Saving the Logistics Cost

June 23rd, 2022 by admin Leave a reply »

When we talk about logistics, there are two aspects to it. There is inbound logistics and outbound logistics. Inbound logistics involves everything from purchase of raw materials to production of finish goods, while outbound logistics involves delivery and distribution of finished goods to customers and clients.

There are four main parts of logistics and they are purchase or procurement, transportation, transshipment and storage of goods. Here are some tips to save on logistics costs in each of these areas.

Procurement
When it comes to buying raw materials, a business should always look for suppliers who can offer more favorable terms of purchase. If necessary, the raw materials can also be imported. However, care should be taken not to change the supplier too often. Instead the person in-charge of procurement should have good negotiation skills.

In addition, it always helps to know the exact cost of procuring an item. This means knowing the freight cost, duty, brokerage and cost of carrying the inventory. It is only after having all these costs, can a business compare the prices of two vendors and then select the best available option.

Sometimes working with suppliers who can delivery just in time can help reduce the company’s inventory and in the bargain it can reduce costs associated with storage.

A business should also think of using a cheaper substitute if available instead of always opting for high cost raw material.

Transportation
It is financial prudence to always select the mode of transportation based on the quantity and quality of goods that are supplied. Whether you use air, water, rail or road, each one has its own advantages and disadvantages and you should be aware of them. Choosing the right mode of transportation can help reduce costs and damage to goods. In addition, it can also reduce the in-transit inventory of goods. This is especially true when goods are being transported by road. If the route selected is the shortest, it will save a lot of time.

Another way to reduce transportation costs is by freight consolidation where smaller quantities of goods are brought together to make bigger quantities and only then they are transported.

Transshipment
Sometimes when a company needs goods or raw materials urgently, it ends up asking the vendor to send the entire shipment by express service. This can be extremely expensive for the company. However, this unnecessary expense can be avoided by doing a little bit of calculation and planning as it will give the quantity required urgently. Then only what is required should be sent using express service while the remaining can be sent by normal service. In the bargain, the business can lower its costs tremendously.

Inventory
A business can reduce it capital cost by ensuring that there is a balance between demand and supply. It is important to have a good inventory management system so that surplus inventory is not built up.

It makes sense to order in bulk because many suppliers give reasonable discounts on such orders. This way you can also set aside stock for emergencies like fire, theft, accident or natural calamity.

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