Cutting logistics costs often feels like a juggling act.
With so many areas to address and increasing pressure to save money, it’s easy to get stuck.
But here’s the good news: focusing on one critical area can deliver big results.
Let’s explore how in the video below.
Logistics costs are on the rise, and many organizations are feeling the pinch. With challenges like increasing expenses, limited resources, and sluggish sales, logistics and supply chain leaders are under pressure to cut costs. But with so many areas to address, it can be overwhelming to know where to start.
Here’s a simple method that can help you reduce your logistics costs.
The Challenge of Logistics Costs
Let’s break down the complexity of logistics costs. There are so many factors involved, from procurement and inbound shipping to warehousing, inventory management, outbound transport, and delivery. It can feel like you’re juggling too many things at once, making it difficult to know where to focus.
Instead of trying to tackle everything, I suggest narrowing your focus. After more than 30 years of consulting, I’ve found one area that consistently helps organizations reduce costs: the cost of servicing your customers—specifically looking at order size and order frequency.
The Impact of Small Orders
The majority of businesses see a bell curve in their customer orders: a few large orders, a good number of average ones, and a lot of small ones. It’s those small orders that are often the problem—they’re expensive to process and deliver. If you can increase the size of those orders or reduce their frequency, you’ll be on the path to reducing costs.
Start by analyzing your order profiles. Take a close look at the small orders and calculate how much it costs to deliver them. Then, think about how you might encourage customers to place larger orders or reduce the frequency of deliveries.
Creating Mutual Benefits with Customers
You might think customers prefer smaller, more frequent deliveries, but many are willing to adjust if it benefits them. Offering discounts for larger order sizes or fewer deliveries can incentivize customers to change their habits, which in turn reduces your logistics costs.
Getting Started
To find out whether small orders are affecting your business, try a quick self-audit. Spend a few minutes answering some simple questions, and you’ll instantly know whether small orders are driving up your costs.
Start your assessment by visiting this link: Supply Chain Profit Leak Audit
Related articles on this topic have appeared throughout our website, check them out:
- How to Improve Warehouse Layout Efficiency and Save Costs
- Energy and Labour Costs: 2 Top Warehousing Challenges
- Cost to Serve Analysis—And the Costs of Neglecting It
- 12 Smart Ways to Reduce Your Freight Costs
