February 28th, 2022
Strategies for Reducing Logistics and Supply Chain Costs
Table of Contents
Knowing how and when to offset costs is mission-critical
Did you know that logistics account for 5% to 50% of the total landed cost of products? Well, if you’re doing things right, you’re closer to the 5% than most.
This situation is caused by various factors. Some of these are out of the business’ control, while others result from poor planning and decision-making in supply chain management.
Whatever the cause, excessive supply chain costs across all major UK industries make a business all the less financially viable. This is why it is crucial to optimise operational efficiency and reduce logistics costs.
In fact, it is a top priority if such a business is to survive in today’s business climate.
But how do you do that?
The supply chain process and related costs
The supply chain is a complex system of activities, resources, and organisations involved in moving goods from suppliers to consumers. On the other hand, logistics happen between intermediary points in the supply chain and involve both transportation and storage.
Naturally, such a complex system comes with lots of points of expenditure for the businesses most heavily reliant on smooth logistics. And although these differ from company to company, they generally include transport, storage, labour, and administration. Cost may also arise due to delayed port arrivals and complex regulations (especially in the case of international trade).
How to reduce supply chain costs
Everything would be so much better if reducing logistics and supply chain costs was a matter of switching to the cheapest carrier and buying the cheapest materials. But unfortunately, it isn’t.
The supply chain relies on a delicate balance between efficiency, time, and costs. Each affects the other; so, if you’re looking to change one, you must consider the rest.
In short, your success relies on your ability to nail the balance between cost and efficient performance. And as you’ll see below, a lot of the strategies to reduce your logistics expenditure will have you tweaking the efficiency of your processes. So with that said, let’s get to the meat of it.
Most people will agree that compared to less than container loads (LCL), shipping goods in full container loads (FCL) is safer, cheaper, and faster. However, not all companies move shipments large enough to warrant an FCL. They have to settle for LCL and all the costs and inefficiencies that come with that.
Fortunately, there is a way for businesses transporting relatively small freight to enjoy the benefits of FCL. This involves consolidating shipments, i.e., a method of shipping where the transporter combines LCLs from different shippers into a single full container shipment.
Then, when the loads reach their destination, they are separated into their original LCL shipments for the owners to pick up.
This method allows small suppliers to reduce their direct logistics costs. However, it works best if all suppliers share the same destination.
Most businesses don’t realise that their supply chain budget is heavily influenced by their ability to plan.
For instance, poor planning results in hastily made last-minute decisions, which cause delays and missed deadlines. And when your business is experiencing delays:
- You’ll be willing to pay a lot more for transport due to the urgency of the situation.
- You’re likely to make crucial packaging errors that further drive your logistics costs.
So, it’s essential to plan your deliveries ahead. But it’s not enough to just mark the date and forward the calendar to your drivers.
Smart planning and inventory management will have you accounting for things such as the weather, holidays, state of roads, traffic, etc.
You should also plan for unforeseen events like demonstrations and make an allowance for such.
It can be a little hard to recommend insurance since it doesn’t have apparent cost-saving benefits. But in the event of an accident, the perks of insuring your cargo become visible.
Generally, you want your insurance to cover the total value of your products. Think of it as a necessary cushion that protects your books from unpleasant surprises.
Reduce product packaging
Packaging in the supply chain is necessary to protect products in transit. And if you are a manufacturer, it is also a powerful visual and branding tool that helps identify and sell your products.
But packaging also plays a critical role in logistics costs, as shown by the following case study:
- In the 90s and early 2000s, PC games shipped in large cardboard boxes. But for all that space, the CD occupied only a tiny portion, meaning that game companies could only ship a dozen or two-game copies per vehicle. The result? Transport costs were relatively high.
Soon, companies realised that they would fit more games in a single box by selling them in CD cases. So, rather than ship two dozen game copies per van, they could ship hundreds at a time.
This reduced the transportation costs (they didn’t need as many trucks to transport the same number of games) and labour (the amount of time it took to load and unload trucks was dramatically reduced).
This strategy is pretty common in today’s global supply chains. In fact, popular smartphone companies like Apple and Samsung halved their packaging, allowing them to save money in the millions in fuel costs. So, why not do the same?
Complete use of resources
Underutilised company assets are also a massive source of inflated supply chain costs. A good example of such is owning a warehouse that you only use for a couple of months a year.
If it is usually empty most of the time, why spend money on labour and maintenance throughout?
Why not, instead, rent warehouse space during peak times of the year? This is an excellent way of reducing logistics costs.
Supply chain visibility
Maintaining supply chain visibility ensures that you can predict and prevent disruptions before they happen.
By knowing where your goods are, when they are, and all the processes involved to get them there, you’ll be able to manage your stock’s safety better.
It also allows you to maintain proper service levels and quickly react to changes in the supply and demand process. Ultimately, this results in lower logistics overheads.
Maintaining a supply chain strategy while managing a business is hard. It becomes even harder when you’re trying to keep it efficient and affordable.
So, why not outsource? This is the simplest way to keep your costs down. So simple, in fact, that over 66% of businesses leaders outsource a portion of their logistics (as of 2021).
When you outsource supply chain services:
- You don’t have to own a fleet of vehicles
- You don’t need multiple warehouses at various points of your supply chain
- The above two translate to reduced supply chain cost
- You won’t incur direct inventory costs
- You also get to work with skilled professionals who do most of the heavy lifting.
Need help with your logistics?
RollPallet UK is here to offer help. We are not transport providers, nor do we have warehouses to sell. But we have something equally crucial to logistics and supply chain performance; roll pallets (aka roll cages) and stillages.
Even better, these are available at the most affordable prices in Britain, helping you further reduce costs.
Browse our full range of logistics product solutions today and buy safe in the knowledge that you’re dealing with one of Britain’s most trusted logistics industry suppliers.