Cost Reduction Techniques in Logistics

By Shipware May 19, 2020 eCommerce, Shipping Knowledge

Whether companies ship items in high volumes or just occasionally, logistics can contribute a large percentage of costs. One consideration when looking at the annual budget is ensuring the company has a cost-effective logistics operation. Management and logistics are a big part of the supply chain, and fortunately, many areas can be trimmed and tweaked to work more efficiently. But it does take thought and understanding, which can be achieved through logistics consulting and an audit on your shipping invoice. A company must be willing to seriously dive into various cost centers and departments, while keeping an open mind to upgrading systems and processes. The top reason that businesses reexamine their supply chains is to lower the overall operating costs, according to the 2019 Third-Party Logistics Study

Here are several methods and tips for cost-effective logistics.

1. Understanding Your Costs

Logistics management covers many areas, including warehouse space and inventory-carrying costs, picking and packing, and transportation. The total logistics expenditure as a percentage of sales revenues was 11% in 2019, per the study, a percentage that remained stable over the past few years. The first step to reducing logistics costs is looking at your current costs. Understanding the landed costs of goods is important to understanding the big picture, as it can influence the various components and choices involved. A shipper might choose to source or manufacture goods from a different location if tariffs become unreasonable and don’t balance out the lower production costs, for example. 

2. Business Processes Automation and Planning Software

One way to better understand costs is by using business processes software. In this connected era, it seems surprising that not all shippers rely on modern software. Some companies continue to do what has worked for them for decades: using paper and pencil or an Excel sheet. About 72% of shippers surveyed use enterprise resource planning software (ERP), 56% use warehouse management systems (WMS), and 38% use transportation management systems (TMS). About 38% of shippers use supply chain visibility software, and others are also using analytics systems. Integrating planning software systems can make a world of difference when implementing cost-effective logistics management plans.

While understanding costs helps, lowering distribution costs is the main focus. These software systems offer different ways to help operate a business while assisting with cost-effective logistics.

Warehouse or Inventory Management Software

Warehouse management software has several components that help with logistics, including real-time inventory tracking, reordering, warehouse organization, and forecasting tools. 

  • Inventory tracking: By tracking inventory accuracy in real-time, the company can alter its eCommerce fulfillment strategy or better control it. The eCommerce fulfillment strategy might be first in, first out, or first expired, first out. Using tracking software for this, warehouse staff can better identify the correct items to pick so that the products are freshest (e.g. food), or are the oldest products, to ensure these don’t become obsolete before they can be sold. This reduces inventory loss, increases inventory accuracy, and tracks specific items so the best ones are sent to meet your company’s goals. 
  • Reordering products: The WMS software can help determine reorder timing so the right amount of product is in the warehouse at any given time. By setting parameters and automating this process, your company minimizes warehouse storage costs. 
  • Forecasting: Demand forecasting is an art and a science. However, getting it wrong means overstocking or understocking. That results in less cost-effective logistics because of lost sales or excess inventory that is tough to sell. Using forecasting software, the algorithms and data from previous sales are used to deliver more accurate forecasts. Forecasting can be done on a location level as well as a global level for your business.
  • Warehouse organization: WMS systems offer warehouse space organization tools to help maximize the storage space, while helping employees find items more easily when picking. It also tracks individual items in the system. This helps with accuracy in fulfillment and distribution, and decreases rates of return due to error.

Transportation Management Systems

TMS software allows companies to increase efficiency and reliability for the use of transportation companies. The software focuses on planning, optimization, and execution of the modes of transportation, with greater visibility and information. The more helpful the TMS is, the less time you need to spend managing your air freight, ocean freight, or land transportation needs. That means your time can be better spent on other activities, whether getting new customers, optimizing the warehouse space, or working on other company initiatives. Some components of TMS are:

  • Route planning and optimization: Using these features for both inbound and outbound shipping, along with load building, can help reduce shipping costs and increase efficiency.
  • Carrier selection: The software helps companies track their carriers and modes of transportation, along with affiliated information, like fees, transactions, savings opportunities with higher booking levels, carrier availability, and sometimes carrier ratings.
  • Customer service: Whether selecting a carrier or planning a route, your customer will be affected. Understanding how the customer is affected influences choices made around transportation companies. Carriers with high excellent delivery time and ratings, and low damage or loss rates is important to customer service. So is a transportation company’s reporting capabilities. These features may be more important than price, to retain customers and give them the service they deserve. 

Alternative Software

Companies are using other software systems to increase operational efficiency and improve the cost-effectiveness of their logistics.

  • Analytics: Big data is a big concept these days, for good reason. Companies are often swimming in data but unsure how to use what they generate to their advantage. Big data analytics programs can sift through the data to provide actionable ideas that can save the company money and provide insights into the operations. That includes process quality, resource utilization, worker performance, manufacturing performance, financial insights, and other areas of interest. Especially when using predictive analytics, these programs can include assistance with decision making in all areas of business, including logistics.
  • Visibility: Control tower type visibility programs provide eyes into various data streams and operations. Using transportation data, companies can integrate weather, traffic, and shipment information to better optimize load and labor scheduling.

