 • NUMBER 7 • JUNE 2009

               Understanding Warehouse Costs and Risks
                                                  By Thomas W. Speh, Ph.D.

Editor’s Note: Presented here is a revision of an article writ-
                                                                  the handling cost center. The largest component is the la-
ten nearly two decades ago by professor Tom Speh, of Miami
                                                                  bor used to handle the product that moves through the dis-
University, Oxford, Ohio. When written, the purpose of this
                                                                  tribution center. It includes receiving, put-away, order se-
work was to provide a guideline for public warehouse opera-
                                                                  lection, and loading. It also may include labor to
tors and their customers. Both buyer and seller were accus-
                                                                  re-warehouse, repackage, or refurbish damaged product.
tomed to a transactional pricing and costing system that             Handling also includes all costs associated with the
combined a monthly price per unit for storage with the costs of   equipment used to handle product in the warehouse, such
materials handling and administrative services. The vendor        as the depreciation of equipment cost, and the cost of fuel,
needed to make certain that this pricing would yield a profit,    or electricity to power the equipment.
and the buyer wanted to be sure that no money was left on the        Other handling expenses are the detention of truck or
table. In revising this work, we recognize the need to create a   rail cars, operating supplies, and trash disposal. In effect,
mechanism that is useful for wholesale distributors, as well as   handling includes all those costs that are associated with
logistics service providers who are not using unit pricing.       “goods in motion.”
Both buyer and vendor need to understand the process, in or-         2. Storage. Storage expenses are costs associated with
der to compare price to actual value of the services rendered.    “goods at rest.” These costs would be incurred whether or
KBA                                                               not any product ever moved. Because storage expenses
                                                                  are related to the cost of occupying a facility, and these
   Warehousing is nothing more than the management of             costs are normally accumulated each month, storage is ex-
space and time. The space management portion, storage,            pressed as a monthly cost. If an entire building is dedi-
has a cost per month, because there is a monthly cost for         cated to an operation, storage expenses are the total occu-
warehouse space. The time management component in-                pancy cost for that facility.
cludes labor involved in handling materials as they move             3. Operations administration. These expenses are in-
in and out of the warehouse. If you are buying or selling         curred to support the operation of the distribution center.
warehouse services, or simply providing warehousing               Closing the facility would eliminate these costs. Included
services for your own organization, the models that are           are costs for line supervision, clerical effort, information
presented in this article will enable you to isolate and ana-     technology, supplies, insurance, and taxes.
lyze the costs of warehousing.                                       4. General administrative expenses. Expenses not in-
   All companies with warehouses incur the same ele-              curred for a specific distribution center are included in
ments of cost, but they compile them differently. The goal        this category. General management, nonoperating staff,
of this article is to convey a costing system that can be         and general office expenses are examples. Allocation of
used to compare costs of one warehouse with another, or           such expenses to each warehouse is a judgment call.
one company to others.
                                                                  Productivity Improvement
   Some warehousing costs tend to be ignored or                      Most warehousing costs, particularly storage and han-
misallocated, because the analyst does not recognize              dling, can be influenced by improvements in productivity.
where they belong. In any costing system, allocation of           Improved methods and equipment may enable the opera-
overhead costs is a matter of judgment, and no specific           tor to increase the number of units moved without increas-
formula will be correct for every user. The cost models           ing labor, resulting in a higher number of units handled per
shown here have been designed to ensure that no item is           hour. Changes in inventory, storage layout or equipment
overlooked. We assume that each user will customize the           may enable the operator to expand the number of units
models, and make individual judgments regarding alloca-           stored in the same number of cubic feet of storage space.
tion of administrative costs.
                                                                  The Risk Factor
Four Categories Of Warehouse Costs                                   Cost per unit is escalated when a distribution center is
   1. Handling. All expenses associated with moving               not fully utilized. Fixed costs always will be influenced by
product in or out of the warehouse should be included in          the rate of utilization. Variable costs, such as labor, never

are quite as flexible as they seem. Management may be re-         The Importance Of Inventory Turns
luctant to eliminate experienced workers, particularly
when they will be needed for a coming busy season. The               Because storage costs are calculated on a monthly ba-
same is true for forklift trucks and other materials han-         sis, the total cost of storing an item depends on how long it
dling equipment. Therefore, the primary risk in control-          will be in the warehouse. In the past, each unit received
ling costs is the rate of utilization.                            for storage had an anniversary date with renewal storage
                                                                  charges added each month afterward. Later billing sys-
   Errors represent another unknown risk. People make
                                                                  tems were designed to simplify the clerical task by charg-
mistakes, which may result in product damage and errors,
                                                                  ing a half month for items received after the 15th of the
or shipping errors.
