10 tips for reduc­ing sup­ply chain logis­tics costs

10 tips for reduc­ing sup­ply chain logis­tics costs

As com­pa­nies con­tinue to man­u­fac­ture and source mate­ri­als from over­seas, con­trol­ling costs remains a top pri­or­ity for those involved in inter­na­tional trade. One key 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 product’s total landed cost.

Some issues effect­ing logis­tics costs: Fuel prices remain high and ports con­tinue to expe­ri­ence delays, result­ing in higher trans­porta­tion fees. Increas­ingly com­plex inter­na­tional trade laws and secu­rity mea­sure­ments threaten to lengthen deliv­ery times and increase ware­hous­ing costs. Accord­ing to a recent report by Tech​nol​o​gyE​val​u​a​tion​.com, 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. Under­stand the true costs of sourc­ing over­seas. Cal­cu­late freight, duty, bro­ker­age, and inven­tory car­ry­ing costs to sup­port these length­ened sup­ply chains. Also fac­tor in such items as the costs of engi­neers fly­ing over­seas. Once you under­stand the true total landed cost and total impact to the busi­ness, 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.

2. 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, build­ing buffers of inven­tory, or order­ing more often and more quan­tity than nec­es­sary to com­pen­sate for the uncer­tainty. Under­stand­ing these dynam­ics can lead to the con­clu­sion that pay­ing higher freight costs to insure higher vari­abil­ity actu­ally saves your com­pany in total costs.

3. Tar­iff engi­neer­ing. Strate­gi­cally source and man­u­fac­ture prod­ucts to take advan­tage of clas­si­fi­ca­tion duty rates and eli­gi­bil­ity for spe­cial trade pro­grams such as NAFTA.

4. Con­sol­i­date. If you have mul­ti­ple sup­pli­ers in one coun­try, con­sol­i­date their goods into one ship­ment. In addi­tion, 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. Informed decision-​making. Pro­vide to the decision-​makers/​customers of your logis­tics net­work the cost of freight for each ser­vice level, the reli­a­bil­ity of each lane for each ser­vice level, and the true cost of car­ry­ing inven­tory so they can make informed deci­sions. Peo­ple gen­er­ally want to be good cor­po­rate cit­i­zens and will select the less expen­sive option that still meets their needs.

6. Some­times insur­ance doesn’t pay. Often when a com­pany has a ship­ment of pre­mium goods they tend to use the Carrier’s Insur­ance. Car­ri­ers Insur­ance is very expen­sive. If the com­pany is self insured, which most com­pa­nies are, they should check 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 Carrier’s 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-​time deliv­ery, ade­quate inven­tory lev­els, increased cus­tomer sat­is­fac­tion, and the avoid­ance of fines.

8. Con­trol your express ship­ping costs. Typ­i­cally when a com­pany runs into a sup­ply chain issue, it will have an entire ship­ment sent on an express/​expedited (high­est cost) ser­vice level basis. Pan­ick­ing often results 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 have that amount sent using express/​expedited ser­vice level, while the bal­ance of the ship­ment can be sent using a stan­dard (lower cost) ser­vice level.

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.