How to measure and reduce logistics costs?

How to measure and reduce logistics costs?

It is a fact that shipping and logistics costs have been on the rise since the beginning of the pandemic, and these prices will continue to rise throughout the logistics industry. With this article, they will have a profound impact on your business, but you will also gain an understanding of what logistics costs are.

Knowing about these will help you classify and measure them for your own business. In addition, knowing about them will help you identify ways to reduce costs and improve your results to make your business successful.

Learn a little about logistics costs

In case you don’t know, shipping logistics is the process that involves handling, managing, and transporting goods. When we talk about the term “ logistics costs ,” it encompasses all the expenses associated with this process. General logistics costs include everything from purchasing raw materials to paying a third-party logistics company to help facilitate distribution.

Types of logistics costs

There are many moving parts within the supply chain. As a result, there are a wide variety of costs associated with logistics management. Specific costs may vary depending on your business and industry, but in general, you can group costs into four different categories: warehousing, transportation, labor, and equipment. Each of these is important to the successful delivery of your logistics service , so let's take a closer look at each of them.

Storage and inventory

Every business needs a place to store its inventory, whether you create your own products in-house or rely on an outside manufacturer. The larger your inventory, the more space you'll need. On the downside, rising storage costs and limited availability make finding rental space more difficult than ever.

On the other hand, lease renewals in countries like the US have increased by an average of 25% this year. Because the growing number of e-commerce businesses creates a shortage of available warehouse space. To avoid this, you can buy your own warehouse space outright, but it probably won't be any cheaper.

Renting or purchasing a warehouse is not the only logistics cost that fits into this category; you will also need to consider other costs such as:

  • Sure.

  • Utilities.

  • Security.

  • Transport and distribution.

Whether you use third-party logistics service providers like a reverse logistics company or rely on an in-house team, transportation and distribution are the biggest costs of logistics for all businesses.

Tasks that your business must complete with discipline

These costs cover a variety of tasks, including: Transporting raw materials to your manufacturing base, moving products from manufacturing to your warehouse, and delivering packages to customers. Inbound logistics, such as transporting products from the manufacturer to your warehouse, are cost-effective transportation tasks that involve moving large shipments to a single location. However, outbound logistics, such as last-mile delivery, are much more expensive.

Last mile delivery

When we talk about “Last Mile Delivery,” we are referring to delivering products directly to your customers. It is usually the final stage of distribution. These deliveries consume the most time and resources because drivers have to make many stops to deliver small quantities of products to customers.

Drivers may be faced with security gates or receiving counters, each of which has a unique receiving process, which can further slow down deliveries. This makes last-mile delivery the biggest expense in your supply chain, accounting for half of your total shipping cost.

How to measure logistics costs?

Before you start calculating exact costs, you first need to determine what time period you want to evaluate. It’s a good idea to measure your logistics costs once a month to make sure your costs aren’t exceeding your budget. You should also analyze these metrics on a broader scale to inform reports on your business’s overall performance.

You can do this by measuring your costs each quarter as well as at the end of the year. Once you have selected the time frame, you can begin measuring your costs in the four categories: warehousing, transportation, labor, and equipment. To measure your costs:

  • List all your expenses as line items

  • Please indicate the exact cost of each expense

  • Add up the order lines in each category

  • Add up the expenses in each category together

This will show you exactly how much your expenses are in each category. You can add up the totals for each category to find your overall costs.

Leverage software to streamline last-mile delivery

Last-mile delivery is the most expensive aspect of logistics. It is also the most important phase of delivery because it has the biggest impact on your customers. Despite its importance, planning these deliveries and creating routes for drivers is often a job left to managers or a single dispatcher.

Leaving logistics planning in the hands of a single person is time-consuming. It also increases the chances of human error, which can lead to late deliveries or losses that will impact your customer’s experience with your business.

Using logistics management software streamlines the process by using automation to save time and eliminate errors from logistics costs. The smaller your inventory, the less space you need to store it and the less you spend on storage. It's time to optimize inventory levels with ToolRides.

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