                                                                  month, and a full month for everything in storage on the
   Just as the insurance underwriter factors in the risk of       first day of the succeeding month. Regardless of the sys-
loss, the warehouse operator must make a realistic esti-          tem used, an inventory that turns 24 times per year should
mate of risk costs. Risk may be expressed as a percentage         cost less to store than one that turns six times per year. For
of total warehousing costs. It should be based on past ex-        that reason, the inventory turn rate is a critical data point
perience. Methods to reduce risk should be explored.              in creating storage prices.
   The simplest way to calculate the risk factor is to in-
clude it in the size of the markup. Many time and material        The “Make Or Buy” Factor
agreements have a low percentage of profit, but the unit
                                                                     Nearly all services available from a logistics service
pricing agreement must factor in a higher profit percent-
                                                                  provider can be replicated by an internally managed pro-
age that reflects the substantial risk of changing volume.
                                                                  ject. The buyer who knows the amount of space needed,
   As you contemplate the risk factor, consider the posi-         and has estimated the number of people required to staff
tion of the buyer. With a time and material agreement, the        the operation, should be able to simulate the
buyer agrees to pay for all space and labor that is used,         “do-it-yourself” cost of providing comparable logistics
which often includes the rent for a building that is dedi-        services. This cost is then compared with the prices of-
cated for the buyer’s use. In contrast, the buyer of a unit       fered by a logistics service provider. In this situation, the
price agreement pays only for services that actually are          risk factor is critical. The do-it-yourself option is full of
used. Expansion and construction can be challenging, as           risk, unlike a unit price agreement that provides maxi-
well as costly.                                                   mum flexibility because the risk is absorbed by the logis-
   A good analogy is the difference between a hotel and an        tics service contractor.
apartment. When you stay in a hotel, the price per square
foot of space occupied is higher than the cost of leasing an      Living With Hurdle Rates
apartment. You pay the premium because you want the                  When your company makes an investment in logistics
flexibility of occupying the space only on the days you           facilities, financial managers want to know about the re-
need it. While the apartment may be cheaper, you pay for          turn on investment. Hurdle rate reflects the minimum per-
it whether or not it is in use.                                   centage of investment return that is acceptable for your
Developing a Handling Price                                       company. If you choose the “do-it-yourself” option, your
   A building block approach, using the categories of             return on investment will be based on the dollars saved,
warehousing costs included in this article, can be used to        rather than the cost of contracting the service to another
develop an hourly selling price. First, all of the costs listed   party. Yet, you must recognize the substantial risk of do-
in section I, Handling, are totaled. Next, a portion of the       ing it yourself, then compare it to the employment of an
costs in section III, Operating Administrative Expense,           independent service provider.
and in section IV, General Administrative Expense are
added to direct handling expense, in order to develop a           Simulating A Logistics Service Provider
burdened handling expense. An additional percentage of               Some private warehouse operators treat their opera-
profit is added to develop a handling sales price. This fig-      tions as if they were public warehouses. Transfer costs for
ure is divided by the hours billed, to convert the figures        internal storage and handling prices are determined, and
into a handling fee per man-hour. While you may not in-           the warehiouse manager is held accountable for profitable
voice your customers by the hour, the hourly fees can be          operation at the established rates.
used to check the validity of current pricing.
                                                                                            Thomas W. Speh is Associate Direc-
Creating A Storage Price                                                                    tor of MBA Programs at Miami Uni-
   A similar building block approach is used, but the re-                                   versity. He also holds a part-time
sult is expressed in square feet, rather than hours. Since                                  position with CSCMP, as Director
storage costs increase with time, this storage fee is ex-                                   of Strategic Initiatives. Dr. Speh re-
pressed on a per month basis.                                                               tired from full-time teaching at Mi-
   The first step is to total all costs listed in section II,                               ami's Farmer School of Business in
Storage. Following the handling example described in                                        2008, where he taught courses in
this article, a portion of operating and general administra-                                Logistics and Supply Chain Man-
tive expenses must be added, in order to develop a bur-                                     agement for 35 years. He has
dened storage expense. Then, a desired profit margin per-                                   woorked on consulting projects in a
centage is added to create a price per square foot per                                      variety of supply chain areas with
month. That price determines the storage rate per unit.                                     many different firms.
