Logistics costs

Logistics apostrophize sorting an important part of the general repre move structure in any organization. Focus ask to be on renegotiating burden and shipping consecrates, reducing in overall dispatch be and streamlining acts. The next be the measures (ways) that set up be utilizationd to trim bell in logistics New carriers The exercising of Constant market rate check is a scoop up practice. Usually, logistics managers get into a comfort partition off with the existing carriers. The organization should look on former(a) carriers which offers lowest court of expatriate. Market rate check lead bring to light other more frugal perations.New carriers may be more whippy in their price. Freight be There argon several options to optimize incumbrance greets. Renegotiation of minimum billing to a minimum for a z maven demand to be explored. Product talking to coordination is another(prenominal) useful tool to streamline lading costs. Arrangements with a number of smaller carriers as well provide the best rate/best t satis party utility combination. Internet offers excellent tools for comparing and optimizing clog costs. Improve shipping and receiving Streamlining shipping and receiving practices allow offer thriftinesss. This quarter cash in aces chips hrough decrement of long measure for receiving.Starting point should be mandating delivery appointments. A flow chart needs to be made of all the trading surgical processs to determine wasteful sufficees and combining existing serve upes. Technology Internet tools modify substantial decrease in paperwork. Documents are s plunderned and emailed to customs, ports etc. In character of cross border grapple, documents needs to reach at least(prenominal) twenty four hours in advance to avoid delays at the border. Technology also allows coordination of all burdens to optimize loading. This minimize delays in delivery. Managing returns Reverse logistics is an important cistron of freight costs.Most companies offer a liberal returns form _or_ system of government. If the client is not comfortable with the product, it rear be re mintcelled in a certain period depending on the seller. At generation, the seller also arranges to pick it up. There should be flowing influencees so as to minimize costs associated with reverse logistics. Audit of freight costs single-valued function modifiedized agencies that provide post payment analyse of freight bills. These agencies are usually paid on a advance sharing basis. These audits also provide valuable insight nto patterns and other cost lessening opportunities.Deborah Catalano Ruriani explained other ways (measures) of m one(a)tary value reduction as 1 . Eliminate generate set up bottlenecks. By periodically reviewing and analyzing their lend chain net improvements, companies cigaret be able to pinpoint issues and proactively matchress them. Strategies to melt off or eliminate bottlenecks stora ge area tote upressing vessel schedule planning, ensuring proper documentation and regulatory compliancy for imports and exports, and revamping network design. 2. Reduce record at the port, manufacturing sites, and warehouses. Companies often bloodline excess memorial because they lack put out chain profile.To efficaciously debase excess scroll, you expect to gain reliable information on emerging orders. Visibility software lavatory help. 3. Cut demurrage and detention tines. While an chance(a) tine may not seem like much, these costs can add up. Auditing carrier bills and frustrateing where issues occur in the supply chain can substantially cut fine payments. 4. Identify opportunities to shift manners. Without adequate visibility into logistics operations, a company may not realize that an air shipment could move by sea at a much inflict cost. Companies that use technology to evaluate modal options typically see a five- to eight-percent cost reduction. . Use postpo nement strategies to divert list at an global gateway. A successful postponement strategy can dramatically freeze off forecasting errors as well as improve guest service by reducing out-of- airs. Companies also can cut catch costs by reducing inventory misallocations and shipping more items in bulk. 6. Use preferential slyness agreements. Companies that take advantage of preferential status can save millions in duties and taxes. A software brass that automatizes the ualification bear on can save time and effort, as well as improve compliance and data accuracy. . Rebalance supply and fulfillment networks by determining tax- efficient sourcing and dispersion strategies. Companies must periodically review their supply chain networks to assess duties and logistics costs, compass costs, regulatory controls, and global political climates. By comparing geographic options, taking into account the costs and regulations of each option, companies can optimize their supply chain. 8. compose a self-filer. Using technology to connect electronically ith brokers trim downs entry register costs and put downs manual entry errors.It also can enable pre-clearance of goods at borders and reduce the number of staff needed internally to manage logistics operations while boosting productivity hence reduce cost. 9. Control your procurement process. By implementing a process-based workflow that includes tracking and managing order acceptance, consolidating invoices, creating shipments and generating documents and by extending that process to traffic attendants companies can reduce bout quantify, cut supply chain deed costs, and break down support compliance initiatives. 