According to the 30th Annual State of Logistics Report by the Council of Supply Chain Management Professionals (CSCMP), companies spent $1.64 trillion on logistics and transportation services in the United States in 2018, an increase of 11.4% over 2017. Rising costs mean that companies must continue to innovate and implement strategies that can help reduce logistics costs and boost the bottom line. According to a summary of the report by Transport Topics, the increase was driven by several factors, including:
Companies reconfiguring their supply chains to accommodate eCommerce growth
An increase in shipping rates resulting from tight freight hauling capacity
Federal and state regulations limiting driver hours of service
Labor shortages that drove up wages for truck drivers and warehouse workers
Inventory carrying costs represented the largest portion of logistics cost growth in 2018, increasing by 14.8% to $493.7 billion, while transportation costs increased by 10.4% to $1.04 trillion and motor carrier costs rose 10.1% to $668.8 billion. Overall, logistics spending in 2018 reached 8% of U.S. Gross Domestic Product (GDP) in 2018, the highest level in a decade.
In 2020, the COVID-19 pandemic crisis caused unprecedented disruption in supply chains around the world. As logistics costs were already on the rise in 2018 and 2019, companies are now faced with supply shortages, stress on the U.S. transportation network and other logistics challenges. The full impact on logistics is yet to be realized, but an increase in logistics costs in some areas is likely. A shift to manufacturing critical goods like pharmaceuticals in the United States would lead to higher production costs, for instance. A reduction in oceanic transportation would necessitate changes to distribution routes. “This would increase the complexity of route planning and make more difficult the quest to eliminate empty back hauls as the number of shipping points increases and the number of shipments out of more rural locations increases,” explains Skip Berry in an article published by Clarkston Consulting. “All of this has the potential to drive up transportation cost noticeably.”
Importing foreign goods into the U.S. will also take longer and cost more, even after the worst of the COVID-19 crisis is over. Berry explains that imported goods may be subject to more active monitoring and testing or treatments designed to kill pathogens, increasing both processing time and costs.
With logistics costs on the rise and continued increases likely in the coming years, companies are under more pressure than ever to optimize logistics processes to increase efficiency and reduce costs. From investing in smart automation solutions like collaborative mobile robots to improve warehouse productivity to route and supplier optimization and outsourcing logistics to a 3PL, there are several strategies that can help companies by reducing logistics costs. To learn more about the most effective ways to reduce logistics costs, we reached out to a panel of logistics professionals and asked them to answer this question:
Michael T Miller has been in a leadership role with Penske Logistics for 12 years. His current role as a Sr. Operations Manager consists of hiring Operation Managers, Operation Supervisors and Drivers to oversee and perform the transportation in Fortune 500 companies. He has worked with a variety of different customers over his career; some of the more notable accounts include WaWa, RaceTrac and Cardinal Health.
“The quickest way to reduce costs and increase the bottom line is through reduced turnover…”
At my company, the average cost to replace one person is $10,000. While this generally cannot be tracked to one specific GL, the cost ripples through different aspects of the company and is felt at the customer level. There are your typical costs, like recruiting and training, but there are some soft costs that are difficult to place a monetary value on as well. These include errors made by the new associates during their first weeks or lost time that’s taken by the manager to bring the new associate up to speed. Customers will also shoulder some of the turnover burdens in the form of late deliveries or mispicks. In a very extreme case, a company’s inability to keep consistent and knowledgeable employees may even lead to a reduction in customer retention rates.
Errord Jarrett has worked in medical device product management and product development for nearly three decades. Product responsibilities have ranged from medical electrical equipment all the way down to a single wall hypodermic needle, each product with its own logistics and packaging issue. He now runs a Medical Device Consultancy.
“Logistics is a simple function, but it is difficult to execute well at volume because there are literally millions of moving parts…”
However, every time you touch a product, move it, scan it, open it, close it, label it, etc., you add labor costs to the product and the process. Now, this does not just come down to the staff in the warehouse. Sometimes the packaging is so badly designed that it creates work for the warehouse staff, which means they have to touch the product more than necessary, increasing the logistics cost. A product that comes into a warehouse on a pallet and leaves the warehouse on the same pallet, only having been scanned for location, is a warehouse manager’s dream. So, hands-off; it will save you money!
Jane Flanagan is the Lead Project Engineer at Tacuna Systems.