                                      A FORM FOR WAREHOUSE COST CALCULATION
                                                                             II.    STORAGE (continued)
                                                                                    3.   Insurance . . . . . . . . . . . . . . . . . . . . . $________
      A.   Labor                                                                    4.   Building maintenance . . . . . . . . . . . . $________
      1.   Direct payments:                                                         5.   Other . . . . . . . . . . . . . . . . . . . . . . . . . $________
           a. W ages . . . . . . . . . . . . . . . . . . . .    $________
           b. Overtime . . . . . . . . . . . . . . . . . .      $________           B.   Grounds
      2.   Fringe benefits                                                          1.   Lawn and landscaping maintenance . $________
           a. Health insurance . . . . . . . . . . . .          $________           2.   Parking lot maintenance . . . . . . . . . . $________
           b. Pension . . . . . . . . . . . . . . . . . . .     $________
           c. Life insurance . . . . . . . . . . . . . .        $________           C.   Storage equipment (racks and/or shelving)
           d. Uniforms . . . . . . . . . . . . . . . . . .      $________           1.   Depreciation and interest . . . . . . . . . $________
           e. Other . . . . . . . . . . . . . . . . . . . . .   $________           2.   Maintenance . . . . . . . . . . . . . . . . . . . $________
      3.   Compensated time off
           a. Vacation . . . . . . . . . . . . . . . . . .      $________           D.   Utilities
           b. Holidays . . . . . . . . . . . . . . . . . .      $________           1.   Heat and/or temperature control . . . . $________
           c. Sick leave . . . . . . . . . . . . . . . . .      $________           2.   Lighting . . . . . . . . . . . . . . . . . . . . . . $________
           d. Jury duty . . . . . . . . . . . . . . . . . .     $________
           e. Funeral leave . . . . . . . . . . . . . . .       $________           E.   Security
           f. Other . . . . . . . . . . . . . . . . . . . . .   $________           1.   Sprinkler and other
      4.   Taxes                                                                           fire protection systems . . . . . . . . . . $________
           a. FICA . . . . . . . . . . . . . . . . . . . . .    $________           2.   Electronic burglar alarms . . . . . . . . . $________
           b. W orkers compensation . . . . . . .               $________           3.   Guard service . . . . . . . . . . . . . . . . . . $________
           c. Unemployment compensation . .                     $________
           d. Other . . . . . . . . . . . . . . . . . . . . .   $________           F.   Pest control
      5.   Temporary labor
      6.   Development costs                                                        G.   Other facility expense
           a. Training . . . . . . . . . . . . . . . . . . .    $________
           b. Education allowances . . . . . . . .              $________    III.   OPERATING ADM INISTRATIVE EXPENSE
           c. Other . . . . . . . . . . . . . . . . . . . . .   $________
                                                                                    A.   Supervisory salaries . . . . . . . . . . . . $________
      B.   Handling equipment
      1.   Lift trucks and attachments                                              B.   Clerical salaries . . . . . . . . . . . . . . . $________
           a. Rental . . . . . . . . . . . . . . . . . . . .    $________
           b. Depreciation and interest . . . . . .             $________           C.   Labor purchased from
           c. Maintenance . . . . . . . . . . . . . . .         $________                  staffing services . . . . . . . . . . . . . . $________
           d. Motor fuel or electricity . . . . . .             $________
      2.   Conveyors                                                                D.   Office and data processing equipment
           a. Depreciation and interest . . . . . .             $________           1.   Depreciation and interest . . . . . . . . . $________
           b. Maintenance . . . . . . . . . . . . . . .         $________           2.   Software . . . . . . . . . . . . . . . . . . . . . . $________
           c. Electric power . . . . . . . . . . . . . .        $________           3.   Maintenance . . . . . . . . . . . . . . . . . . . $________
      3.   Pallets                                                                  4.   Training . . . . . . . . . . . . . . . . . . . . . . $________
           a. Purchase or replacement costs . .                 $________           E.   Office maintenance . . . . . . . . . . . . . . $________
           b. Repair . . . . . . . . . . . . . . . . . . . .    $________           F.   Communications costs . . . . . . . . . . . $________
                                                                                    G.   Legal and professional . . . . . . . . . . . $________
      C.   Other handling expenses                                                  H.   Taxes and licenses . . . . . . . . . . . . . . $________
      1.   Detention/demurrage                                                      I.   Travel . . . . . . . . . . . . . . . . . . . . . . . . $________
      2.   Recouping damaged product                                                J.   Insurance and claims . . . . . . . . . . . . $________
      3.   Trash and/or snow removal                                                K.   Losses due to damage, shortages
      4.   Maintenance of loading docks and related                                        and errors . . . . . . . . . . . . . . . . . . . $________
                                                                             IV.    GENERAL ADM INISTRATIVE EXPENSE
II.   STORAGE                                                                       A. Executive salaries . . . . . . . . . . . . . . . $________
                                                                                    B. Executive office expenses . . . . . . . . $________
      A.   Facility                                                                 C. Selling and advertising expenses . . . $________
      1.   Rent, or depreciation and interest . . . $________
      2.   Taxes . . . . . . . . . . . . . . . . . . . . . . . . $________
                                                                   Measurement of risk, including fire protection, and the
                                                                risk of flood, windstorm, and earthquake is nearly as
                                                                important. Is there a contingency plan if a natural disaster
                                                                wiped out the warehouse?