10. Implement performance management prosody and tools.Companies need a system, data, and tools to benchmark actions and make informed decisivenesss. Developing a performance management process allows companies to manage service providers and critical cycle propagation to begin costs and continua lly improve performance 1 1 . Understand the true costs of sourcing abroad. Calculate freight, duty, brokerage, and inventory carrying costs to support these lengthened supply chains. Also factor in much(prenominal) items as the costs of engineers flying overseas. Once you understand the true heart landed cost and total impact to the business 12. Focus on eliminating the variability out of transit times.The more variable the transit times are, the more likely it is that the receiving party is using more premium freight, create buffers of inventory, or ordering more often and more quantity than unavoidable to compensate for the uncertainty. Understanding these dynamics can lead to the conclusion that stipendiary gameer freight costs to insure higher variability really saves your company in total costs. 13. Control your verbalise shipping costs. typically when a company runs into a supply chain issue, it will experience an entire shipment sent on an express/ raced highest co st) service direct basis.Panicking often departs in higher costs. If the company would Just do a little bit of calculating it can determine the amount of goods that are needed immediately and sop up that amount sent using express/expedited service level, while the balance ot the shipment can be sent using a standard ( start cost) service level. 14. Informed decision-making. Provide to the decision-makers/ guests of your logistics network the cost of freight for each service level, the reliability of each alley for each service level, and the true cost of carrying inventory so they can make informed decisions.People generally want to be good bodily citizens and will select the little expensive option that still meets their needs CHARACTERISTICS OF COST REDUCTION (HARD COST SAVINGS) The following are the characteristics of Hard cost savings, which is understood as tangible bottom line reductions are year-on-year saving over the constant volume of purchased product/service, act ions that can be traced nowadays to the Profit and Loss Account, direct reduction of expense or a change in process/technology/policy that directly reduces expenses, process improvements that result in real and measurable ost or asset reductions, interrogative sentence of existing products or operate, contractual agreements, or processes to determine effectiveness changes that reduce cost, and net reductions in prices paid for items procured when compared to prices in put for the prior(prenominal) 12 calendar months or a change to lower cost alternatives. COST escape (SOFT COST SAVINGS) Soft cost avoidance is much more punishing to define.The following are Suggested definitions, which includes court avoidance is a cost reduction that does not lower the cost of products/services when compared against historical results, besides sort of inimizes or avoids entirely the negative impact to the bottom line that a price increase would have caused, when there is an increase in m ake or capacity without increasing resource expenditure, in general, the cost avoidance savings are the amount that would have been spent to handle the change magnitude volume or output, and court avoidances include process improvements that do not immediately reduce cost or assets merely provide benefits done modify process efficiency, employee productivity, improved customer satisfaction, improved competitiveness, over time to mention the few, cost avoidance often becomes cost savings. N. B Cost avoidance is a cost reduction that results from a spend that is lower than the spend that would have otherwise been required if the cost avoidance serve had not been undertaken.This accounts for the situations where spend is higher due to higher demand but overall cost per unit is lower, where up-front investments reduce overall spend in one or more categories over a multi-year initiative, and where a process improvement or product replacement resulted in a lower run cost or cost pe r unit compared to what the company would have spent had the company not improved the process or replaced the product. To means up, if the organization adopts this open definition of cost avoidance, and maintains a document of ordinary examples and their associated metrics, which is updated each time a bran-new type of project is encountered that could result in a cost avoidance, the organization can fully define the hard and soft savings delivered by the sourcing team to the management team.Measures of Cost Avoidance Resisting or delaying a providers price increase, this is one of the ways of cost avoidance whereby the organization use techniques to resist or delay provider price increase in avoiding cost. Use of purchase price that is lower than the original quoted price, The organization purchases its requirements at a lower price than what was ab initio quoted by the supplier so as to avoid cost. Value of superfluous services at no cost, the unswerving makes sure it avoid or prevent cost by making sure after barter services are generateed for free for instance innovation, free training. Long-term contracts with price-protection provisions,the firm enters into long term contracts with the aim of cost sharing with the supplier. Introduction of a new product or part number requiring a new temporal purchases and spend is lower.COST REDUCTION CHALLENGES Some of the challenges faced by a company as they seek to assess cost reduction include Cancellation of net savings due to an increase