One of the most common mistakes companies make is to dismiss the logistics operations as part of the business’ strategic decisions; therefore, they do not match these operations to the commercial goals, and they neglect to develop metrics to measure the costs they generate.
According to the research paper Logistics Cost and Services published by Establish, a consulting firm specialized in logistics, the logistics cost represents 20 to 30% of the total cost of goods in Mexico, and it may even reach 50% due to inefficiencies such as customs procedures and intermodal points.
The low visibility on expenses, and a lack of financial planning, force companies to overspend; therefore, they miss opportunities to save or invest. Furthermore, the boom of e-commerce and the global economic conditions are forcing them to look for increasingly better – and cheaper – savings solutions that fit theirs, their clients’, and their suppliers’ business models.
Even though some companies try to lower their logistics costs by cutting staff, a failed strategy in itself, there are more effective ways to achieve this, such as optimizing the inventory, delivery networks, processes, and improving the relationship with suppliers and partners.
Using technology in logistics processes helps make processes more efficient and lower expenses; however, fostering a resource-minded culture is essential to achieving a true optimization of costs.
Next, we give 22 recommendations that will help you lower costs in a smarter and more sustainable manner:
Technology:
- Taking advantage of e-commerce
Thanks to technologies like Big Data, suppliers can offer traceability to clients and lower their costs because, to be competitive online, they must improve their capacity and quality and make their supply chain more efficient.
- Offering traceability throughout the supply chain
Having the product’s circulation history is commercially and legally convenient by staying clear of products in bad shape and we can offer it as an added value to clients. Controlling this on a digital platform will help you avoid making unnecessary expenses in manufacturing and resupply.
- Updating the inventory levels using a WMS
Incorrect inventory levels may make us think we have more goods than we do or lead to overstocking products that may become obsolete. Keeping track of the inventory levels will stop this from happening and, therefore, lead to a decrease in costs. Using a Warehouse Management System (WMS), we can track movements and link products with sales data to make more accurate forecasts.
- Choosing the means of transportation using a TMS
Analyzing the different means of transportation and the intermodal or multimodal alternatives and the type of cargo – LTL or FTL – may save us a lot of resources. A Transport Management System (TMS) helps us consider factors such as distance, shipment volume, prices, etc. On the other hand, looking at alternate options such as motorcycles and bicycles can also be a profitable strategy.
- Integrating systems
Connecting the sales and inventory systems helps us make smarter decisions regarding demand, pricing, and promotions. For companies that lack the necessary resources to implement systems or to carry out an integration process, we suggest hiring the services of a 3PL company that has the experience, infrastructure, and technology to do this.
- Using portable technologies
The possibility to be in touch with employees anywhere improves productivity, which impacts the operation’s costs. Innovations like Voice Picking allow operators to prepare orders by issuing instructions over a headphone, giving them more freedom of movement.
Administration and process:
- Controlling expenses
Knowing where we are spending our resources will make it possible to organize any surplus. Some control systems centralize information and create a single invoice, which expedites the administration’s processes.
- Sorting the fixed and variable costs
Cost reduction begins by sorting which costs are fixed and which are variable. While the latter fluctuate according to volume (fuel, labor, packaging), the former does not (rent). Other expenses, such as electricity and administration, may be fixed but with variable components.
- Having performance indicators
Implementing Key Performance Indicators (KPI) ensures the proper management of resources, improves employee productivity, and lowers the additional activities and the expenses generated by these.
- Automating manual tasks
Automation optimizes manual processes, repetitive tasks, and staff demand. It lets us check the location of products and offers visibility, which lowers gathering and storage costs and increases service levels.
- Using proven methodologies
Using advanced continuous improvement models like 5s, lean management, and the zero-defect technique, or designing automated sub-systems, may lower or eliminate zero-value activities and other wastes.
- Improving delivery routes
Programming smart delivery routes that consider the region’s flow, and the possibility of using them for reverse logistics or backhaul, helps us save on fuel, resources, and time while also benefitting the environment.
Location and space:
- Making storage systems more efficient
More than growing the physical space, we need to use it smartly; in other words, we should look for a better distribution that helps manage goods better, increase their safety, and forecast the demand. Considering vertical space and the prevalence of pallets are other ways to save in storage costs.
- Centralizing distribution
Some companies may find inconvenient having many warehouses because inventory management becomes complicated due to the need of moving stock between them. In this case, it is better to have distribution centers in major logistics hubs (cities) to serve several zones.
- Settling close to suppliers
A good strategy to lower costs and to avoid high shipment rates, is to study the locations of suppliers and potential clients before settling on a location for our warehouse.
Partnership:
- Belonging to a logistics cluster
Being one of a group of companies looking to improve the sector’s competitiveness may result in savings for several logistics processes. For example, by sharing transportation to the same destination we maximize space and split the expenses.
- Creating a consortium of buyers
Building a network of buyers including clients and suppliers is a good idea to buy logistics materials at a better price. Sometimes, suppliers absorb the direct costs derived from logistics activities such as fuel.
- Looking for a logistics company
Hiring a specialized 3PL company like Solistica, which has the latest software to control expenses, will undoubtedly result in lower costs and will help improve the quality of the services and products you offer. By outsourcing their logistics operation, companies save time and money by focusing on more profitable tasks for their businesses.
- Hiring a single logistics supplier
Better deals can be made when there is a single logistics supplier (3PL). Companies may hire comprehensive services encompassing storage, transportation, distribution, and value-added services and have only one point of contact.
Other ways:
- Benefitting from recurring expenses
Paying for products or services needed by the logistics operation such as fuel, tires, tolls, and insurance, using payment methods that offer rewards, let companies exchange these points to partially or completely finance their trips, products, or prizes.
- Auditing equipment
Assessing the performance of equipment used in the storage process (forklifts, platforms, and conveyor belts) will let you avoid future interruptions or bottlenecks that result in unexpected expenses.
- Building a savings-minded culture
Each process of logistics should consider labor costs. Creating a culture focusing on clients that motivates employees can improve costs in general by raising awareness about productivity and waste.
Even when these recommendations may result in savings, the thing that will really optimize your costs is to carry out a comprehensive plan that combines processes, analysis, technology, and culture to make logistics tasks simpler and to mitigate risks without compromising the quality of your services. In this manner, it will be possible for you not only to improve profitability but also your clients’ experience.
A logistics company can become your best financial ally and help you increase your ROI by providing solutions aligned to your business and avoiding making large investments in technology infrastructure.
Only a logistics company capable of integrating technology – systems, networks, mobile devices, apps – and adapt it to the productivity, profitability, and efficiency strategies can turn the data you gather into informed and smart decisions, which will stop losses, theft, and waste and make your logistics processes more productive.
Get in touch with Solistica’s experts, they can offer comprehensive logistics solutions to help you optimize your logistics costs. Request a personalized estimate and kick off the transformation of your supply chain.
*This blog was originally published on December 20, 2018 and modified on June 9 2022.