When Does Mechanization                                            Cost and availability of labor is of varying importance,
Make Sense?                                                     since some warehouse operations are more la-
                                                                bor-in-tensive than others.
   The short answer is that the investment is sound when           Finally, tax incentives are a good indication of how
payback is reasonably sure, and short. Equipment ven-           badly a community wants to attract new warehouse opera-
dors are taught to demonstrate payback, and any buyer           tions. In some cases, they can provide significant savings.
who does not ask the salesman about return on investment
is asking for trouble.
   Mechanization always has risks, the biggest of which
is that equipment won’t function as promised. Another           Company Statements
risk is a lack of flexibility, and warehouse mechanization         In addition to financial statements, many companies
always has had an inverse relationship to flexibility. To       publish written statements to inform employees, custom-
some extent, this has changed with robotic equipment,           ers, and the public what they stand for. Company mission,
some of which is capable of reprogramming, or even mov-         values, vision and strategy usually are included in the
ing to another building.                                        statement.
   Payback also is related to volume, so there is a risk that      The mission statement explains why the company ex-
unexpected erosion of volume will increase payback time         ists. A values statement describes your beliefs and behav-
far longer than originally estimated. Because logistics         iors. Vision tells where you are going and what you want
service providers seldom are able to control volume,            to be. Strategy describes your competitive game plan.
mechanization is especially risky for the logistics service        Few warehousing companies publish all four state-
provider.                                                       ments. As well, many companies publish statements that
   Mechanization should save either space or time, and in       are so bland and generic that they are meaningless.
rare instances, it may save both; therefore, the greatest op-
portunities are in the most labor intensive warehouse
jobs. These include building or stripping pallets, picking
orders, or handling of less-than-case quantities. Ex-
                                                                Form Follows Function
tremely long travel within a warehouse also is a candidate         Have you ever asked why your warehouse exists? Why
for mechanization.                                              was it established? Why is it located where it is?
   When land is extraordinarily expensive, mechaniza-              It is not uncommon to find a warehouse operation that
tion, such as stacker cranes, will enable an unusual            has strayed far from its original function. Perhaps a mix-
amount of material to be stored in a modest number of           ing center also is being used as a storehouse for slow mov-
square feet. It can be used to eliminate unpleasant,            ers. Or, a factory storehouse currently is used to handle re-
hard-to-fill jobs, such as labor within a freezer ware-         turned merchandise. If the form has strayed from the orig-
house, or to improve accuracy, such as using bar code           inal function, was it because of a careless error, or a delib-
scanning or voice recognition to reduce receiving and/or        erate change of policy? In too many cases, the change is
shipping errors.                                                accidental. In nearly all instances, the change of form de-
   In the last analysis, measure the risk, and balance it       grades the original function of the warehouse. For exam-
against the projected reward. Where possible, share the         ple, if it is a mixing center, it should never be too full, nor
risk with the vendor.                                           should it contain the slowest moving items.

Relocating Your                                                 Contain Hidden Costs
Distribution Center                                             With Warehouse
   Here are four of the most frequent reasons why ware-
houses must be moved:
                                                                Management Systems
       The facility is too small and cannot be expanded.            How often is an item lost in your warehouse, only to
       The customer base is changed, and the present lo-        turn up later during a physical inventory? How much time
       cation does not adequately serve the new market.         is spent searching for lost items? How much time is spent
       The supplier base has changed, and the current lo-       checking the work of order pickers or receivers, even
       cation is not ideal.                                     though the function can be performed electronically?