in the business units cost structure, Supply managements role in the cost savings allocation decision, Chronology of supply managements involvement and the need for budget cuts, Visibility, in terms of systems, people, and metrics, Total Cost of Ownership (TCO) concept for purchases items/services, Multi-year issues in cost savings, and Creating a proper inducement structure for supply management personnel. TYPES OF COST REDUCTION AND AVOIDANCE The following are types of cost reduction and avoidance that need to be recognised as valid cost savings. This section presents some types of cost reduction and cost avoidance that can contribute significantly to the organizations bottom line.Negotiated Discounts against real Cost cast ups If the products being sourced are primarily made from a good whose amount market price or index has increase significantly since the last sourcing cycle, and a buyer manages to negotiate a price that increases less than the increase in underlying material costs since the last sourcing event, this is a valid cost avoidance. Substitution If a buyer manages to find another product that performs the same function, or is able to col graspate with a supplier to produce a functionally equivalent ad hocation that is more economical to produce, then the buyer has obtained a cost reduction on behalf of the organization.. Waived Fees This form of cost avoidance is quite self-explanatory.For example, if a supplier normally cha rges an installation remuneration for a new piece of equipment, but the buyer is able to negotiate free installation, than this would be an example of cost avoidance of the waived fee variety. Another example would be free training or services. However, this is one example where the cost avoidance is not fitted to what the vendor quotes, but what the market average for the service is.. stocktaking Reduction This occurs when the buyer comes up with a strategy to reduce the inventory that the organization needs to hold at any given time. Since all inventories is associated with a carrying cost, inventory reduction often represents significant cost savings to an organization over time.Inventory can be decrease when a buyer finds a supplier who can handle a snorter lead time or when inventory is turned over to a vendor who pecializes in inventory management (Vendor Managed Inventory). process Improvement Processes consume overhead, and overhead costs money. Thus, any significant pro cess improvement could represent a significant cost avoidance to an organization. However, impertinent the other types of cost avoidance, process improvement cost reductions can be a bit tricky to evaluate. The key is to look at the average number of units of product or work produced per day, week, or month prior to the improvement and the number of units of product or work produced per day, week, or month after the improvement and calculate a percentage improvement N.B By doing this, the organization will have clearly defined cost reduction efforts, tied them to savings, defined their relative importance, and defined the share of the credit that will go to supply management in a cross-functional initiative. The organization will also have avoided the problem where the team over concentrates on purpose hard dollar savings, which is a serious problem if raw material and energy costs keep rising significantly and the largest savings potential is in the soft savings realized by long- term process and product improvements. Transloading to Maximize Cost Savings By Deborah Catalano Ruriani Tags Transportation watchfulness Transloading offers a cost-effective way to bring ocean containers inland to statistical distribution malls.By transferring loading without sorting the contents for shipment to a single destination, transloading services can reduce total landed costs, and when combined with value-added services much(prenominal)(prenominal) as palletizing and shrink-wrapping reduce handling at the destination. Jeff McCorstin, senior vice electric chair of air and ocean products for UPS Global Freight Forwarding, offers these tips for maximizing savings with transloading services. 1 . Understand general transloading rules. Transloading offers the greatest cost savings when ocean containers can be consolidated into fewer, larger home(prenominal) trailers. The cargo in trine 40-foot ocean containers typically fits into two 53-foot domestic trailers. . Ensure o verall transportation savings outweigh additional handling costs. Sometimes the savings are negated for destinations located farther east from the U. S. West Coast discharge port. 3. press palletizing cargo during transloading. To best use space in ocean containers, cargo is rarely palletized at the point of origin. Palletize during the ransloading process to improve distribution center (DC) handling efficiency. 4. Factor transloading into transit time estimates. Unloading, handling, and reloading ocean container cargo adept the port of discharge takes time. Allow up to three days to operate customer delivery commitments are met. 5.Ensure your cargo fits the bill. Transload operators charge additional fees for containers with more than a certain number of cartons. The additional costs for containers with several pace small cartons could offset any transportation savings. 6. Ensure handling tractableness by making Customs entry at the port. While it is a common practice to clear ocean containers at their tinal inland destinations, it is better to make entry at the port ot discharge. This ensures maximum flexibility in handling cargo, and eliminates the need to move the shipment in-bond, saving additional costs. 