Logistics operations present a challenge for leaders, as they have to optimize costs while maintaining high levels of service and performance. In today’s global economy, logistical expenses can make up to 5-15% of the total overhead costs of businesses, and the increasing complexity of the global supply chain and rising transportation costs only adds to the pressure on margins
The logistics function of any business is responsible for managing the flow of goods and services from the point of origin to the point of consumption. It involves the coordination of various activities such as transportation, warehousing, and inventory management.
However, optimizing logistics operations for cost-effectiveness can be a challenging task, businesses need to ensure that their logistics operations are efficient, reliable, and cost-effective, while also meeting the needs and expectations of their customers.
While deploying expensive technology tools, hiring consultants for business process re-engineering, or deploying exotic analytics frameworks can be helpful, a more holistic approach is required to achieve the necessary cost savings. This involves a smart mix of process design and development, analytics, and enabling technology to simplify logistics networks, mitigate logistics risk, and optimize costs.
Below are some strategies for optimizing logistics operations and achieving cost-effectiveness.
1. Eliminate Costly Errors
Logistics errors regularly occur, costing organizations time and money. To avoid future errors, logistics leaders must identify the source of errors and continuously improve their shipping processes.
For example, shipments may be non-deliverable due to flawed data, or containers may collect demurrage at ports because import/export documentation isn’t complete.
One way to eliminate errors is by automating data collection and integration processes. Automation can help reduce labor costs, eliminate human error, and reduce carrier fees associated with incorrect data.
2. Maintain Visibility of Your Supply Chain
Overseeing visibility and control of your supply chain can reduce unexpected costs and improve planning through better management. With proper supply chain visibility, managers have better insights into mitigating potential issues, contributing to cost control.
For instance, businesses can use supply chain visibility tools to monitor their inventory levels and track shipments in real-time. By doing so, they can reduce inventory holding costs, avoid stockouts, identify transit delays or damage to goods respectively.
3. Optimize Transportation with Technology
Optimizing transportation is critical for cost optimization. Tracking shipments from dispatch to arrival allows you to catch problem areas in your transportation logistics. By leveraging technology and using TMS, you can implement significant strategic changes to provide visibility, and improve customer satisfaction.
A transportation management software (TMS), allows you to plan, optimize, and execute various modes of transportation, tracking carriers, increasing efficiency, reducing costs, and freeing up time to focus on other important business initiatives.
One excellent example of a TMS is Lorryz, which connects businesses with thousands of truck drivers instantly and enables optimized delivery routes, reduced costs, and minimized empty backhauls.
4. Consolidate Shipments
Shipment consolidation is not only a cost-saver but also an eco-friendly option.
According to a report by the American Transportation Research Institute, shipment consolidation reduces empty miles by 17.8%, which leads to a reduction in CO2 emissions by up to 19.1%.
Logistics leaders can align inbound and outbound transportation movements so all trucks and containers hold as much capacity as possible and can save 25% of the freight cost.
For instance, options for less-than-truckload (LTL) versus full-load shipping (FTL) should be explored.
5. Streamline Warehouse Processes
Ensuring your warehouse operates with minimal downtime is essential in avoiding unwanted costs. Business process software applications help warehouses efficiently place items in particular areas, allow the picker to find them easily, and monitor which products are entering and leaving the warehouse.
Logistics automation can help fulfillment-operations, determine suitable packaging, and the best shipping service, apply the proper postage, and route the packages to the warehouse pick-up spot to improve delivery speed.
With the right software application, the warehouse space can be maximized with fewer mistakes resulting in a more efficient operation with cost-effective logistics.
6. Go Greener
In recent years, sustainability has become a key consideration for logistics operations. Adopting sustainable practices not only benefits the environment but also helps to reduce costs and improve efficiency.
Logistics leaders can reduce fuel consumption by streamlining routes, making vehicles more aerodynamic, changing bad driver habits (like long idles), and using fuel remixes that include vegetable oil. According to a study by the World Economic Forum, optimizing transport routes can reduce greenhouse gas emissions by up to 30%.
Selecting a competitive TMS, proves to achieve these goals more effectively and easily.
Logistics managers can also reduce packaging waste by using lightweight materials or reusing packaging and working with suppliers to minimize packaging use.
By implementing these practices, logistics managers can contribute to a greener future while boosting their bottom line.
7. Utilize Advanced Analytics
By training advanced prescriptive and predictive algorithms on your existing logistics operations, you can create a simulated digital twin of your factory or your supply chain. You can then use analytics processes aimed at the areas you have determined to be the most critical for optimizing your logistics costs and use prescriptive analytics to uncover any existing areas of waste or inefficiency.
By the same token, you can use predictive analytics to run simulated scenarios of different hypothetical that might arise in your supply chain. This helps you model future changes to your supply chain logistics paradigms to let you visualize the effects of future changes.
8. Assess Risks
Finally, we’ve made it back around to the question of acceptable risk. Once you’ve got your digital twin in place, the question of assessing the risks of any given decision becomes much more straightforward.
If you’re finding that keeping a large amount of reserve stock is contributing to a high overall logistics cost, analytics processes will give you the power to run What-If scenarios on potentially leaner inventory management plans in order to see what the likely outcomes are.
Thus, you can weigh the risks against the potential cost savings, and let those considerations guide you as you make changes within your supply stream.
Optimizing logistics operations for cost-effectiveness requires a more holistic approach that involves the adoption of a smart mix of process, analytics, technology and tools, reducing waste, improving efficiency, and adopting sustainable practices.
By practicing the above strategies, logistics managers can reduce their operating costs, improve customer satisfaction, and gain a competitive advantage in the market.
Digital Freight platforms, like Lorryz, are helping to optimize logistics through advanced technology resulting in reduced costs and amplified efficiency for businesses and improving the environment by minimizing empty backhauls.
While espousing aggressive strategies and disruptive tools may require significant investment, the long-term benefits are substantial, and companies that fail to optimize their logistics operations risk falling behind their competitors.
Therefore, it is essential for logistics managers to continuously evaluate their operations and identify areas for improvement to stay ahead of the curve in today’s ever evolving complex and competitive market.