“Unless you are dealing with an Amazon-level amount of orders, the best way to reduce logistics costs is…”
To centralize your warehouse while outsourcing logistics.
Orders can come from various locations at various times. It is impossible for a small- to medium-sized company to have the warehouse and delivery resources to fulfill all orders themselves. With a central warehouse, you save the cost of warehouse maintenance in different locations.
Shriniket works at Purplle.com as a Backend Engineer in the logistics and operations department.
“At Purplle, we significantly brought down our logistics costs by…”
Automating the logistics.
We have built a system to track orders that are on the way to a customer. We make sure that the entire process is updated into the system from time to time. Doing so makes us super vigilant and allows us to spot any errors in the process.
2. Efficient warehouse operations.
We follow a stringent procedure to organize inventory in our warehouses. As a result, picking and packaging orders becomes hassle-free and less time-consuming, helping us significantly reduce other costs.
Servando Sierra
Servando Sierra is the founder of Fresh Big Bang. Before he started his blog last year, he worked for 20 years in the construction business, where logistics and cost optimization play a very important role.
“The #1 way to reduce logistics costs is to optimize routes and transports…”
Every mile you can avoid in the route saves costs. Synchronization and timing of transports are also essential. Synchronization and transport timing can also help to avoid empty journeys. You don’t want idle resources; you want them producing.
“One of the greatest things businesses should do in general is to centralize their production to reduce expenses, difficulty and logistical problems…”
Often, firms have products in an unreasonably large number of warehouses. This makes product control even more difficult since stock from warehouses across the globe must be continuously handled and moved. In a big logistics center, such as Hong Kong, it is easier to have one delivery center that can cover a rather wide region or maybe even the whole world from one venue.
For starters, a business that produces in China would only deliver its products to a warehouse in Hong Kong. From there, the business can manage most, if not all, B2C and B2B deliveries worldwide easily and cost-effectively. This approach tends to lead to a quicker and easier supply chain with inventory in transit for only a few days compared to a month’s inventory in an ocean container, and then another two to three weeks to clear customs.
Carolyn Cairns is the marketing manager for Creation Business Consultants, business setup consultants who help assist entrepreneurs, small to medium enterprises and multinational corporations enter, expand and restructure in the United Arab Emirates and wider-GCC region.
“Automation is important for businesses to cut back on logistics costs…”
Regulating, automating and maximizing manual processes will minimize workforce demands, centralize manufacturing activities to low-cost areas and build a more efficient strategy for maintaining consumer loyalty, thus offering volume and cost control. An organization will introduce significant structural improvements in an integrated, cost-effective freight and distribution network to deliver exposure, minimize expenses and improve the quality of customer satisfaction. The introduction of cloud-based technologies has made this much easier and less expensive than before, so even small businesses can take advantage of it.
Holding the logistical service costs down per order requires keeping consumers satisfied. By keeping customers satisfied, businesses can stay current and therefore spread the cost of supporting logistics over a larger volume of orders and/or customers. Thanks to a strong link between consumer loyalty and total cost savings, customer care will also be taken into account in the calculation of improvements in logistics costs.
When the appropriate tools are in place for managing uncertainty and ensuring accessibility, institutions have excellent chances to continually generate productivity improvements, increase customer satisfaction and improve financial performance.
Thorsten Gerber
Thorsten Gerber is the CEO of Gerber Holding GmbH with headquarters in Germany. He and his companies have been successfully active in international trade with metals, such as stainless steel, for over 20 years. He is also active as a speaker, author and international consultant and crisis manager.
“Leave it to the experts, or you pay twice…”
We have transported more than 100,000 tons of stainless steel worldwide in recent years. From my experience as a trader, I can say that you should leave it to specialized experts in logistics to have your goods transported. That was and is the most effective way to save logistics costs in the long term.
For example, a specialist in the transport of food does not have the experience needed to transport metal products safely, and vice versa.
Even if a logistics expert may seem more expensive at first glance than a non-specialist carrier, in the worst-case scenario, you end up paying twice. Using an expert right from the start saves you expensive follow-up costs for any possible damage to the goods. You also avoid problems and unnecessary surprises during transport.
“One greater way to reduce logistics costs is to…”
Ensure that all your products are properly barcoded and scanned into your inventory management system upon arrival and then again upon departure when shipped out a customer. Dealing with inventory is a significant driver of logistics costs, so simplifying your inventory processes with barcoding is a great way to lower costs.