7. Increase supply chain efficiency with merge-in-transit offerings.This type of deintegration allows importers to combine products arriving in containers from varied origins/shippers by transloading near the port of arrival into domestic trailers. And if importers source from domestic supplierswho may also have product arriving via containerthis argo can be merge in transit to arrive together at the testifyd DC. 8. Use transloading to expedite delivery to final destination. Transloading near the port of discharge provides the flexibility to get out DCs and speed delivery to the end customer. The reduced DC handling charges and improved time in transit can help trim supply chain costs. 9. Avoid costly containers.Instead of shipping less-than- co ntainerload, 20-foot, or light-loaded 40-foot containers from multiple overseas vendors to your inland DC, ship fully loaded/optimized containers to a single container freight station near the port of discharge. From there, they can be transloaded, merged in transit with other inbound cargo, and shipped to the final destination using the transport mode that best fits the importers needs. 10. Set up transloading programs in advance. Having your service provider involved in coordinating with the origin forwarder translates into better service levels and reliability. pliant Structure Flexible operations are preplanned contingency strategies to prevent logistic failures.A typical emergency occurs when an assigned shipping facility is out of stock or for some other reason cannot complete a customers order. For example, a warehouse may be out of an item with no renewal inventory scheduled to arrive until after the customers specified order delivery date. To prevent back- ordering or de livery cancellation, a contingency operating(a) policy may assign the total order, or at least those items not forthcoming, for shipment from an alternative warehouse. The use of tractile operations is typically based on the importance of meeting the needs of a specific customer or the critical nature of the product being ordered.A elastic logistics capability that has gained popularity as a result of mproved communications involves procedures for serving predetermined situations as part of the basic logistic strategy. The flexible logistics rule and decision scenarios specify alternative ways to meet specific service requirements, such(prenominal) as assignment of the order to different shipping facilities or changing systems of delivery. A strategy that utilizes flexible operations is common practice in four different situations. First, the customer designated delivery facility might be near a point of equal logistics cost or equal delivery time from two different logistics facilities. Customers located at such points offer the supplying firm an probability to fully utilize available inventory and logistic capacity.Orders can be serviced from the facility having the best inventory position or the available transportation capacity to achieve seasonably delivery. This form of flexible logistics offers a way to fully utilize system capacity by balancing workloads between facilities while protecting customer service commitments. The benefit is operating efficiency, which is transparent to the customer, who experiences no service deterioration. A second situation Justitying lexible distribution is when the size of a customers order creates an opportunity to improve logistical efficiency if serviced through an alternative channel arrangement. For example, the lowest-total-cost method to provide small shipment delivery may be through a distributor.In contrast, larger shipments may have the lowest total logistical cost when shipped factory direct to custom ers. Provided that alternative methods of shipment meet customer delivery expectations, total logistical cost may be reduced by implementing flexible policies. A third type of flexible operation may result from a selective inventory stocking strategy. The cost and hazard associated with stocking inventory require careful analysis to determine which items and how much to place in each warehouse. With replacement parts, a common strategy mentioned previous is to stock selected items in specific warehouses with the total line being stocked with only at a central facility.In general-merchandise retailing, a store or distribution center located in a small partnership may stock only a limited or limit version of a firms total line. When customers desire nonstocked items, orders must be satisfied from an alternative facility. The term master facilities is ften used to describe inventory strategies that designate larger facilities for backup support of smaller restricted facilities. Sel ective inventory stocking by echelon level is a common strategy used to reduce overall inventory risk. The reasons for selective stocking range from low product profit contribution to high per-unit cost of inventory maintenance.One way to operationalize a fine-line inventory classification strategy is to differentiate stocking policy by system echelons. In situations following such classified stocking strategies, it may be necessary to obtain advanced customer approval for split-order delivery. However, in some situations firms that use tell apart inventory stocking strategies are able to consolidate customer orders while intransit for same-time delivery, thereby making the arrangement customer transparent. The fourth type of flexible operations results from agreements between firms to move selected shipments outside the established echeloned or direct logistics arrangements.Two redundant arrangements gaining popularity are flow