Logistics is the bloodline of modern businesses, fueling economic growth across multiple borders. Running a successful supply chain involves managing end-to-end distribution on a tight budget. From suppliers, and wholesalers to retailers, multiple stakeholders are part of supply chain operations. Managing the logistics costs across the pipeline is a challenge. That is why, companies fail to control their supply cost, resulting in unwanted overhead expenses.
Let’s understand the different types of costs that serve as regular bottlenecks and logistics principles. We’ll also delve into the importance of reducing supply chain costs.
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7 Types of Logistics Costs
There are multiple logistics costs of a company’s supply chain management. Product delivery is a single part of the vast operational network. It involves overseeing the organisation’s entire supply chain. Here is a quick guide to different logistics types.
1. Inventory
This is the main logistics cost of a company. Whether you have a separate warehouse or built-in facility, storing products beyond a specific period can increase inventory costs. Managing it efficiently is a significant challenge because storage insurance and recurring maintenance have to be included to prevent product loss.
2. Transport
Wondering what is the transportation cost? Transportation is related to the distribution of products and expenses like hiring drivers, toll, fuel, and third-party service providers(3PL). Please note the price varies on total distance, vehicle maintenance, quantity and type of cargo and the chosen route.
3. Taxation
Taxation and paperwork increase the total logistics costs. The more delay in regulatory processes, the higher the price. For example, fuel taxes impact the cost of operating trucks, ships, and buses. High fuel tax leads to high costs, forcing companies to pass the burden onto their customers.
Additionally, there are licensing, registration fees, and taxes to maintain fleets of trucks. Import and export duties on cross-border transportation are another hassle.
4. Acquisition Cost
Poor procurement procedures impact the production and distribution process of many brands. The lack of resources to manage the cost of raw materials and inputs creates a ripple effect damaging the logistics cost and price of the final product.
5. Investing Newer Technologies
Automation streamlines logistical processes in the long term. However, implementing these solutions can increase your logistics costs in the immediate future. In any case, they must be considered a part of the company’s logistical expenses.
6. Packaging
If there is one tricky element in logistical operation, it is the packaging. You must strike a fine balance between protecting the product, packaging expenses, and managing sustainable practices.
Many goods are shipped to distant areas and require product integrity to arrive at the destination safely. Increased costs affect overall demand and supply chain efficiency, reducing the flow of goods to the final customer.
7. People
The final stage of logistics cost is labour. Staff salaries, bonuses, increments, and vacations affect how much a brand charges for the final product. Think like an endless chain where a single cog adds the variables to increase the logistical costs.
But, what are the principles to ensure a safer, faster, and more robust supply chain network? Let’s explore this section.
7 Rights of Logistics
The 7 rights outline the minimal requirement for the successful flow of goods along a company’s delivery network. To master the art of order fulfilment, it is crucial to understand these basic rights of a high-value product.
1. Right Quantity
The mismatch between customer orders and overvalued or undervalued stock is notorious. Delivering incorrect quantities due to picking and packing errors and undervalued inventory impacts the logistics costs.
For instance, recurring customer returns add extra cost to replace the missing item, damaging the company’s reputation. An efficient picking system and demand forecasting ensure the right quantity is delivered to the customer.
2. Right Product
The right product should reach the right customer. So, why do companies mess up the delivery? The wrong item is picked, packed, and dispatched leading to customer returns and increasing logistics costs. Implementing high-tech order-tracking solutions like scanners/QR codes and handheld scanners will allow workers to locate, identify, and track the orders.
3. Right Place
Many companies have multiple distribution centres, warehouses, and storage facilities. Shipping to the correct location is important due to obvious reasons so clarifying the place of delivery is crucial before the final shipment. Misdeliveries cause logistical headaches and backlogs in the supply chain networks.
4. Right Condition
Products must be delivered in perfect condition. Damages during transit can lead to additional costs and lost sales.
5. Right Time
Timely delivery is essential. Late deliveries can disrupt production schedules and disappoint customers.
6. Right Customer
Ensuring that products reach the intended customer. Verification processes help avoid costly mistakes.
7. Right Cost
Managing logistics costs effectively to ensure profitability while maintaining high service levels. Balancing cost with quality and efficiency is key.
Importance of Reducing Logistics Costs
Reducing logistics costs is a critical aspect of business strategy. Here are some compelling reasons why it is important:
1. Enhanced Profit Margins
Lower logistics costs directly contribute to higher profit margins. Efficient logistics management can significantly reduce operational expenses.
2. Competitive Pricing
Cost savings in logistics can be passed on to customers through competitive pricing. This can improve market share and customer loyalty.
3. Increased Operational Efficiency
Streamlining logistics processes leads to improved operational efficiency. This includes better inventory management, faster order fulfilment, and reduced waste.
4. Improved Cash Flow
Efficient logistics reduces the amount of capital tied up in inventory and transportation. This improves cash flow and allows businesses to invest in growth opportunities.
5. Sustainability
Cost reduction often goes hand-in-hand with sustainability initiatives. Efficient logistics can lead to reduced fuel consumption and lower emissions, supporting environmental goals.
6. Customer Satisfaction
Lower costs can enhance service levels, leading to greater customer satisfaction. Happy customers are more likely to be repeat buyers and brand advocates.
7. Resilience and Flexibility
Cost-effective logistics allow businesses to be more agile and responsive to market changes. This resilience is crucial in navigating disruptions and seizing new opportunities.
FAQs: What are Logistics Costs: Are Your Logistics Expenses Too High
What is the logistics costs?
It refers to expenses incurred by a business to manage its logistical operations. This includes operating different types of warehousing, inventory control and supply, last-mile deliveries, and fleet management.
How much does logistics costs in India compared to China?
Logistical expenses in the Indian supply chain roughly translate to 14% of their total GDP while it is 9% for China.
Why is timely delivery important in logistics?
Timely delivery ensures customer satisfaction, maintains production schedules, and reduces the risk of stockouts or overstocking, which can tie up capital.
How does reducing logistics costs impact sustainability?
Reducing logistics costs often involves optimising routes and loads, which can lead to reduced fuel consumption and lower emissions, thereby supporting environmental sustainability.
What role does inventory management play in logistics costs?
Effective inventory management minimises excess stock and stockouts, reducing storage costs and ensuring that capital is not unnecessarily tied up.
Conclusion
Understanding and implementing the 7 Rights is fundamental to achieving operational excellence and customer satisfaction. Additionally, focusing on reducing logistics costs is crucial for enhancing profitability, maintaining competitive pricing, and supporting sustainable business practices.
Want to optimise your logistical operations? Get in touch with Qodenext, your one-stop solution provider to streamline your supply bottlenecks.
