Transition from Fixed Expenses to Variable Expenses in Times of Crisis
A pharmaceutical importer I spoke with this week told me, “In the era of COVID-19, those who are smart enough to transition from fixed expenses to variable expenses will succeed.” He’s right. The coronavirus pandemic has created uncertainty in the international market and certainly in the Israeli market. “Take my industry, for example,” explained Ben Shichi. “Businesses that used to roll smoothly and manage fairly well suddenly started feeling cash flow pressure with the outbreak of the coronavirus crisis. Suddenly, there were delays in payments, shipments got stuck, but the expenses – what can you do, they keep piling up.”
In an era of uncertainty, volatility, and concerns for many businesses, we examined how businesses and companies can cope with the crisis and what existing solutions in the field allow almost any business to weather the storm. Alongside large businesses that are largely surviving the COVID-19 crisis and some even prospering, there are many small and medium-sized businesses suffering from instability during this crisis. Lockdowns, delays in the arrival of raw materials, port closures, the increase in air freight costs, and even changes in consumer habits create significant volatility and, of course, cash flow difficulties. This is happening not only in Israel but worldwide. In the field, managers in various businesses are forced to deal with uncertainty, such as in managing their human resources. Questions like, “Should we lay off employees temporarily? And if so, how many? And if we suddenly need them, how do we bring them back and for how long?” arise repeatedly without clear answers. And we haven’t even discussed the gathering and delivery of goods, raw materials and products, storage, and inventory management. In short, it’s a significant headache and risk management. All of this, of course, directly affects these businesses’ ability to price their products accurately and ultimately impacts their bottom line.
The solution to difficulties and risks during a crisis may lie in changing the business’s management model and transitioning from fixed expenses to variable expenses. What does that mean? Every business has overhead costs, which are the set of resources it needs to invest to meet its goals and objectives. These are the fixed expenses of a business, including electricity and water bills, rent, insurance, maintenance and operations, and, of course, human resources. These are the expenses that the business is required to pay every given month, regardless of its condition or what is happening externally in the markets. In a period of uncertainty, when businesses require some accordion-like flexibility, it is very difficult, and sometimes impossible, to quickly reduce these fixed expenses and even more challenging to return them to their normal scope quickly when the business returns to regular operations.
Transitioning to variable expenses may be an excellent solution during a crisis, but not only then. So, what is variable expense management? It means that the business only pays for what it needs and is not committed in advance to fixed overhead costs, regardless of its activity. “Transitioning to variable expenses provides businesses, especially during the COVID-19 period, with flexibility,” explains Chen Goldner, VP of Marketing at Fritz, a company specializing in supply chain management and distribution. “The business owner essentially purchases an insurance policy from us, and we assume the risks for them. We provide these businesses with operational solutions in a wide range of areas, and managers have the rare luxury of time and peace of mind in these days to invest themselves in the core activities of the business and the organization. This is an important solution, especially in a period of uncertainty and market volatility.”
Fritz has been in the Forwarding and supply chain industry for 30 years. It is established in Israel with 5 large logistics centers, 3 distribution centers, and 5 branches. The company identified
In an era of uncertainty, volatility, and concerns for many businesses, we examined how businesses and companies can cope with the crisis and what existing solutions in the field allow almost any business to weather the storm. Alongside large businesses that are largely surviving the COVID-19 crisis and some even prospering, there are many small and medium-sized businesses suffering from instability during this crisis. Lockdowns, delays in the arrival of raw materials, port closures, the increase in air freight costs, and even changes in consumer habits create significant volatility and, of course, cash flow difficulties. This is happening not only in Israel but worldwide. In the field, managers in various businesses are forced to deal with uncertainty, such as in managing their human resources. Questions like, “Should we lay off employees temporarily? And if so, how many? And if we suddenly need them, how do we bring them back and for how long?” arise repeatedly without clear answers. And we haven’t even discussed the gathering and delivery of goods, raw materials and products, storage, and inventory management. In short, it’s a significant headache and risk management. All of this, of course, directly affects these businesses’ ability to price their products accurately and ultimately impacts their bottom line.
The solution to difficulties and risks during a crisis may lie in changing the business’s management model and transitioning from fixed expenses to variable expenses. What does that mean? Every business has overhead costs, which are the set of resources it needs to invest to meet its goals and objectives. These are the fixed expenses of a business, including electricity and water bills, rent, insurance, maintenance and operations, and, of course, human resources. These are the expenses that the business is required to pay every given month, regardless of its condition or what is happening externally in the markets. In a period of uncertainty, when businesses require some accordion-like flexibility, it is very difficult, and sometimes impossible, to quickly reduce these fixed expenses and even more challenging to return them to their normal scope quickly when the business returns to regular operations.
Transitioning to variable expenses may be an excellent solution during a crisis, but not only then. So, what is variable expense management? It means that the business only pays for what it needs and is not committed in advance to fixed overhead costs, regardless of its activity. “Transitioning to variable expenses provides businesses, especially during the COVID-19 period, with flexibility,” explains Chen Goldner, VP of Marketing at Fritz, a company specializing in supply chain management and distribution. “The business owner essentially purchases an insurance policy from us, and we assume the risks for them. We provide these businesses with operational solutions in a wide range of areas, and managers have the rare luxury of time and peace of mind in these days to invest themselves in the core activities of the business and the organization. This is an important solution, especially in a period of uncertainty and market volatility.”
Fritz has been in the Forwarding and supply chain industry for 30 years. It is established in Israel with 5 large logistics centers, 3 distribution centers, and 5 branches. The company identified
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