It is difficult to overstate the importance and prevalence of logistics costs within practically every sector of the global economy. There are many factors that determine the sum of logistics costs, and while these expenses have fluctuated throughout 2021, there are ways to identify excess expenses and reduce them in 2022. What do you need to know about logistics costs and what are the keys to reducing them? Let’s discuss:
Logistics costs are key to an organization’s business processes. And while the supply chain used to be small and simple, the global economy has required organizations to evolve and tap into a new, worldwide supply chain.
What are Logistics Costs?
Logistics costs are defined as all the expenses incurred when moving product: from sourcing raw materials to delivering the order to the customer, and everything in between. From one end of the supply chain to the other, logistics costs are paid to manufacturers, trucking companies, third-party logistics service providers, shipping carriers, freight brokers, and many other vendors. While different companies may track their logistics costs in different ways, some get more specific than others, but which logistics costs are compounding the most expenses onto the organization?
Most Common Logistics Costs
1. Transportation and Shipping Expenses
Transportation costs are one of the primary buckets within the supply chain, since they include getting your inventory from the manufacturer to your warehouse to your customers. Freight shipping, for example, and the distribution costs associated with moving inventory through these channels is a common cause of inefficiency.
Another expense associated with transportation and shipping is the cost of getting the materials to the parts supplier. There are thousands of materials that can be used to make gaskets and seals, which bring different qualities to part itself.
2. Inventory Management Costs
Inventory is another major contributor to logistics costs. Managing the number of units in production compared to the number in demand has a direct impact on profitability. Too many units and you’re missing out on cash flow; stocking too few units leads to missed business opportunities. Bottlenecks in your supply chain management (SCM) can exist as a simple result of not being able to effectively track large amounts of data in real time—with so many moving parts in different countries, it can be difficult to get an accurate view of your entire inventory.
Blind spots in inventory management are nothing to take lightly; they can lead to many consequences, including:
- Poor forecasting
- Shipping delays
- Escalating production costs
- Wasted or obsolete inventory
- Low rate of inventory turnover
- Volatile and variable overhead costs
- Data-entry errors
- Lost customers
These costs can add up quickly, and to make matters worse, many of these issues aren’t easily identifiable.
Warehouse and storage costs are a major contributor to logistics costs.
3. Warehouse Cost
Warehouse expenses can also be a massive expenditure for ecommerce and manufacturing businesses alike. These expenses include signing a lease and purchasing land, which tend to be long-term commitments. The costs of just storing inventory can be high, and the cost of outsourcing inventory can vary depending on how much inventory you have.
Improve Your Logistics with Breiner
The simple truth is that while these three expenses are primary drivers of logistics costs, there are many others that can be inflating your operating costs. Especially in late 2021, which has seen an increase in air freight and trucking delays and costs have jumped up with them.
So, what can be done? One of the most effective methods of reducing logistics costs is to partner with a parts and gasket supplier who is closer to home. If you’re importing parts and gaskets from abroad, then the cost of shipping those parts can easily surpass the cost of production. The second key–which will help alleviate the cost of both inventory management and storage—is to turn to a provider who only provides the parts you need.
Located in Indianapolis, Breiner Innovative is at the heart of Indiana—the Crossroads of America. This central location helps our customers save on the logistics expenses associated with shipping. We’re aware of the costs associated with procuring materials, which is why we pride ourselves on finding alternatives to the materials to get the job done and save our customers the burden of additional expenses. We also only ship the number of parts our customers need—whether they need one part or millions. This helps them reduce the cost associated with storing these parts. When they partner with Breiner Innovative, customers know they have a parts supplier who’s committed to their success.