Running a successful business requires having a well thought out logistics and supply chain strategy — from sourcing materials to fulfilling orders. But even with all the resources readily available to reduce logistics costs and increase revenue, getting products shipped and delivered at the right time and in their best condition is easier said than done.
Common Logistics Cost
While poor logistics planning and decision-making are often blamed, it is important for retailers to understand the details that can blow up logistics expenditures:
- Inventory Storage and Allocation
As a common contributor to supply chain logistics costs, inventory management can be a huge pain for the organization’s budget, especially if third-party services are outsourced for storage and allocation. The more inventory a seller has, the higher the charges. Without proper stock management and forecasting, the chances of shelling more money out than keeping them in significantly increases as well.
- Warehouse Cost
Most businesses take advantage of bulk buying. While considered a good strategy, a fully-stocked inventory requires a much larger warehouse storage space. Warehouse renting is not a cheap cost as it commonly includes signing a lease or purchasing land, both of which are long-term commitments and require huge cash deposits.
- Transportation and Shipping
It is no secret that transportation and shipping take up a huge margin in eCommerce expenditure. From getting the inventory to the warehouse to order fulfillment and shipping, multiple touchpoints and shipping zones mean additional charges for retailers.
How to Reduce Logistics Costs?
There are many ways to reduce logistics costs. As with anything business-related, it requires a lot of careful planning and analysis of existing operations in order to understand how one can improve it. Here are five simple ways retailers can maximize profit and reduce logistic costs:
Re-evaluate Business Operations
Companies should do regular audits of their logistics costs regardless of any spikes or drops in revenue. Routine checks of operations such as logistics costs, processes, tools, and metrics help determine any changes that need to be implemented for better allocation of resources. Listed below are some aspects of business operations merchants should go over and re-evaluate:
- Optimizing the warehouse layout for maximum inventory efficiency
- Improving staff productivity
- Meeting shipping deadlines
- Assessing product quality and efficiency
- Improving processes by opting for digital solutions and automation
By reconsidering these aspects, the efficiency of operations will improve and can ultimately reduce logistics costs.
Choose Product Sourcing Carefully
Product sourcing is one of the most expensive costs for any eCommerce business. A lot of merchants opt for Southeast Asian or Chinese-made products to lessen manufacturing costs and to increase their profit. However, some fail to consider additional charges, such as taxes and shipment fees.
Understand Carrier Options
Like most firms, 3PLs also have to maximize their profit. This is why they need to update their pricing annually to make it more competitive. It may be a smart move to compare and consider alternatives to understand which option brings more value to the business. If changing fulfillment services providers will complicate the existing logistics process, merchants can always coordinate with the company’s current partner and see what they could offer — sometimes, all it takes is to reduce logistics costs to build a good relationship.
Consider bulk packaging
Even if planned properly, packaging expenses can add up and become a lump in online business expenditures. If all the product information such as weight, sizing, and durability are available, a company can focus on large-scale packaging. Successful logistics managers usually shift to bulk packaging by buying a huge volume of packaging materials and lower costs by gaining volume discounts. Spread packaging expenses over large quantities of goods is also another way to go.
Though it may seem like there is a higher cost on the front end, retailers will gain more in the long-run through a lower average per-order cost.
Outsource order fulfillment to a 3PL
Rather than handling everything in-house, outsourcing the fulfillment logistics to a 3PL provider can reduce logistics costs efficiently. A reliable fulfillment center has multiple warehouses and can take over the responsibility of completing the order fulfillment process. Working with 3PLs can help businesses focus on more pressing matters like scaling and growth.
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