       Because of mergers and acquisitions, your com-           How many shipments are returned because the wrong
       pany now has too many warehouses.                        product was sent? What is the total cost of an incorrectly
   Several factors must be evaluated when considering           shipped order? How much time is spent in cycle counting,
the location of a warehouse. Cost and availability of trans-    or conducting full physical inventories?
portation is the most important variable, because trans-            All of these functions can be enhanced and improved
portation is the largest logistics cost for most companies.     with the application of a warehouse management system.
                                                                 The Influence Of Future Shock
                                                                    In 1970, Alvin Toffler broke new ground with his
                                                                 book, Future Shock. Published in 15 nations, this book in-
                                                                 fluenced the world public, with its message that future
                                                                 shock is a disease suffered by people who are over-
          EFCA --                                                whelmed by change. The real problem was not change,
                                                                 but acceleration of the pace of change.
       A Threat To                                                  The recorded history of mankind equals 800 lifetimes,
 Private Enterprise                                              at 62 years each. Of these 800, 650 were spent in caves.
                                                                 Writing has been used only for the last 70, and printing
   We have tried to maintain a neutral position on contro-       during the last seven. Most of the products we use today
versial issues, and avoided any approach that appears to         were developed during the last two. These events have
favor a single political party. That said, your editor has       changed our world since Toffler’s book was released:
concluded that the Employment Free Choice Act, also
                                                                        The United States suffered the worst attack on its
known as EFCA, or the card check bill, is the most danger-
                                                                        soil in our history.
ous legislation proposed in the United States for more
than half of a century. It should not be a partisan issue.              Radical terrorists have engaged in a global war
                                                                        against the United States and other Western na-
   Certain facts are undeniable. Labor unions were an im-               tions.
portant factor in industrial reformation during the 19th                The Soviet Union collapsed.
and early 20th centuries; yet, the percentage of the union-
                                                                        For the first time, the United States lost a war.
ized workforce has declined each year during the past half
century. The logistics service industry, like many others,              One United States President was forced to resign,
has been transformed from a unionized business to one                   and another was impeached.
that is nearly union free. Labor leaders, facing the pros-              Transportation was deregulated in the United
pect of extinction, have contributed significant donations              States.
to politicians who agree to sponsor legislation allowing                The costs of communicating and computing have
them to expand. EFCA, for the labor lobby, is payback for               fallen drastically.
political contributions and support.                                    We have suffered the worst economic downturn
   The EFCA is dangerous for these reasons: First, it will              since the Great Depression.
deny the secret ballot to workers who face a choice of              During 1970, Federal Express and the expectation of
whether or not to recognize a union. Second, if a union          overnight delivery service was no more than a dream in
claims recognition and begins to negotiate, a federal arbi-      the mind of founder Fred Smith. While “just in time” was
trator will dictate a settlement if no agreement is reached      utilized in Japan, it was unknown in the United States.
within 90 days.                                                  Barcode technology had not yet entered the warehouse.
                                                                 ESFR sprinkler systems, which made older systems obso-
   Unions essentially are a franchise business, and the un-      lete, were not yet introduced. Computers were bulky and
ion organizer is compensated for expanding the group. If         expensive machines, and the warehouse management sys-
that individual is unscrupulous, a variety of illegal tech-      tems we use today did not exist.
niques may be employed to induce prospects to sign a un-
ion recognition card. This could, and has, included ha-            The web-based technology, which is used widely in
rassment and personal threats.                                   warehousing and other business activity, was unknown in
                                                                 1970. The concept of the lean organization had not yet
   There is no law that can force a corporation to remain in     been developed. While processing of returns always was a
business. Thousands of business owners would liquidate           necessary evil, the concept of reverse logistics had not yet
their companies rather than suffer with a hostile work en-       been introduced.
vironment; therefore, passage of EFCA has the potential
to convert the current recession into a second Great De-
pression that is worse than 1929.
                                                                 The Growth Of
   Two legal scholars, writing for the Wall Street Journal,
have expressed the opinion that EFCA is unconstitutional         A Flexible Workforce
because it denies citizens the right of the secret ballot. Un-      As the economy recovers, warehouse operators may
fortunately, the test of constitutionality cannot take place     elect to use staffing service employees rather than
until, or unless, the legislation is passed.                     full-time workers. Others will use permanent part timers,
   The majority of people in this country are union free         such as college students, who are unwilling to take a full
and want to stay that way. Our Congress is supposed to re-       time job.
flect the will of the people. If you believe that EFCA is a         If there is a downturn in volume, the flexible workers
threat to our economy, contact your Senator and Repre-           are the first to be cut. This provides increased stability to
sentative, and ask them to reject this legislation.              full-time workers, which can be a positive morale factor.