through cross- enters and service supplier arrangeme nts. A cross-dock operation involves shipments from multiple suppliers arriving at a designated time at the handling facility. Inventory receipts are sorted by destination across the dock and consolidated into outbound trailers for direct delivery. Cross-dock operations are growing in popularity in the retail intentness for building store-specific assortments and are common methods of perpetual inventory replenishment for mass merchants. Cross-docking of merchandise direct from manufacture to a customers retail store eliminates the work and cost associated with utilizing distribution warehouses.Another form of flexible operations is to use integrated service providers to consolidate products for delivery. This is similar to consolidation for ransportation purposes discussed in the previous section of this chapter. However, as a form of flexible logistics, specialists are used to avoid storage and handling of slow-moving products through the mainstream of the echeloned logistics st ructure. Such service providers can also provide important value-added services. For example, Starbucks burnt umber Company has a long standing alliance with OHL, a logistics service provider. Starbucks has approximately 17,000 company-owned and licensed retail outlets.O L provides logistical support to Starbucks by ottering the typical range of 3PL services plus technology support. This operating relationship has existed for over a decade. Figure 2. 5 introduces flexibility to the logistical operating structures previously illustrated. A prerequisite to effective flexible operations is the use of information technology to monitor inventory status throughout the logistical network and provide the capability to rapidly switch methods for servicing customer orders. The use of flexible operations in emergency situations has a well-established track record. The overall improvement in information technology is resulting in flexible operations becoming an increasingly important part of basic logistics trategy.Cutting be From Your Logistics Budget Tags Supply Chain Management If you want to reduce logistics costs, you have to take the time to review your processes. Nathan Pieri, senior vice president of market and product management for Rutherford, N. J. -based Management Dynamics, offers these tips for trimming your logistics budget. 10 tips for reducing supply chain logistics costs Aug. 9, 2005 Berme Hart EMAIL Tweet Comments O As companies continue to manufacture and source materials from overseas, controlling costs remains a top priority for those involved in international trade. One ey factor that should be monitored more closely is logistics management, which covers all activities relating to the procurement, transport, transshipment and storage of goods.Depending on the industry sector, supply chain logistics costs account from 5% to 50% of a products total landed cost. Some issues effecting logistics costs Fuel prices remain high and ports continue to exp erience delays, resulting in higher transportation fees. Increasingly thickening international trade laws and security measurements threaten to lengthen delivery times and increase warehousing costs. According to a recent report by TechnologyEvaluation. om, a typical air-freight shipment takes eight to twelve days. Of this, the cargo is en route only 5% of the time. The rest is spent sitting in warehouses waiting for the required documents and compliance checks.Following are 10 Tips on reducing Supply Chain Logistics Costs 1 that domestic buy may look a lot better. Sourcing from Ohio to your U. S. plant, distribution center or customer may, in the long run, be more cost effective than sourcing from China. Taritt engineering. strategically source and manutacture products to take advantage of classification duty rates and eligibility for special trade programs such s NAFTA. 4. Consolidate. If you have multiple suppliers in one country, consolidate their goods into one shipment. In a ddition, if you always have LCL (less than container load) shipments out of one country, try to find another LCL importer of goods from that country.You may be able to partner and consolidate to a more cost-effective FCL (full container load) shipment. 5.. 6. Sometimes insurance doesnt pay. oftentimes when a company has a shipment of premium goods they tend to use the Carriers Insurance. Carriers Insurance is very expensive. If the company is self insured, which most companies are, they should heck their insurance policy to see if it covers shipment of goods. If it does, then they do not need to add the extra cost of Carriers Insurance. 7. Automate compliance processes. Companies that implement software solutions to automate trade compliance are able to speed the cycle times associated with tasks being performed manually, such as document preparation, and eliminate the associated errors.Automated compliance procedures also bring fewer delays at border crossings, resulting in on-tim e delivery, adequate inventory levels, increased customer satisfaction, and the avoidance of fines. 8.. 9. Planes, trains and automobiles. Which is cheapest? In general, rail is more cost- effective than trucking or air. Water is cheaper than air shipment. No matter the mode of delivery, always try to get three quotes for movements. 10. Be aware of non-tariff trade barriers. Companies need to be more aware of the increasing level of non-tariff trade barriers that are in force to reduce sweat shop labor and support human rights and animal welfare issues. These restrictions can bring importers increased liability and compliance costs.