3. Logistics Automation

Warehouses have increased their use of logistics automation, with good results. Business process software applications not only help warehouses efficiently place items in particular places, but help the picker find them easily and quickly. They track what products are entering and leaving the warehouse, to plan for new stock. Fulfillment operations using logistics automation can determine the appropriate packaging, the right shipping service, apply the proper postage, and route the packages to the warehouse pick-up spot so it can get to the recipient in the shortest time possible.

Robot usage has increased in warehouses, in multiple ways. Robots can palletize cargo without causing injuries or worker’s compensation claims. Robots can work independently or with warehouse staff to shift items in the warehouse for storage or fulfillment. Automated conveyors swiftly carry parcels through the warehouse to other locations, using sensors and the internet of technology, or RFID tags. 

The result is a more efficient operation with cost-effective logistics. Warehouse space can be maximized, with fewer mistakes and more insights into the operations. It can help with key performance indicators.

4. Supply Chain Planning and Collaboration

Collaborations help with cost-effective logistics. Shippers don’t have to do it alone. Shippers commonly collaborate or outsource to 3PLs, and collaborate with competitors and their network to lower prices for everyone, while increasing the service quality. 

One way to do this is by mitigating supply chain disruption. When shippers don’t have a plan in place for dealing with possible disruptions, that leaves them scrambling when the unthinkable happens. With any disruption, distribution costs can increase for the shipper. By anticipating and mitigating those disruptions, it’s easier to plan for them financially. Disruptions come in all forms:

  • Increased logistics and transportation expenses: Rising real estate prices can increase warehouse costs. Rising gas prices or constrained trucker availability can increase transportation prices. A tight labor market can mean higher fulfillment costs. Increased carrier rates can also increase logistics costs. 
  • Increase in supplier expenses: Suppliers of all stripes impact costs paid by shippers. That includes product or raw ingredient costs, as well as increased energy prices. A shortage or competition for specific items means higher rates for you.
  • Transportation and logistics network disruptions: Natural disasters can flood roads or delay air freight. Pandemics can halt the supply of needed ocean freight or shut down manufacturing. 

Instead of planning for these alone, shippers should be working with partners to share ideas and resources. The idea that two heads can be better than one is true – it benefits both parties. Using each other’s expertise and contacts, mitigating potential disruptions can be easier.

5. Reducing Transportation Costs

One of the most common concerns for shippers in 2019, according to the survey, was transportation and logistics network disruption, at 73%. But the top concern for 75% of shippers, was the increase in transportation and logistics cost. 

One way to collaborate and reduce logistics costs is to share transportation costs with other companies – even a competitor. Shippers who have multiple suppliers in one area, even one country, can do load consolidation. This may allow them to use a full container or full truckload, rather than a partial one, saving in the process. 

Another way to reduce transportation costs is by focusing on last-mile delivery. Having a cost-effective logistics strategy for last-mile delivery is paramount, and only 53% of shippers surveyed felt they effectively managed those needs. Outsource to a 3PL, or use newer alternatives, like delivering to storage lockers. There’s no right answer, and much of it depends on your customers and what makes sense for your business.

6. Audit Service and Contract Negotiation

Managing the actual costs of shipping is another way to improve what you’re spending on logistics. There are two ways to do this: contract optimization and negotiation and invoice auditing. You probably know that carriers are constantly adjusting prices to remain competitive, especially for fuel fees. Contracts can be regularly renegotiated as well. 

Shipping Contract Negotiation

Going into a parcel contract negotiation without a good plan is just planning to fail. Experts, like those at Shipware, can offer more insights than typical shipping departments of companies. Shipware’s experts have decades of experience working at the shipping companies themselves. Shipware has benchmarking data and the expertise to know what terms can be negotiated, and by how much. Shipware experts can do the negotiating for you, or provide the information for you to conduct negotiations yourself. Either way, you’ll gain more benefits than by doing it without this help, thus saving more money.

Shipping Invoice Audit and Recovery

Conducting a parcel audit is another way to save. Parcel carriers like FedEx and UPS offer guarantees to customers, and if those guarantees aren’t met, they give money back. Manually tracking each parcel or shipment to determine if all elements of the carrier agreement were met is impossible, and not worth the time. Here’s where logistics automation comes in. Using a cloud-based solution, Shipware’s auditing software gives line-by-line visibility into the tracking information and carrier agreement, identifying logistics savings opportunities and sending claims to the carriers on a daily basis. The fees come from cost savings, with no out-of-pocket costs for the service. 

Call us to see how we can help you save money on your logistics.

Shipware

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