What Only the CEO Can Do                                      Finding New Value In Truck Leasing,
By A.G. Lafley, Harvard Business Review, May 09,              By Gene Scoggins, Inbound Logistics, April 2009,
pg. 54                                                        pg. 26.
      Most people consider the chief executive to be a              The author, president of NationaLease, a major
   coach and/or a problem solver. The author, of this ar-        provider of leased motor trucks, focused on transpor-
   ticle, CEO of Procter & Gamble, views the job differ-         tation equipment in this article; yet the same argu-
   ently. Only the CEO can link the external world with          ments apply to lift trucks, and other capital equipment
   the internal organization, and that must be done, be-         used in warehouses. Some advantages of equipment
   cause without that link the company cannot succeed.           leasing include the following:
   Lafley recognizes these four tasks of the CEO:                     P Conserve capital to grow the business. Your
           Define the “meaningful outside.” How do we                    dollars might earn more with many other in-
           connect with the ultimate consumer?                           vestments.
           Decide what business you are in. At the same               P Manage credit. In today’s banking climate, fi-
           time, determine what businesses you should                    nancing of equipment can be challenging.
           not be in.                                                 P Avoid depreciation losses. Leased equipment
           Balance present and future. Consider both                     is not depreciated.
           short-term and long-term goals and results.                P Control maintenance costs.
           Shape values and standards. Are they relevant
           for both today and tomorrow?
                                                              Compliance Education
                                                              By Chris Gillis, American Shipper, March 2009, pg. 9.
WMS: A Blueprint For Success                                        Managers who are ignorant of federal regulations
By Chris Werling, Parcel, March 2009, pg. 30.                    governing import and export activities run the risk of
      Written by an independent consultant, this article         incurring severe penalties and unwanted publicity.
   serves as a useful primer for implementation of ware-         The World Academy, based in New Jersey, offers
   house management systems.                                     three-day compliance seminars for shippers and lo-
      The first step is testing, ensuring that every aspect      gistics service providers. More information is avail-
   of the system functions as expected. Training should          able at www.theworldacademy.com.
   start early, and include those on the warehouse floor
   as well as the office staff who work with the system.
   The timing of conversion, the process of moving data       Motivating Your Staff During A Down Economy
   to the new system, may be critical. Validation is a sec-   By John Brown, Material Handling Management,
   ond test to confirm that everything is on track. The       May 2009, pg. 44.
   most common mistakes in implementation result                     When a California trucking company faced the
   from poor planning, improper training, and/or inac-           need to reduce salary expenditures by 20%, manage-
   curate item analysis.                                         ment elected to adopt a four-day work week rather
                                                                 than resort to a layoff. At the same time, the company
                                                                 launched a training program conducted by a profes-
Cost-Saving Strategies for Contracts                             sional business coach. The six-week program was en-
By J. S. Millstein and Tim Roughton, CSCMP’s Sup-                titled, “Battling Burnout and Regaining Control.”
ply-Chain Quarterly, Quarter 1/09, pg. 34.                       Many of the sessions were forum discussions that per-
      The authors of this article are lawyers in the New         mitted workers to express their fears and anxieties.
   York and London offices of a corporate law firm.              The CEO stated, “I was pleasantly surprised at how
   They addressed four areas that offer opportunities to         much they helped me cope with the stress of leading a
   improve outsourcing contracts with new ways to cut            company during this economic storm.”
   costs. The four areas are flexibility, enforcement of
   contractual rights, renegotiation and leverage. Re-
   garding flexibility, they stress the importance of rec-    Logistics Bright Spots
   ognizing the price of superior service. Don’t ask for      American Shipper, May 2009, pg. 16.
   or agree to service requirements that truly are not              An increasing number of logistics service provid-
   needed. In these difficult times, a dispute resolution        ers are using solar energy to power their facilities.
   provision is an important part of every outsourcing           Warehouse roofs are ideal for solar panel installations
   agreement. Changing economic conditions may sig-              because they offer large expanses of access to sun-
   nal the need to renegotiate terms that were acceptable        light. All of the examples provided in the article are
   prior to the current recession.                               from facilities on the Pacific coast.

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