George Mouratidis is a Content Specialist at Stasher, the world’s first luggage storage network. After years of working as a content writer, he finally found his passion in helping people store their luggage safely and efficiently, enabling them to make the most out of their travels.
“The best ways to reduce logistics costs are to…”
Rethink the existing money-draining routes.
For companies that think they spend too much money on logistics, the best way to reduce costs is to rethink the existing route and better manage their resources. For instance, companies can increase profits by using automated route planning software, which can help overcome distribution problems faced daily in logistics.
2. Implement a vehicle tracking system.
Companies that want to save on logistics should consider using vehicle tracking software, which can help compare a planned route with the actual one and detect unplanned activities promptly, thus saving money.
3. Use the delivery space to the maximum.
Overspending can quickly happen if the storage space is not used to its full capacity when it comes to logistics. To save on logistics, companies should rethink how they store goods and optimize their routing.
Joseph Giranda is the Director of Commercial Relations at CFR Rinkens, a global leader in the shipping of commercial cargo, specializing in the containerized shipping of motor vehicles.
“The more you are able to move on rail and water…”
The lower the actual logistics costs of freight expenditures per mile will be because costs on energy and environmental impact are the lowest on those. Gearing your supply chain to rail and water while maintaining inventory costs and transit time is ideal.
Mike Allen
Mike has a master’s degree in management sciences with over 7 years of experience working as an operational manager for an online shop.
“Logistics costs depend heavily on suppliers, whether you believe it or not…”
Build a strong relationship with your suppliers and work with them to reduce your logistics costs. Ask them to facilitate bulk sales and quick deliveries when required. Through creating a group of buyers, you can supply only the products that are needed or products in bulk. It’s a foolproof way to reduce your logistics costs, especially transportation fuel.
Finn Cardiff is the founder of Beachgoer. Established in 2017, the company is on track to hit $1MM in revenue in their third year. Beachgoer is an AI-assisted eCommerce startup that leverages big data to make profitable purchase decisions. Their software has now analyzed and collected over 40,000,000 points of retail data across multiple online channels.
“What has worked for our eCommerce business is…”
Hiring a third-party logistics service provider to take advantage of its scalability.
In addition, we’ve greatly benefited from the reduction in chargebacks since we worked with a 3PL for our logistical requirements.
Lynn Hope Thomas is a Change Mentor & Business Analyst helping CEOs and leaders transform challenges into growth, an award-winning author and international speaker. Having overcome numerous adversities, Lynn loves to inspire change and get results.
“There are two logistical costs: inbound and outbound…”
Inbound costs are dependent upon the hauler or expediter you use, the distance traveled, whether it’s a full or partial load, the container types used and tariffs if applicable (and that applies to inbound and outbound). The key to reducing the costs is to:
Know future demand. What is your company’s five-year plan as you need to meet demand?
Product base. Gather information about your product and what materials you use, pack sizes and what container types are optimal.
Review your supply base for:
Location — The further materials travel, the more costly, so ask whether they can be sourced locally. The ideal sourcing location will be a balance in terms of cost, quality and logistics cost.
Too many suppliers — While you need alternative suppliers, often you can have too many. Rationalize the number.
Review haulers and expediters for:
Cost comparison — Make sure you know who gives you the best value.
Pick up point/weighbridge point — Is the distance too far? Do we change suppliers or haulers?
Delivery KPIs — Are they on time or late?
Returns — Are there damaged products?
Capacity — Can they increase volumes for you?
Safety record — How is their road safety? Are there losses?
Leverage on overall costs — The information can then be used to decide who to drop and who to retain. Hold discussions with your management team on plans to negotiate contracts. You can get leverage out of passing more volume to one company. Again, the balance is ensuring you have coverage and competition.
“My business disrupted its space by eliminating logistics costs in our retail model…”
Our situation was unique, but we did learn a lot. Someone else will handle your logistics for less money. In my experience, it’s best to leave logistics to logistics specialists.
The three most common ways to do that are:
Fulfillment services like FBA (Fulfilled by Amazon). These services take care of your fulfillment needs, usually within a single economic zone. They’re not comprehensive, but they do tend to save you money and improve efficiency.
Outsourcing internal operations (3PL). This approach outsources your internal operations, letting you benefit from established processes, economies of scale, etc.
