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What's your cost of distance?

Every B-school grad knows about the time-value of money – but very little about the cost of distance beyond that of a taxi meter. What do you know about your own cost of distance?

With TVM, it’s a simple formula like PV = FV ÷ (1+I)^N. But calculating the cost of distance is not such a simple formula.

“What happens if you are an automaker in Europe and you design a component locally, then ship it off to be produced somewhere, say India. Then after the item as been manufactured and placed on the boat – a problem is discovered. That is the cost of distance.”

This cost of distance is from Ladislav Glogar, director of a tier 1 car component plant in the Czech Republic. As a factory director, he successfully pushed for his operations to be expanded beyond low-cost manufacturing and into the firm’s global R&D. This approach slashed his exposure to such cost of distance issues – and pushed up the value of his company.

However, he also knew that bean counters elsewhere in his industry and in his own company did not share his opinion. These cost of distance issues in the manufacturing sector were regularly being pushed off into the future as unlikely one-off probabilities.

Here comes COVID-19

The COVID-19 pandemic is throwing a monkey wrench into calculating the cost of distance – and one that goes deep into the economy. Some of the turmoil is obvious — a production site closes, a port limits shipping traffic, and the Just-in-Sequence supply chain is knocked out of balance.

But there are many other areas where the COVID’s impact on distancing costs are ambiguous – but still significant. Sure, there are all sorts of online meetings these days. But the reduction of office time and physical meetings mean fewer opportunities to exchange information face-to-face. It’s just not possible to gossip and compare notes at the coffee machine. While some professions can easily shift online, others in the retail and service sectors find COVID is physically distancing them out of business. There is a real cost to this pandemic distancing.

Can you recognize the cost of distance?

As we head into a recessionary environment, cutting these costs and accelerating the flow of information is more important than ever. Unlike TVM, there is no universal formula for calculating your organization’s cost of distance, but there are distinct elements that can be uncovered and identified.

In this time of remote work, here are three ways organizations unintentionally increasing the distance – and ways they can reduce these costs.

  1. Losing data at the individual level – Person A doesn’t bother to cut and paste information between his Outlook and the CRM system, losing access to useful data – and cutting out everyone else in his organization.
  2. Home office data friction – Working from home, information can travel slower or not at all. Person A does not exchange notes with Person B about Client C because they are all working from home and not chatting in the office hallways or at the coffee machine.
  3. More mysterious clients – Information on clients – contacts, emails, and background information – is not being communicated between team members. As a result, information stays with the individual and is not shared with the team or the CRM solution.

One method to cut the distance is to ensure that your Outlook is automatically talking to your CRM solution – and vis versa. This can be done with maiConnect, our SAP AddOn for integrating your Outlook activities with SAP CRM, SAP Sales Cloud and SAP S/4HANA Customer Management Module.  Getting these two to do bidirectional snyc in real-time will do wonders to keep the data flowing between devices and team members. Whether this is better individual access to your data, better exchange of ideas in the office, or better team communication about clients, a little timely synchronization can work wonders to reduce the cost of distance. Even when there is no pandemic.

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