July 6th, 2022
Top Reasons Your Logistics Cost-Saving Initiatives are Suffering
Table of Contents
Your Guide to More Efficient Operations
Logistics providers across the land are acutely aware that logistics costs account for a massive chunk of your business budget, making it an area you must pay close attention to if you want to save money and enhance your operational efficiency. The odds have further been raised as global supply chains have become more complex, necessitating top-of-the-line logistics management.
Unfortunately, most logistics and supply chain cost reduction efforts never yield the desired results, leaving companies facing severe financial and operational challenges. This has ultimately led to one question: why do so many logistics and supply chain cost-saving initiatives fail?
Main reasons why most logistics costs reduction efforts fail
While there are several reasons why most companies struggle to reduce supply chain and direct logistics costs, the five primary reasons that often cut across the board are outlined as follows.
Lack of proper logistics strategies
Lack of fine-tuned logistics and supply chain strategies is a primary hurdle for most enterprises today. Unfortunately, this is a business culture problem propelled by over-reliance on executive decision-making and reports from traditional freight-audit firms.
Too commonly, this aggregates the underlying problem rather than help resolve it by constantly pitting a company against its primary partners in the supply chain network. To draw a veil over these strategies that do little to help in cost reduction, your audit firm will recommend the establishment of higher rate tolerances to reduce the volume of exceptions without ever fixing the source of the problem.
An efficient turn-around to this problem is to focus on establishing a logistics and supply chain management system that takes into account your core strengths, needs, and capacity. This needs to be done in close collaboration with your organisation’s supply chain teams, who have a better grasp of how best to refine your processes and gradually eliminate excessive costs.
This will further eliminate the burden of unclear objectives or lack of necessary skills to achieve your cost reduction goals for the long-term benefits of the company.
Poor data quality and analytics
Poor data quality remains a key barrier to successfully implementing logistics cost reduction strategies as it severely impacts the accuracy of your analytics. In most cases, this occurs due to a lack of proper data collection and governance structure that leads to questions about the relevance and accuracy of the information in use.
Another common issue is the skewed approach to data cleansing, as most companies quickly rush to remove data points without resolving the root cause of the problem. Rather than enhance data integrity, this approach ends up invalidating an entire dataset since it removes valid scenarios from the picture, leaving your company with a withered database.
As a trickle-down, this will skew your spending and service analysis accuracy causing more problems with your financial accounting.
In many cases, the impacts of poor quality data can run into millions of dollars and must never be ignored. For example, a national retailer comparing accurately rated shipments to a potentially inflated historical rate will not meet its cost savings objectives since it relies on an exaggerated actual freight spend.
As such, to make better decisions about your supply chain and reduce logistics costs, it is critical to create and maintain your master data meticulously. This must never be a one-time undertaking but a never-ending and objective process for guarantees of reliable outcomes.
This way, you will avoid cost assumptions, inflated inventories, and inaccurate spend analysis that make it impossible to leverage the right strategies for reducing your logistics and supply chain costs.
Technology adoption has been hailed as a highly effective solution for resolving logistics cost reduction hurdles. Unfortunately, many companies rush to deploy expensive technology tools and exotic analytic frameworks without considering the costs and strains it will have on internal IT resources.
Besides the higher fees required while adopting these technologies, periodic upgrades provided by a software provider will also require additional system plug-ins that lead to more costs. In the end, these cost savings initiatives do not amount to much as they do not resolve the gap between the company’s current technological capacity and the need for continuous improvement.
Technology inefficiencies affect the entire supply chain network as most shipping companies rely on solutions that fail to provide a clear freight data picture.
This makes it harder for these companies to successfully adopt measures to reduce their freight transportation costs, fuel costs, and storage costs as they cannot make their decisions confidently and accurately.
To avoid all these risks, companies must carefully evaluate the technologies they want to embrace. This is best done by factoring in how well you can use the technology within an internal system and on a global scale to attain detailed supply chain insights, automate inventory management, and rapidly analyse your processes.
Poor risk and resilience assessment
Lack of investment in risk and resilience assessment severely impacts cost reduction strategies by leaving companies vulnerable to threats that they would have easily avoided. For example, failure to take into account your freight insights or data from your carrier’s system can leave you without a safety stock, causing costly operational hiccups.
Similarly, failure to analyse and stay up to date with your supply chain processes will make it impossible to eliminate waste such as excessive fuel consumption or regular vehicle breakdowns caused by a lack of a preventive maintenance strategy.
Wrong partnerships and inefficient contract management
In logistics, the vast majority of errors occur due to a lack of clear contract terms and incompetencies in managing several multiple partners. For example, most companies will pay for each dispatch separately instead of having one consolidated shipment by combining several small shipments from multiple suppliers who share the same destination.
The best way to avoid these problems is to prioritise creating watertight contracts and establishing partnerships based on the long-term value you can achieve. Meeting customer demands and ensuring customer satisfaction is, of course, paramount to the overall success of your operation, but if you can’t operate efficiently, your venture is unlikely to succeed.
For example, RollPallet UK remains a top pick for high-quality roll pallets, pallet cages and stillage products, and accessories as they actively keep track of their competitor’s prices that they guarantee to match or beat.
On the other hand, the problem of excess inventory can be resolved when you have higher inventory accuracy, enabling you to automatically re-order stock before it is too late.
How RollPallet UK Can Help
If your role involves logistics supplies or the management of production operations and you need assistance getting a handle on the cost of logistics support or inventory costs for your organisation, we’ve got a useful guide for you to follow here to help calculate transportation and logistics costs.
Highly experienced in dealing with third-party logistics providers (3PL) and a wide range of UK industries, we’re on hand to help you devise a proactive approach to managing your distribution network and by helping focus on improving the bottom line and keeping your customers happy, we help you instil a cost effective approach to supply chain management at a strategic level.
If you’ve got some logistics cost reduction ideas, we’d love to hear them and would be happy to add them to this guide for our readership. Please contact us today if you’ve got anything you’d like to share or would like to discuss a plan of action for your business!