How to STOP Order Profitability Leaks – Logistics Costs

Why Businesses Struggle to Fix Profit Leaks in Their Supply Chain

In my 30 years of consulting, I’ve seen how poor visibility into customer and product profitability can lead to major cost leaks in logistics and supply chain operations. The reality is that many businesses are unaware of how much money they’re losing through their supply chain because traditional reporting systems don’t give them the necessary insights. In fact, I’d estimate that 10–30% of customer orders in most businesses are actually loss-making, but many organizations don’t recognize it.

So why don’t businesses fix this? Addressing these profit leaks is one of the most straightforward ways to stop losses, yet many companies struggle to tackle the issue. It’s not a lack of awareness, but rather a combination of factors that prevent action.

The Complex Nature of Profitability Challenges

At the core, addressing loss-making orders requires a deep look across various departments. Profitability isn’t just a sales issue or a customer service challenge—it’s a cross-functional problem that impacts inventory management, forecasting, and product ranges. This complexity makes it difficult to take action.

Take, for example, low-margin or unprofitable products. There’s often resistance to cutting them because of arguments around maintaining a full product range or the fear of losing sales. “If we drop this color, will it affect the sales of the others?” is a common concern. Similarly, businesses often face difficulties with customer service policies. If certain customers are unprofitable because of frequent, small orders, tightening up policies or changing how these customers are managed can be uncomfortable.

Furthermore, the siloed nature of many organizations adds to the challenge. Different departments often prioritize their own needs, making it hard to implement solutions that require cross-functional collaboration. Without leadership from the top—often from the CEO or Managing Director—these issues are easily pushed aside.

Why It’s Worth the Effort?

Despite the challenges, addressing these profit leaks can lead to significant improvements. In some cases, businesses can reduce logistics costs by 10-15% simply by addressing loss-making orders and improving profitability across the supply chain. I’ve seen clients who are actively redesigning their distribution networks, adjusting inventory placement, and improving supplier reliability to tackle the root causes of these issues.

It requires a coordinated effort across the organization, but the results speak for themselves. By addressing profitability challenges head-on, businesses can unlock savings and improve their bottom line. It’s clear that the biggest hurdle is not a lack of solutions, but the difficulty of coordinating the necessary actions across multiple functions and getting buy-in from leadership.

So, why aren’t more businesses addressing these profit leaks? It often comes down to a combination of poor visibility, departmental silos, and a reluctance to disrupt the status quo. But as businesses continue to feel the pressure to improve profitability, those who tackle these issues will see significant rewards.