There’s little doubt that logistics costs, driven by things such as the capacity crunch, a modestly growing economy, and rising consumer demand to get freight faster, is getting more expensive. However, that doesn’t mean that shippers around North America need to give in to the inevitablity of rising logistics costs.
Earlier this summer, the Council of Supply Chain Management Professionals released its 24th annual State of Logistics Report. According to the CSCMP report, authored and driven by by Rosalyn Wilson, the cost of US business logistics costs rose $43 billion, or 3.4 percent in 2012 to $1.33 trillion. Inventory carrying costs rose 4%, warehousing costs increased by 7.6&, trucking costs increased by 2.9%, and rail transport costs rose 4.9%. Although business logistics costs stayed at 8.5 percent of US GDP from 2011 to 2012, the report’s bottom line is that prospects for growth in the sector are likely to be limited at least through 2015.
Though the “State of Logistics” report paints a subdued outlook on logistics costs, shippers and logistics service providers alike can win in the fight against expected rises in logistics costs by employing the principles of lean, six sigma, operational excellence, and by focusing on the soft logistics costs such as process improvement, resources needed to manage logistics costs by outsourcing, and a bevvy of other ways to better control facets of the logistics arena such as inbound freight management. There are several opportunities for logistics professionals to buck the trend and reduce logistics costs, while improving their expertise and responsiveness to changing customer demand.
For example, to combat rising transportation costs, centralizing purchasing and leveraging volumes are among the most basic, yet fruitful, approaches. Whether you have two facilities or two hundred, if you do not have a standardized corporate process for managing your transportation requirements, you are wasting the chance to use your corporate buying power to get the best rates from carriers.
If you are not using technology such as a transportation management system, you are unlikely able to understand your own buying of transportation accurately enough to make a decision on who is the best carrier for your freight per lane. Additionally, when you are not able to accurately know your own freight data, you are challenged when it comes time to negotiate rates as you are not as educated.
Further driving up logistics costs is inefficient processing of your freight and the additional areas such as accounting and claims you need to manage. If you are not able to easily manage transportation effectively because you are trying to do so via manual methods such as getting paper invoices, or having to keep everything on a spreadsheet, you are experiencing quite a lot of drain on valuable resources you would otherwise avoid with a good TMS.
Can you imagine not having the ability to match up what you were quoted from the carrier to what the bill actually says if you don’t use an efficient piece of technology such as a TMS? Ask yourself, “How much money am I leaving on the table by not auditing my freight invoices effectively and accurately?” A reliable TMS will automatically do this, and if you use a freight management company they too can audit your freight invoices.
With warehousing, improving productivity and efficiency in your receiving and put-away processes can go a long way in helping to reduce logistics costs. One of the best means to do this is by increasing electronic advance ship notification requirements with customers and suppliers. Again, if you employ a TMS, automatic notifications will come standard. More timely and complete advance ship notifications can give your organization better insight into what workload coming, enabling you be more effective in your inventory planning and to streamline the inbound flow of goods.
It is proven that smaller companies must do everything they can to compete with larger competitors when it comes to logistics costs in order to grow. Smaller companies with limited resources, which, according to the Davis Logistics and Cost Service database from Establish Inc., continue to have higher logistics costs than their larger competitors, have the potential to operate at world-class levels.
What are some strategies and tactics or creative lean strategies you have employed within your logistics operations to combat logistics costs yourself? Let us know in the comments section below!
To subscribe to our blog, enter your email address below and stay on top of things. We'll email you with a confirmation of your subscription.
Send this to friend