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If you’re in the import and distribution business then your international freight, import handling, warehousing and domestic transportation costs are a significant business expense – regularly benchmarking your logistics costs can improve profitability without having to impact on service.

There are generally two options that you can pursue in order to benchmark your logistics costs and potentially unlock significant savings.

You can either re-negotiate with your incumbent service provider – this is probably the most efficient option but it may not always be the most appropriate or
You can undertake a formal tender process by requesting quotes from other suitable service providers – this is a more time-consuming approach but in most cases will deliver much greater savings

This article outlines what I believe to be the 10 key elements of a successful tender process and can be used as a guide if you choose to undertake the process yourself.

The guidelines are based on my experience implementing this process to deliver many millions of dollars of savings in many different types of businesses.

Ensure that the service providers selected to participate in the tender are suitable for the type of business that you are in
Clearly define the scope of the services that the service providers will be required to provide.
Use a rates template so that all participants submit their rates in a format that can be readily compared
Provide historical transaction data that allows the participants to understand the volume of work that they will be required to perform
Develop a cost model that utilizes the historical transaction data to calculate and compare what the actual cost of the service would be based on the rates that have been provided
Determine which “non cost based” criteria are important to the overall decision-making process and include these criteria as part of the evaluation process.
Insist that the participants provide customer references and the references are checked thoroughly prior to any final decision
Enter into a formal agreement that clearly defines the terms and conditions of the agreement, the services to be provided, the applicable rates, the service level expectations and the key performance indicators to be measured throughout the relationship
Assign the appropriate resources to the project and adopt a project management approach to both the tender process and the tasks associated with transitioning to a new service provider
Ensure that a regular and disciplined process of managing the service provider’s performance is established and maintained throughout relationship

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
Storage
Inventory management
Picking, packing and order fulfillment for all channels – wholesale, retail store networks and ecommerce customers
Outbound transportation
Returns

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.

Leydin Consulting Group are specialists in identifying opportunities to reduce logistics costs via our logistics cost benchmarking, logistics process review and logistics cost recovery services.

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.

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