Logistics Cost Management
There are two basic methods to improve the cash flow of a business: increasing revenues and cutting costs. When it comes to curtailing the cost of how you do business, addressing your international logistics may provide healthy savings for the company through logistics cost management. Shipping products, materials, technologies, robotics, logistics software, and equipment around the world in global logistics is complex and, for larger companies, must be run by someone who holds a recognized supply chain and logistics management MBA degree. However, companies large and small can increase their efficiency and reduce logistics costs by following these 14 logistics cost management techniques:
14 Tips for Efficient Logistics Cost Management
1. Use Air Freight Only for Emergency Shipments
Air freight is very expensive and in most cases not needed if you set up a system that works with the customer or client to where you are shipping the items. If you plan to reduce logistics costs and work with your clients, air freight should only be used in emergencies when it has to arrive quickly. Otherwise, traditional methods should work well and you will save a considerable amount of money.
2. Better Planning for Global Logistics
Planning your logistics starts with an overview of how you are currently running your shipping, where it can be improved, and how to reduce logistics costs. Logistics cost management starts with air freight, but you really need to look at your overall shipments and see where they can become more efficient. It helps if you can hire someone who has earned a good logistics qualification, like a diploma in logistics and supply chain management, as good expertise is developed in supply chain management, smart logistics management, logistics business, reverse logistics, 3PL and 4PL, etc.
3. Use Full Container Loads to Improve International Logistics
Another way to increase efficiency is to be sure that your goods are being shipped in full containers (FCL) rather than half or less of a container (LCL). In addition, going LCL means risking more damage to the goods as they can shift around inside when in transit. When you consider that going with less than a full container means you are paying more to ship your items, it helps to go FCL whenever possible.
4. Consolidating Goods:
If you do not have enough items to ship FCL, then you can ask to consolidate them with the items from other companies to reduce logistics. Reducing logistics costs will slow down the shipping time somewhat since the items will need to be packed and sorted separately, but it can save you a considerable amount of money. For customers who are willing to wait a little longer, consolidation is a good way to go.
5. Identify the Best Inland Transit Options
This means locating transportation systems that provide the best combination of speed, efficiency, and price. The two most viable options are rail and full truckload service (FTL). Rail is highly efficient for larger volumes of goods to reduce logistics costs, while FTL is better if you are shipping a smaller number of items. You should avoid dedicated trucks as they might be faster, but they will cost more money.
6. Establish Clear Objectives and Define Strategies
To understand your logistics costs, understand the goals and objectives of your organization. Next, you need to understand the various strategies that can help you achieve your goals.
- One strategy is to increase the number of online sales.
- Another strategy could be to increase in-store sales. The best way to do this is to identify various logistics and supply chain management strategies that can help you reduce logistics costs by analyzing the various costs involved in each strategy.
7. Utilize Internal Resources
External resources are expensive, but in many cases, internal resources are worth their weight. Internal resources can include human resources, cost management software, transportation resources, and other equipment. By utilizing internal resources, you can considerably improve logistics cost management.
For Example: Warehousing is an external cost. By utilizing your own warehouse and transport system, you can reduce the cost of warehousing and transport and can generate better revenues.
8. Find Streamlining Opportunities
One of the many opportunities to reduce logistics costs and increase revenue through logistics cost management, is streamlining operations. That means reducing the number of operations that a company is involved in. For example, if a company is involved in five different kinds of operations, it’s a good idea to reduce that number to three. It helps you reduce the number of resources.
9. Don’t Over-Stock
As a general rule of thumb, don’t stock up on inventory that you have no intention of selling. If you receive a large number of orders for a particular item, you need to precisely decide how much to hold for those orders. But make sure that you sell that stock as soon as possible to minimize the cost of holding that inventory. As a general rule, don’t hold inventory for more than 30 days.
10. Stay Up-to-Date on New Technologies
New technologies are constantly emerging, and they can help you help you in your logistics cost management because they can automate many processes in a company. For example:
- Robotics: Implementing robotics can help reduce logistics costs and also increase company revenue. Robotics can automate manual processes and eliminate the need for a large number of people.
- Software for Customer Pickup: Another example is the implementation of software for customers, which help customers who are interested in Self-Pickup directly from the company/distributor.
11. Estimate Return Rates
For logistics cost management to be effective, you need to identify the return rates of your products. The return rates of a product reflect how much customers are satisfied with that particular product. If you are not aware of your product return rates and how much profit that product makes for your company — then you stand no chance of reducing logistics costs. In this case, you must either improve the product quality or discontinue it.
12. Track Everything
Tracking everything means you need to keep track of every aspect of your logistics costs, from sales to expenses to inventory. When you track everything, you are able to identify:
- Inefficient logistics processes,
- Areas for logistics cost reduction, and,
- Areas for revenue increase.
Tracking everything ensures that you find areas for inefficient logistics cost management.
13. Decide What’s Essential
Logistics cost management can be achieved by knowing:
- What is essential for your business?
- What is non-essential? and also,
- What is merely nice to have?
Deciding what’s essential for your business means deciding what is worth spending a little bit of money on and what is not worth spending money on. Examples of such essential and non-essential things are Salaries, Warehouses, Store Locations, Employees, Technology, Transport, etc.
14. Negotiate with Vendors and Suppliers
Logistics management is an expensive field. Therefore, it is essential to negotiate with vendors and suppliers because they have the power to reduce logistics costs and increase your business’s revenues.
Wrapping Up
- Cost reduction through logistics cost management can be achieved through the implementation of new technologies and streamlining operations.
- New technologies can speed up processes and reduce logistics costs by eliminating manual operations.
- Establishing clear objectives and defining strategies, utilizing internal resources, no over-stocking, and deciding what’s essential all contribute to reducing logistics costs.
The greater efficiency you create when shipping items overseas, the more money your company will keep by reducing logistics costs. It pays to always keep an eye out for the most efficient shipping methods that meet your customer’s needs while saving you money. Implement these tips and you will see the impact that they have on your company. If you are interested in developing skills in International logistics, we recommend you study logistics courses and CSCE supply chain course, which are internationally accredited and globally recognized programs offered by AIMS’ institute of supply chain management through an interactive learning system.