Logistics Cost Management

Nov 29 2021

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Logistics Cost Management

The term logistics is used to describe the operational functions and is an element of the supply chain. It involves all the processes of moving goods and services from one point to the other, including procurement, supply, and stocking or storing materials from the time they are manufactured to when they can be sold in the market. It is usually guided by the 12 principles of logistics costing for efficacy purposes. Because of its complexities, entrepreneurs employ logistics cost management to avoid outrageous logistics costs that mainly arise from transportation charges and storage expenses.

The different types of logistics costing, such as direct, fixed, and variable costs, help a business determine the total cost incurred during all the processes. A sound system should observe the 12 principles of logistics costing examples, including sustaining engineering, supply support and technical data.

The global rise in the e-commerce market has seen rapid growth, with the logistics cost as a percentage of sales in 2019 growing at 16%, but the logistics cost as a percentage of sales for 2020 has seen no rise. The increased online sales and purchases account for the increased logistics cost as a percentage of sales in 2019. However, the logistics cost as a percentage of sales 2020 can rise in the coming years if retailers and supply chain companies agree.

Freight cost calculator

A freight rate or freight charge is what you need to pay to the logistics company after they deliver your products to a specific location. Full truckload rate is a common mode you can use to fill up the entire truck if you have enough shipment or cargo. The charges calculation is easier as you can use a full truckload freight calculator to determine how much you need to pay. While some companies have flat rates, others calculate based on the traveled distance – cost per mile.

Consider using a free freight calculator to get accurate shipping estimates and get the best rates. Different online platforms have a free freight calculator, so finding one should not be an uphill task. Depending on the terms you agreed on, you can pay for shipping goods on delivery or before. Several factors that determine the freight cost include mode of shipment, distance and weight. If you ship your products by air, you will pay much more than using a truck. However, you will benefit from the speed and improved customer satisfaction due to on-time delivery. But if you are working on a budget and would prefer to save some coins, a truck would be a better option.

The hundredweight pricing model dictates how much you will pay depending on the weight of your shipment. Expect to pay more if your load is so heavy and lesser if the weight is not as much. When using a full truckload freight calculator, your shipment should always fall below 45,000 lbs. The last factor that affects freight charges is distance. The further your delivery location, the more you will pay due to fuel, wear and tear of assets and the time used.

How to calculate transportation cost in logistics

Calculating transportation cost in logistics helps you to work away into cost reduction and improved business performance. Logistics is a crucial factor that most companies consider because they can add greater costs to production. While cheaper options are also available, they may be the detriment of your business since they can affect its performance. Here is how you can work out an estimate of transportation cost in logistics.

Evaluate the service level costs. Sometimes companies are unable to meet the consumers' needs because their orders are large. Put into account the amount of time it takes to process and deliver an order. Production errors are also rampant, and sometimes goods can get damaged during the delivery, so malfunction costs should be included. To determine the service level cost, subtract the fulfilled orders from the total amount of products sold. This gives you an estimate of the lost sales.

The following is an example that truck operators may use to determine their cost per kilometer.

  • Determine the distance traveled by calculating the total number of miles you traveled in a month. The mileage varies for different truck operators depending on the number of times they hit the road.
  • Include fixed expenses, including truck payments, permits, license plates, parking expenses and insurance. These stay the same regardless of the distance traveled.
  • Calculate the variable expenses which change based on the distance covered. Examples include fuel, meals and maintenance.
  • Here is how to calculate transportation cost per km, which is the last step. You then sum everything up by adding the distance covered, monthly fixed fees, and monthly variables. To get the cost per kilometer, divide the total cost by the full kilometer traveled that month.

How to reduce logistics cost

Reducing logistics cost does not have to compromise your customer's satisfaction. Here is how to reduce transportation costs in business while maintaining its performance.

  • Use different modes of transportation. When it comes to product shipment, most companies want to be on time and avoid deliveries delay. For this reason, shipment by air may be alluring due to the speed it provides. However, the freight charges are higher than other modes of transport like shipping by sea. If shipping freight is a huge component of your business, you could consider being more flexible in your transportation modes.
  • Another example is intermodal transportation, like the use of rail instead of a truck. Although the car is faster, the train is less expensive and allows you to reduce logistics costs. However, consider using both shipment methods if you want to stay on budget and keep time simultaneously.
  • Minimize travel times. If you have been thinking of how to reduce transportation cost in the supply chain, consider warehousing services. It will save you much time and money by reducing the traveled distance. For example, if most of your clients or customers are situated in Florida yet your warehouse is in California, you spend so much time traveling. Fortunately, you can outsource warehousing in a location close to your customers.
  • Work with a plan. Planning is an important factor and especially for a logistics company. Ensure you have a record of all your orders and arrange them according to the urgent ones as the rest follows. Consider using computer software to reduce human error and also cut on labor. Proper planning and time management is an effective strategy on how to reduce transportation in logistics pdf.
  • Consolidate shipments. If you have a regular partial shipment of products to a certain place, consider consolidating several small shipments into one to cut on transportation costs.

Logistics cost analysis

Analyzing the cost incurred in logistics is crucial for a company to identify any loopholes or areas that need improvement. Logistic cost components include areas such as transportation or shipping, warehousing and distribution. This is common in large firms which have an internal supply chain and hardly outsource services. Logistics cost analysis ppt reviews all the steps involved to maximize a business' performance. An analysis of logistics cost ppt is complex and usually requires a set of certain business skills. Most large companies have a small section within their organization responsible for the analysis of the logistics. Analyzing each step of the supply chain also helps in logistics cost reduction ppt, a great way to maximize a business' profit. Tools such as logistic cost calculator and logistics cost calculator Xls ease the technicality of the process.

Examples of logistics cost formulas used include:

  • Logistics cost / sales × 100% = unit sales of logistics cost ratio.
  • Rate of the logistics functions = cost/ logistics total cost × 100%.

The formulas can determine the maintenance activity indicators, transport indicators, and loading and offloading activities indicators.

Types of logistics cost pdf

Logistics cost definition describes the expenses incurred during the movement of a product from one point to the other. They differ from one company to the other depending on the tasks a company performs. The different variable logistics cost fall under various categories, including:

  • Direct and indirect costs
  • Tangible and intangible costs
  • Supply, production, and distribution cost
  • Logistics costs only

Examples include:

  • Storage costs. The costs vary depending on the type of products a company sells. Products that require certain temperatures may cost a company more money. For example, cooling devices may be needed to create the right environment for storage.
  • Warehousing. Depending on the quantity and of goods, a company may have more or fewer bills. If you outsource warehouse services, negotiate the monthly or annual billing to avoid incurring high costs.

Transportation cost calculator excel

Transport falls among the variables in the principles of logistic costing ppt and, as such, is an important factor for any e-commerce business to consider. Thanks to excel sheets, companies can now analyze and plan business concepts simply yet functionally. When creating an excel sheet for transport, various elements such as the vehicles' ownership and operations are included. Since transportation significantly determines a business' profit margins, regular analysis of the area is crucial. It is easier to identify any loopholes during a review or assessment session. For example, you can reduce the traveled distance by looking into other options of warehousing cost in logistics. Outsourcing warehouse services to a closer destination where most of your customers are based may help reduce the transport costs. Tools like road transport rates calculator can help in the calculation of transportation costs.