Is your Logistics Partner Costing you Money whilst you Sleep?


Logistics forms a pivotal part of many business. It’s the behind the scenes action that makes sure that the things that need to happen, happen.
 
However, thanks to the ever-increasing logistical expectations set by e-Commerce giants like Amazon, an extremely effective and efficient logistics operation essential for keeping customers satisfied in these permanently switched-on and demanding times.
 
Yet, because logistics partners are often hidden away behind the scenes, costly inefficiencies can sometimes slip under the radar, going unnoticed for some time.
 
With this in mind we’ve put together this quick 5 minute read, to help you see if you’re spending too much of your sales in an effort to keep up with maintaining a high-powered shipping machine?
 

What percentage of sales should I spend on logistics?

There is a careful balance to be maintained between speedy shipping and cost efficiency.
 
According to logistical data experts Establish Davis, the average spend on logistics was between 10 and 12 percent of sales for US companies in 2015. It’s broadly similar here in the UK.
 
However, due to the intensive nature of selling online, and particularly selling on Amazon with its associated fees, this figure could be closer to 20 percent for many smaller online retailers.

How do I breakdown logistics costs?

The biggest spend for most companies when it comes to their logistics are Transport, Warehousing and inventory.
 
These will account for nearly 90% of all logistics expenditure.
 
Here’s how the logistical costs break down on average:
 

  Cost (% of Sales)
Transportation 4.43%
Warehousing 1.99%
Customer Service 0.41%
Administration 0.30%
Inventory Carrying 2.22%
Total Logistics Costs 9.34%

 
How does this weigh up against your business spending?
As the biggest spend areas transport, inventory and warehousing are the key areas to look at when thinking about reducing costs.
 

How can I tell if my logistics partner is losing me money?

After looking at the above stats you might be thinking you can get a better deal than the one you have.
 
But before you rush ahead, remember that the first step to determining if your logistics partner really is costing you money is to get down and dirty with the details.
 
You have to analyse and understand all the costly sections of your own logistics operation.
 
If, for example, you are spending an inordinate amount of time and money on customer service or administration, then maybe you should look at updating your systems for managing these.
 
Can they be streamlined? Making them more autonomous and better integrated, removing human error and speeding up your processes pays big dividends.
 
Are your warehousing costs too high? Perhaps it might be time to think about speaking to different warehousing companies.
 
Just remember that the lowest price may not actually result in the best long-term value.
 
The key is to analyse all the variables contributing to your total cost and identifying potential savings opportunities.
 
Consider where you can make the most impact while always upholding your customer service standards, as these are priceless.
 
If that seems overwhelming, rank your expenses and focus on the biggest piece of the pie first.
 
For many companies, that is transportation. Whether it’s optimizing cubic footage for shipments or pooling buying power for dunnage, small initiatives often pay big dividends over time.
 

It’s important note that larger companies, and firms with higher value products, often have lower percentage logistics costs.

Things you can do to reduce transport costs:

• Mitigate increases in carrier costs with advanced negotiation
• Stay open to new shipping partners and initiatives
• Separate embedded transport costs from landed costs so you can evaluate and control overall transport costs
 

Things you can to do reduce warehousing / inventory costs:

• Redesign your warehouse to maximize storage capacity and improve efficiency
• Get rid of obsolete inventory quickly
• Reduce your safety stock requirements
 

Key Takeaways

1. Get granular with your logistics expenditures.
2. Focus on reducing major spending areas: transport, inventory and warehousing
3. Don’t be afraid to ask yourself if it’s time to look for a new logistics partner
4. Look to sell higher value items to offset logistics costs
 

Summary

Remember that balancing costs can be difficult, and hidden fees often slip under the radar.
 
Partnering with an experienced 3PL can ease a lot of the stress associated with your logistics operations. A partner can provide resources, economies of scale, new ideas, and best practices when you don’t have them in-house.
 
The key to getting the best from your partners is communication. If you feel that you are struggling to have an open and supportive dialogue with your logistics partners, then that should serve as a warning sign that they are not the long-term partner for you.
 
With a little help from your partners, and these supply chain secrets, you’ll have a head start on meeting the challenges ahead.
 
Do you feel it might be time look for a new logistics partner? Why not move to the UK’s No1 elite driver partnership. Helping you to go further with productivity, reliability and service.