Opportunities to reduce logistics costs are endless in normal times but given the current environment and the impact that the coronavirus has had on the supply chains of many businesses there has never been a more prudent time to review your logistics costs.
Outlined below are seven areas that all businesses can focus on when reviewing how they can better control or reduce their logistics costs.
- Set clear expectations with suppliers
- Understand the international shipping process
- Optimise logistics service provider rates
- Know the import requirements and destination handling costs associated with your products
- Effectively manage warehousing and distribution processes
- Ensure compliance with customer specific requirements
- Maintain a robust supplier and service provider invoice approval process
Remember that every dollar saved as a result of an initiative to reduce logistics costs improves the profitability of your business
1. SET CLEAR EXPECTATIONS WITH SUPPLIERS
Clearly defining the expectations of suppliers is an effective way to reduce logistics costs. Simply providing suppliers with guidelines that cover the areas mentioned below can lead to downstream savings.
- Packing requirements
- Carton marking requirements
- Shipping documentation requirements
- On time delivery requirements
- Implications of non compliance
2. UNDERSTAND THE INTERNATIONAL SHIPPING PROCESS
Savings on international freight costs can be achieved by implementing some of the strategies below.
- Understand your shipping terms
- Select the most appropriate shipping mode
- Utilise the most appropriate service level
- Consolidate shipments from the same or multiple suppliers
- Optimise shipping weight and dimensions
3. OPTIMISE LOGISTICS SERVICE PROVIDER RATES
Logistics service provider rates can vary significantly. Regularly benchmarking your existing rates against what the market has to offer and taking the appropriate action if necessary will ensure your rates are always competitive. Optimising logistics service provider rates can reduce logistics costs. This can be achieved by:
- Re-negotiating lower rates with an existing logistics service providers or;
- Undertaking a formal tender process and requesting quotes from other suitable logistics service providers
4. KNOW THE IMPORT REQUIREMENTS AND DESTINATION HANDLING COSTS ASSOCIATED WITH YOUR PRODUCTS
Costly mistakes can be avoided by ensuring you have adequate knowledge in relation to the import requirements and destination handling costs associated with your products. Prior to importation you should know:
- If any import licenses are required
- If there are any quarantine restrictions or import protocols that must be met
- If any specific documentation is required
- The general rate of import duty and if any preferential rates of duty apply
- The methodology for determining the import value and calculating the amount of import duty that may be payable
- The destination handling charges that will be incurred (in addition to the international freight costs)
5. EFFECTIVELY MANAGE WAREHOUSING AND DISTRIBUTION PROCESSES
Warehousing and distribution costs can be minimised by having efficient process and competitive rates for 3PL operated warehouses. Continually reviewing the below mentioned activities for process improvement opportunities can help to reduce logistics costs.
- Inbound receiving and put away
- Inventory management
- Picking, packing and order fulfillment for all channels – wholesale, retail store networks and ecommerce customers
- Outbound transportation
6. ENSURE COMPLIANCE WITH CUSTOMER SPECIFIC REQUIREMENTS
Many customers, particularly large retailers, have strict guidelines that stipulate how their orders must be delivered to them. Failure to comply with their requirements can result in discounts and fines being incurred or ultimately the cancellation of orders. Non compliance issues that can lead to increased logistics costs include:
- Incorrect tags, labelling and packaging of products
- Incorrect labelling of packed cartons, pallets and containers
- Incorrect shipping documentation
- Failure to book / route shipment prior delivery
- Failure to deliver shipments on time
7. MAINTAIN A ROBUST SUPPLIER AND LOGISTICS SERVICE PROVIDER INVOICE APPROVAL PROCESS
It is estimated that between 5% to 15% of all logistics service provider invoices contain errors. Adopting a systematic approach to pre payment approval or post payment auditing can result in the recovery of erroneous charges and the overpayment of import duty. Your invoice approval process should include checks to ensure:
- Supplier invoices match the purchase orders
- Service provider charges are in accordance with agreed rate schedules
- Import values and duty rates are correctly calculated
I trust that the seven areas of focus have provoked some thoughts on how to reduce logistics costs within your company. Feel free to share your thoughts with us and the readers of the Leydin Consulting Group Blog in the comments below.
We also know that the majority of logistics managers, or those responsible for the logistics function, despite all good intentions are simply too busy to effectively pursue all of the potential cost saving and process improvement opportunities that currently exist within their organisations.