According to statistics,business logistics costs amounted to almost $1.5 trillion in 2017 in the USA alone. At the same time, the revenue of the biggest logistics companies was between $1.4 to $5.2 million. This is a huge amount of money that can hardly be imagined by a startup or medium-size business owner. But if you want to get your business to the top, you should be familiar with such data. What is even more important, you must know how to reduce your costs and increase the revenue in order to keep your head above the water.
At first, there is nothing that complicated about providing logistics services. In fact, in this line of business, you do not even need to produce the goods, you only deliver them, which, to a certain extent, is much easier. On the other hand, logistics business owners have to deal with dozens of other issues, one of them being reducing the transportation costs.
Where Costs Come From (According to the Logistics Costs Analysis)
The connection between your revenue and your spending is obvious. The more money you save on the daily routine tasks, the greater the overall revenue is going to be.
Total cost analysis in logistics may show us an enormous number of pitfalls. They include but are not limited to poor planning, bad decision making, some unexpected costs, etc. However, we would like to highlight two key sectors where most companies may be losing their money:
No matter what the weather conditions are, a driver must wake up in the morning and take the delivery directly to the customer. No matter how many thousands of kilometres a driver had to cross to reach the destination, it is still a part of the responsibilities your company has. So, according to the total cost analysis in logistics management, transportation costs have a leading position on the list of expenditures.
A software tool of poor quality can considerably decrease your revenue. According to one study, 60% of logistics managers from 6 countries consider this factor as the one that needs improvement and reorganization. Although some of the interviewees agreed that it is necessary to invest some money in a high-quality CMS, there are a lot of logistics specialists that still hesitate to do this. So, their companies suffer from financial losses.
Considering hundreds of tasks any logistics manager has to deal with daily, saving money by cutting costs seems nearly impossible. In most cases, the company’s employees working in this field simply do not have enough time to take a look at this from another perspective. Sometimes, the point is not to increase the profit but to reduce costs as much as possible. So, this is when every logistics agency needs professional advice and an expert opinion. This is when you need to take a break and optimize the processes.
How to Reduce Logistics Cost: 6 Steps to the Goal
Every single element of any industry is getting improved and developed at a great speed. The logistics industry is no exception. If you have been running your business for a couple of years, you can compare how things were going in the past and what they look like now. Some processes have become more simple and optimized. At the same time, the great competition in the market leaves no room for making a mistake. You can save your business from a fail by reducing logistics costs, and we would like to tell you about 6 easy steps to getting it done.
1. Thorough Comparison and Analysis
Tracking data thoroughly, visualizing them with detailed charts, and conducting a comprehensive analysis and research are the front-runners of our list. The more you know about your business, especially its strengths and weaknesses, region specifics and shipping procedure in general, the more ways for improvement you will be able to see.
2. Managing Employees Performance
You are not the only person that contributes to the company’s success. There are many specialists that try hard to deliver the best services and care about the company’s performance. Or maybe there aren’t. Measure the performance of the professionals you work with and gather customers’ and partners’ feedback. Evaluate your team’s dedication. Saying “goodbye” to some workers and hiring more enthusiastic and skilled ones may considerably decrease your costs.
3. Assuring Processes Transparency
Consider this as a sequel to the previous point. The more transparent the processes are, the more clearly you understand where all the money goes. If the financial reports lack some significant data, and your colleagues fail to answer certain questions, there is a lot to worry about. Consider reorganization and make each stage of the process more transparent.
4. Consolidating Shipments
This approach allows combining several orders so that one vehicle can deliver all of them to one region in one ride. Those may be both small and large orders. Keep in mind that it is crucial to define how long your clients have to wait to get their orders. You should know, at least approximately, how much time you need to process the orders, identify the ones with the same destination and provide drivers with the information about this to make sure customers have full information on how you work and don’t get irritated by long waiting time.
5. Controlling Excess Inventory
This may be another answer for how to reduce transportation cost in logistics. Due to the lack of visibility, companies often do not take into account the importance of excess inventory management. However, if you work with products that are not always or often in high demand, this may cause a considerable cost increase. Analyze your stock and discover which products are not feasible to keep for a long time.
6. Listening to New Ideas
Last but not least, we would like to emphasize the importance of your co-workers’ opinions. We believe each of the specialists working at your company demonstrates expertise in a specific field. Thus, they can provide you with potentially profitable ideas. Listen to them and keep them in mind: you never know when the suggested solution will save you some money.
As you can see, there are many cost reduction techniques in logistics. Each of them is important, each of them deserves your attention. But let’s go back to the beginning of this article. A huge number of logistics specialists says that low-quality TMSs are one of the reasons costs increase without any increase in performance or profit. It is true: a well-built software solution can help you with everything we’ve mentioned above:
More than 40% of the respondents that took part in the above-mentioned study plan to implement a powerful software solution within the next 2 years. Besides, 17% of the respondents would like to upgrade or replace the solution they are using at the moment.
The value of a software management system for your business can hardly be underestimated. This is a must-try solution among all the logistics cost reduction strategies you’ve thought about. The IT industry employs the Internet of Things, Big Data, Cloud Computing and many other technologies to transform the industry and make an impact on the future of logistics.
Our team is expert in this field as we have developed many solutions for similar purposes. So, we invite you to take a look at one of the programming tools for logistics we have built recently for a local moving company.
This is an ERP system for business automation which covers:
One-click authorization and convenient order processing made our clients fall in love this solution. The system automates many routine tasks. It calculates the employees’ salaries, creates the required documentation, visualizes data in the easy-to-comprehend form, and saves your time and money as the result.
The personal account contains the information about salary, bonuses, and the jobs the user was chosen for. Also, the system is featured with a rating page where the co-workers can rate one another. This allows you to see the employees’ performance and relationships within the team
The great client’s feedback allowed us to recommend such a tool as a perfect way to reduce your costs and make a step closer to the company’s triumph.
The logistics industry is evolving on a daily basis. Although the total revenue of the industry is huge, there are many things the companies lose their money on. But do not worry! Your transportation costs can be cut. Just keep an eye on your business, follow the simple tips we have provided you with and implement a high-quality solution to optimize your business processes. Contact us to find out more and watch your revenue grow as the result of our cooperation!