How to reduce the cost of logistics?

Logistics plays an essential role in the success of any business. The wider a company's reach, the more customers it can attract, creating more revenue. This expansion could be on a regional basis, at the national level, or even into the worldwide markets. To continue, organisations require a solid logistics arm that oversees the manufacture and delivery of items on the schedule.

Logistics is a vital aspect of a country's growth and economic development. However, it confronts various difficulties in India. Logistics and supply chain costs currently contribute 13% to 14% of the nation's gross domestic product (GDP) (GDP). It's almost twice as high as it needs to be to keep up with other industrialised countries. For example, the United States and Europe both record average logistics costs of 8%, while China's logistics costs are only 9% of GDP.

What are the logistics costs?

The definition of logistics expenses will undoubtedly vary from firm to company. However, for most purposes, logistics costs include all costs spent within the supply chain, from initial sourcing to final delivery.

Expenses incurred moving goods from one end of a supply chain to the other include sourcing, warehousing, labour, packaging, shipping, and management. Most of these expenditures go toward logistics service providers (3PLs, freight carriers, transportation brokers, storage facilities, etc.). Still, they may include logistics software, storage and transportation equipment, and vehicle upkeep.

1. Transportation

When most people hear "logistics," the first thing that comes to mind is transportation. That's because transportation is a massive part of your operation and crucial to getting goods where they need to be in the supply chain. In addition, in-house transportation services are available, as are those provided by freight carriers, brokers, and 3PLs (3PL). Therefore, it is possible that the transportation cost would cover not just their services but also the cost of everything from gas to postal.

2. Warehousing

Warehouse costs, such as rent and storage space per square foot, will consume a significant chunk of your logistics budget. Long-term obligations, such as leasing agreements and commercial property acquisition, might add to these expenses. Warehouse costs, like transportation costs, may include the price of a warehouse management system and the money spent on transporting supplies and equipment.

3. Fulfilment

Most businesses rely on third-party fulfilment services instead of operating their warehouses and distribution centres. As a result, you'll have to pay for setup, receiving, storage, and pick and pack. In addition, box costs, order insert fees, custom labelling fees, return fees, kitting fees, and account management fees may also be incurred as part of the fulfilment process.

4. Inventory

Inventory, purchasing, and storage contribute significantly to logistics expenses, as do the fees connected with keeping track of things like stock levels, orders, and deliveries. In addition, costs associated with stocking shelves extend beyond the initial purchase price to account for things like spoilage, theft, deterioration, obsolescence, markdowns for bulk purchases, and more.

5. Labour

The labour cost must be included in any logistical cost savings goals, regardless of the product sold. Those expenses extend to management, customer service, and everyone who helps with logistics. Staff and labour costs may also include the cost of employing and training new hourly workers or managers and the cost of payroll, insurance, and benefits.

Ways to reduce the logistics costs

Pay attention to suppliers

The most significant way to save costs in the supply chain or logistics is to work with suppliers as a team. Sometimes, vendors can cover direct shipping expenses. Then, form a group of purchasers (the customer and a few of the latter's providers) to pool resources and acquire logistical necessities (say, gasoline for transportation) at the bulk discount that comes with such an approach.

Pay Attention to Your Customers

Satisfied customers are essential to keeping logistical support costs down each purchase (companies retain them as customers). By going above and beyond what customers expect, businesses can keep their business going and spread the cost-cutting burden over many orders/customers. With such a strong link between happy customers and savings, logistics cost-cutting efforts would do well to include customer happiness in their metrics.

Be careful to handle projects

Planning operations, including project timelines, manufacturing schedules, shipping routes, and transit times, is essential for every business. The failure to properly manage a project will result in missed deadlines and additional expenses, as well as a negative reflection on your company's professionalism. Establishing clear objectives and timelines at the outset of a project is a core pillar of good project management, as it ensures that everyone in the team is on the same page and knows what they need to do to succeed. Be careful not to overpromise and underdeliver by setting reasonable expectations.

Focus on safety

The first step in lowering logistics costs is ensuring all parties involved (shippers, logistics providers, and OSHA) are aware of and consider safety and OSHA regulations. Establish a secure warehousing environment. Take safety precautions actively. Make sure no serious accidents occur that might cost the organisation a lot of money. OSHA should not be ignored. If OSHA finds too many violations, the business might be shut down. Get someone in charge of safety and continuous education, such as a Safety Manager.

Consider Labour Expenses

Consider the potential for labour savings in every given warehouse business. Labour expenses have to be a primary consideration for any project. Software designed for managing labour is available, and it may be put to use in the warehouse. The warehouse staff incentive schemes are effective. Lighting or voice-directed picking, carousel storage, robots, etc., are all examples of projects that may be automated using this technique. Experiment with intra-building mobility. You'll be able to cut down on unnecessary expenses. It will boost worker efficiency, allowing you to do more with fewer employees and pieces of machinery.

Consolidate purchases

Buying from several different vendors might add up to significant additional expenses. Instead, you can save money on administrative fees and shipping by ordering bulk from a single source that can handle your product's materials, finishes, specs, and unmatched metal capabilities, no matter how unique your products may be.

Invest in a TMS

• It cuts down on the 10% administrative costs associated with managing all of your contracts with your transportation service suppliers. With TMS, you have a consolidated database for all contracts, which assists in precisely computing shipment charges and managing other payables.
• A TMS can choose the most suitable carrier automatically, considering past performance data on several carriers and your desired level of service. Freight costs can be cut by selecting the most cost-effective shipping company.
• The TMS can help you minimise shipping costs by determining the most efficient loading and routing strategies for each package. This saves time and effort that would have been spent manually constructing loads and changing them. This improvement can cut freight expenses by 5-17% in terms of annual savings.
• The TMS eliminates any potential for human error in the information received by carrier partners on the tendered shipments. Every step of the shipment process can be automated, resulting in a 1%-5% yearly freight cost savings.
• An effective TMS can help you keep tabs on the efficiency of both in-house and contracted workers, leading to better results overall. This improves overall process visibility and allows for prompt intervention if needed. This saves between 1% and 3% on freight costs annually.
• Make the most of your warehouse's square footage by streamlining your receiving and shipping processes. A TMS allows you to keep track of and manage the flow of products in and out of the warehouse, effectively using the limited warehouse space while saving time and money.

Conclusion

Cutting down logistics costs is possible with the right tool and strategies. A TMS alone can help you to shave off unnecessary costs and reduce multiple other costs.

If you are thinking about switching to a TMS, try Traqo today.

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