How To Reduce Transportation Costs In Logistics

 

The cost of transportation and freight movement is always a significant line item in logistics and distribution companies operating costs.

While there are several tried and trusted solutions to reduce this cost, such companies' management must take a holistic and flexible approach to the modes of transportation chosen. This, in turn, leads to maximum efficiency at the lowest possible cost.

For companies in the logistics and distribution industry, freight and transport costs will always be a key area of ​​concern. Various cost items such as fuel, vehicles, and transportation-related logistics to name a few will always face inflationary pressures as well as competitive pressures.

To reduce transportation costs, improve supply chain operations and optimize overall cost efficiencies, several steps can be taken.

These range from working with smart shipping partners that use the most modern operating methods, improving inventory planning and execution, implementing industry-leading processes, and synchronizing working relationships between the various stakeholders within the ecosystem to improve overall efficiency.

The 8 best ways to reduce transport costs in logistics

1. Use multiple modes of transport: Logistics companies need to be flexible when it comes to transport. And work closely with customers so that the appropriate mode of transport (or combinations thereof) can be used accordingly. This flexibility reduces costs (and offsets losses) with options you may not have considered before.

For example, shipping by sea is cheaper than air but takes longer. Rail transport is cheaper than road (truck) transport, but may take longer due to container reservations, scheduled departures (etc.) Another option would be intermodal transport.

Therefore, the most practical solution would be to use a combination of all of the above on a case-by-case basis.

2. Work closely with suppliers: For a logistics and distribution company, dealing with multiple stakeholders throughout the supply chain is a critical aspect of its business.

A significant portion of your time, money, and resources goes into dealing with your vendors. It is therefore very important that you develop a well-planned work plan with your suppliers; This significantly reduces operational costs.

Best practices include creating a pool of buyers to buy from a supplier (or a pool of suppliers) to leverage economies of scale. This of course reduces transport costs such as fuel, driver salaries, loading/unloading costs (etc.) as the costs are spread over a larger number of customers.

Another good strategy is to work closely with a consortium of vendors representing a cross-section of industries. Your vendors are experts in their ecosystem and provide valuable cost-cutting ideas that you can implement.

3. Use a warehousing company with a wide network: Using a warehousing company with a wide network of warehouses of the right size and location would mean that the goods would have to travel the shortest possible distance to reach their final destination.

This is a key factor in reducing transportation costs in logistics.

4. Optimize shipment sizes: By planning supply-demand and supply chain logistics correctly, you can not only optimize your inventory management but also benefit from favorable size-based prices for shipments.

Less-than-truckload (LTL) mailers are a cost-effective option for smaller mailers. Similarly, FTL (Full Truck Load) for large shipments would help you take advantage of volume rates and discounts.

5. Use an automatic loading system: Using technology to reduce labor costs and increase productivity has been a proven strategy for decades. And with modern machinery and equipment, this has reached new heights.

Today, self-loading container equipment is a crucial part of a successful warehouse operation. Advanced, high-tech machinery for loading, unloading, and moving goods within the warehouse results in much higher efficiencies and lower costs.

6. Optimize warehouse utilization and maximize storage density: Warehouses are large spaces with ample storage areas. However, every square centimeter of space is a cost factor! Therefore, distribution centers and logistics companies that own and manage these warehouses must ensure that each location is used efficiently.

Identify and eliminate unused space. Improve vertical utilization through the use of racks and bins; This not only helps forklifts to load and unload goods but also reduces damage.

Plan and implement your warehouse operations, taking into account the activities (and costs) involved, such as Labor, resource usage, inventory management (etc.).

7. Use preventative maintenance: This is all too often overlooked. Unfortunately, logistics managers face the pressures of day-to-day operations, including monthly profits and losses and cash flow.

As a result, something that is not "currently mandatory" tends to be discarded.

However, a strong preventive maintenance program has many benefits. It keeps your fleet vehicles in top condition, gets the best possible performance from your vehicles, and maximizes the lifespan of your vehicles (and often longer!).

Poor maintenance will ultimately make the fleet more expensive in the long run: Downtime during work hours impairs the performance of the company, undermines safety, causes accidents (often fatalities), and leads to inflated operating costs.

Roadside assistance is just that: it comes into play when a breakdown occurs. However, it should not replace a well-planned preventative maintenance schedule.

8. Focus on customer needs: Now, to state the obvious: the goal of all businesses is to create and keep happy customers!

In the logistics industry, everyone has the goal of To serve customers at the lowest possible price.

This means that if your operations are not optimized for efficiency and costs, you are not the first choice for your customers. If you work backward, you can only achieve the above if your operations are at the high, maximum possible level of efficiency.

Because customer satisfaction and overall cost reduction are so closely linked, logistics managers must constantly monitor their CSAT (customer satisfaction) scores. ). If they aren't satisfactory, it would indicate a lag in efficiency somewhere.

Conclusion: As is evident, numerous best practices could reduce transportation costs for today's logistics companies.

For example, using automation such as  World-class last-mile delivery software, are at the top of this list.

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