Dropshipping. You can choose to completely “skip” logistics, letting someone else fulfill your orders instead. This is known as “dropshipping.” Although it has a bad reputation, it can help you fulfill your orders worldwide without you ever buying or shipping stock.
In my specific case, we decided to focus on our core business — generating sportswear leads — and letting Amazon do everything else. That’s how we ended up being Amazon Affiliates. Granted, our model won’t work in every niche, but it can benefit lots of different retailers.
What can you outsource?
Many retail businesses still work with the assumption they have to be a full-cycle retailer. I don’t believe this is true as of 2020. The more you can outsource, the more you can focus on what you’re best at — and turn it into a serious competitive edge.
“The number one way to reduce logistics costs is to avoid paying for logistics at all…”
This isn’t news to anyone running a successful dropshipping business, but the same results can be achieved with a more traditional supply chain. Delivering the right product, in the right quantity and the right condition, to the right place at the right time for the right customer at the right price is easier said than done… but it also leaves plenty of room for innovation. At houseof, all our products are manufactured in China, which means that every light we sell spends between 6 and 8 weeks sitting on the deck of a boat.
We operate a ‘sell on the water’ KPI, which simply means we start selling our lights as soon as they leave the dock, using our shipping container as storage as well as transport. The minute the shipment reaches our warehouse, the sold products are picked and dispatched directly from the container. This process eliminates entire pick faces from existence… and entire costs from our bottom line. By simply increasing the lead time on our product availability (within a window that is still appropriate to our product and customer), we have reduced the cost of sale across our entire range. The number one way to reduce logistics costs is to find innovative ways to avoid paying for logistics at all.
Allan Borch is the founder of Dotcom Dollar. He started his own online business and quit his job in 2015 to travel the world, which he achieved through eCommerce sales and affiliate SEO. He started Dotcom Dollar to help aspiring entrepreneurs create a successful online business while avoiding crucial mistakes along the way.
“The best way to reduce logistics costs is to partner with suppliers…”
Suppliers can sometimes absorb direct logistics costs. You can even create a consortium of buyers to purchase needed logistics supplies in greater quantities so you can reduce costs. For example, you can involve a client and several of their suppliers to buy transportation fuel. The idea is to purchase larger quantities than you would buy individually and then dividing the costs among consortium members. In doing so, you get the fuel you need but still get cost savings.
Alternatively, you can be bold and have a Supplier Day, where you bring in your main suppliers either by commodity or critical suppliers for the supply chain to discuss collaboration, cost reduction and quality improvement.
Bottom line: Partner with suppliers who can help absorb logistics costs.
David McHugh is CMO of Crediful.com. Crediful offers objective advice on financial matters for making informed financial decisions.
“Consider a product source change…”
Sourcing and shipping products into your inventory may be siphoning too much out of your bottom line. Shop around and compare product pricing and shipping costs; imported products from certain countries right now are carrying a higher price tag and may no longer be worth the discount.
Companies supporting domestic job growth are more attractive to customers and would do well to bring logistics on board. A product source closer to home provides fodder for a great marketing campaign that customers in today’s economic climate will appreciate.
“Staying up to date with the latest and greatest in software and technology is such an important part of cutting costs…”
It’s important to realize that, although there may be an upfront cost to purchasing software, whether it’s custom or not, that cost could outweigh your cost of out-of-date technology.
For example, if you have a piece of machinery that’s been obsolete for years, it could be costing you money. It may be slow, inefficient and require regular maintenance, whereas a newer piece of equipment/machinery may be fast, energy-efficient and not need anyone to fix it every few months. In this scenario, you’d be paying less in the long run rather than paying out more and more each month.
The same principle goes for things like transportation because if you have out of date vehicles, you’ll be paying out a lot over time just as before.
Olusola David is the founder and CEO of Torchbankz.com, an eCommerce entrepreneur and blogger with a keen interest in dropshipping. After starting his online business journey with eCommerce, he now shares his trial and error experience of many years with new aspiring entrepreneurs.
“The best way to reduce logistic cost is through automation…”
Improving all the manual logistics processes helps reduce costly errors and increase customer service. Through automation, staff requirements will be reduced and there will more room for scalability and speed, making the logistics process more accurate regardless of the volume. Automation also helps reduce unnecessary logistics costs by avoiding common errors, such as manual data entry mistakes that lead to paying shipping fees twice. Automating the majority of the logistics process with technological tools will definitely cut down on some costs and save a lot of money.
