Logistics Costs: What Are The 7 Main Types, And How Can You Manage Them?
A logistical cost refers to any expense incurred by a business to manage its logistics. Knowing how to reduce them is key to being more competitive.
Logistics costs include expenses related to resource acquisition, product distribution, and other expenses that make up a company chain of production, sales, and delivery.
Good management of logistics costs goes beyond making the product reach the consumer. It includes decision making on how to use financial resources best and, of course, ensuring savings in all these processes.
Learn about companies’ major logistical expenses in this article, along with some tips on management.
What are logistics costs?
Logistical costs are those related to demands for the movement of products and services in a business’s supply chain, that is, all the company’s logistical expenses. We’re talking about product inventory and raw material and resource acquisition, as well as the taxes imposed on them. Effective business logistics is vital if you want to improve process quality.
As a result, any ability to cut these costs positively impacts organizational performance overall.
Why is it important to manage logistics costs?
In a market that goes through constant disruptions and changes and becomes increasingly competitive, every detail makes a difference. Even when the product consumers receive is high quality, poor management can cause a company to go out of business. Good cost management is one way to deal with market changes. More effective logistics procedures are required from businesses due to customers who are becoming more demanding and the expansion of e-commerce sales. Naturally, the final costs also reflect the customer's decision to purchase brand A or B. Because of this, reducing logistics costs through good management is essential! Adopting good practices guarantees more savings and efficiency, and it’s a strategy that will influence all areas of your business.
What types of logistics costs are there?
A lot of factors play into a company’s major logistical costs. After all, managing a company's logistics entails more than just ensuring product delivery; it also involves overseeing the organization's entire supply chain.
1. Acquisition costs
Acquisition costs include the purchases of raw materials and other inputs required to produce the goods that will be delivered to the consumer. Since a lack of resources or poor procurement procedures can impact the entire production and distribution process, these costs must be considered in logistics management.
2. Inventory
Inventory is another of the main logistical costs of an organization. Expenses for storing products can represent a high cost, and without good inventory management, the brand can have problems .Costs associated with storage facilities, be it a small room or a big warehouse, storage insurance, and even maintenance to prevent product losses must be taken into account.
3. Packaging
When sending goods to distant areas or when items are fragile and need protection to arrive at their destination undamaged, packaging is an important cost to consider. In addition to ensuring product integrity, other factors must be taken into account like excess plastic, which can damage your brand’s image. Finding a balance between packaging expenses, sales value to the customer, and environmental effects is a must.
4. Transport
Transport logistics costs are related to the distribution of products. These expenses involve fuel, tolls, hiring drivers or a partner company, vehicle maintenance, and more. Keep in mind that price can vary depending on the distance, the quantity and type of cargo, the vehicle being used, and even the route chosen.
5. Taxation
Another point that increases the total logistics cost is the taxation of logistics processes. Taxes can represent a significant cost.
6. Investments in new technologies
It’s also necessary to consider the technologies that are used in managing logistical processes. These investments are important to improve workflows and, in the medium and long term, represent more savings. In any case, they must be considered as a part of the company's logistical expenses. After all, implementing new technologies is necessary in order for a company to become more innovative, competitive, and recognizable.
7. People
The final component of logistics costs is labor (think salaries, vacations, leave, benefits). All these values ultimately affect how much a brand charges its customers for the goods they receive. A company can calculate the total logistical cost by adding up these variables, which, depending on its area, may also include other factors. Also read: what are the main tech trends for the supply chain?
How do you achieve good logistics cost management?
Good management of logistics costs consists of an organization adopting good practices specifically for a smoother financial flow. Here are some tips on how to improve your management and reduce costs with logistics processes.
- Have a good plan: know what your fixed and variable expenses are. Analyze total logistical costs as well as the amount invested in each area. Thus, spaces to reduce expenses can be identified.
- Invest in good tax planning: in parallel with other costs, plan payment of taxes in a more organized way. In-depth knowledge of the legislation in your sector can even help you to obtain exemptions and incentives, lowering tax costs.
- Map your processes: evaluate how all processes are performed with the purpose of standardizing them and achieving a high level of excellence. More efficient processes cost less.
- Automate processes: the automation of repetitive tasks streamlines business routines, prevents errors, and lowers tax burdens, making businesses more efficient end to end and increasing logistical efficiency.
Check out tips on how to optimize business management.
How can an integrated management system help?
Technology is a key ally in managing logistics costs more effectively. In addition to process automation, investing in integrated management platforms is hugely beneficial. An integrated view makes it possible to work with aligned teams and processes while concentrating on shared objectives .As a result, data is automatically shared between areas, repetitive tasks are eliminated, business performance is optimized, and logistics procedures improve, as does customer satisfaction. Do you want to ensure a high level of excellence in management of your logistics costs? Learn how to implement an integrated management system and the benefits of having an all-in-one platform.