Glenn has operational and business development oversight at iDrive Logistics. He has over 32 years of experience in the transportation and logistics industry, including over 21 years at UPS. For the last 11 years, Glenn has consulted with clients across a spectrum of industries, helping companies improve their businesses by reducing costs and improving customer satisfaction.
“The pandemic has been a catalyst for the direct to consumer channel…”
There has been no other way for a consumer to receive products during the shutdown. Direct to consumer orders are predominantly shipped via small parcel — the most complex and expensive logistics mode of transportation. The carrier networks have been strained, and subsequent surcharges have been imposed to offset operational cost increases.
Visibility, analytics and expertise are needed to effectively reduce small parcel logistics costs. A shipper must have visibility to and understand every aspect of the small parcel invoice. Over 30% of a shipper’s total small parcel expense consists of accessorials, surcharges and other complex billing methodologies. If you can’t measure it, you can’t manage it. Shippers must have good business intelligence capabilities to understand what they’re paying the carrier.
Deep industry expertise is required to devise a strategy that leverages your shipping characteristics to your advantage. FedEx and UPS are the only multi-model, national carriers in the US marketplace. The duopoly environment results in complex service agreements, laden with punitive performance language. A practitioner with extensive industry expertise will be able to successfully analyze a shipper’s package characteristics, understand the contractual complexities imposed by the duopoly market and position a shipper for substantial savings and a competitive edge.
When a company doesn’t ship regularly or ships to and from different locations, the company can’t work with one dedicated carrier because you never know when and where the shipment may go. In this case, a freight forwarding company can help. Freight forwarding companies with a large network of carriers all over North America can offer always on-time deliveries to and from every point in the USA and Canada. There are several benefits to using a freight forwarding company:
This approach will allow you to take advantage of volume discounts, which enables a freight forwarding company to offer you better shipping rates compared to self-managed single shipments.
Volume discounts are one way to save, but utilizing shared warehousing facilities is another cost-saving strategy. When you work with a shared warehousing company, your business can move more products more efficiently and safely.
Save your business time, money and a lot of headaches when working with a freight brokerage company. You can use this time to develop your business, increase profits and onboard new clients while your shipment is under the management of an experienced company that knows all the details about the delivery process and your cargo.
Elene Egiarte works as a Marketing Assistant for Megaventory, the online inventory management system that can help businesses synchronize stock and manage purchases and sales over multiple stores.
“The logistics department, both when in-company or outsourced, is a clear cost center…”
And as one, there is always pressure to try to reduce costs. However, as with many other things, what might seem like huge savings in the short term can have disastrous consequences in the medium or long term. These consequences can take the shape of delays in deliveries, improper manipulation of goods or problems in the supply chain, which at the same time affect customer satisfaction.
Therefore, the #1 way to reduce inventory costs without compromising quality is to automate and optimize manual processes. It is important to note that this does not necessarily mean having to reduce staff and to replace them with cutting edge technology, but rather finding the best fit for the size and operations of the logistics department. However, even without having a one-size-fits-all approach, there are several aspects every company can work on:
Invest in mapping out all the possible workflows your company goes through. Not only will this help you to think about the processes and whether they are carried out efficiently, but it will also allow you to see where costs and deviations arise.
Ensure you have the software and hardware that covers those workflows in detail. Combining an inventory/order management software with the right hardware for fulfillment and picking will have a great impact on speed, efficiency and costs. What might be a considerable investment at the beginning will pay off both in a reduction of costs and headaches.
Invest in training your staff. Put together documentation, tutorials, workshops, etc. so that every team member is trained to use the software and hardware. If your staff follows the same steps every time to go through these scenarios, there will be no time lost in deciding how to handle things, making it easier to make decisions that increase productivity and efficiency and reduce costs.
Companies that want to reduce logistics costs must evaluate every facet of their logistics operations, from warehousing and storage to transportation and implement strategies that eliminate bottlenecks, improve accuracy and boost efficiency. Collaborative mobile robots help companies transform fulfillment operations with the flexibility to meet increased demand and reduce costs. Learn more about how collaborative mobile robots address today’s top fulfillment challenges by downloading our white paper, The Business Case for Collaborative Mobile Robotics.
Interested in more? Let’s discuss the solution that’s right for you. Contact us today.
