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How to Optimize your Logistics Cost
65% of C-suite executives report that optimizing supply chain and manufacturing costs are a top priority. Here are 5 ways to do it.
Ian Leaman
Aug 26, 2024
In a recent BCG survey, 65% of C-suite executives reported that optimizing supply chain and manufacturing costs were very important in maintaining a competitive advantage, and now more than ever, executives are looking for opportunities to cut costs without reducing the quality of their product and/or service. One of the best way to do this is to audit logistic costs.
Effective logistics optimization can prevent scenarios where companies lose money on each unit sold, instead maximizing profitability and operational efficiency.
The first step in any cost-cutting endeavor is diligently examining expenses and identifying areas where savings can be made without sacrificing the overall quality of the product and/or final customer experience. By identifying cost-saving areas such as cargo optimization, MOQs, labor expenses and more, companies can save money and add to bottom-line growth.
Below are 5 areas for cost-savings that companies can explore.
1. Cargo Optimization
For smaller shipments that don’t require an entire container and range between 150 - 15,000 pounds, less-than-truckload (LTL) shipping is a great choice since it’s cheaper than full truckload shipping. Additionally, LTL shipping has a hub-and-spoke model meaning it has an expansive network that covers a wide geographic area. This extensive reach lets businesses reach customers or suppliers in remote or hard-to-reach locations without requiring a full truckload shipment.
2. Minimum Order Quantities
Minimum Order Quantities, commonly referred to as MOQ’s, represent the smallest number of units that can be purchased from a supplier. Each supplier determines the MOQ through their own method and accounts for production and overhead costs (i.e., transportation, holding, handling and labor costs) to ensure they make a sales profit.
If a supplier has a high MOQ, businesses may be forced to fork over more money; however, there are clear benefits to high MOQ’s that include less exposure to potential supply chain issues and inventory stockouts. Low MOQ’s may be better for a cash-strapped business that faces unpredictable cycles of demand but it leaves businesses vulnerable to stockouts and frequent reordering.
Businesses should always conduct inventory forecasting before submitting a PO with a supplier.
3. Order Automation
For any large volume operation the constant flow of PO’s from various trade partners can be overwhelming and time-consuming. Typically, businesses hire teams to manually manage these POs and input the data; however, manual data entry is error-prone and lacks efficiency, and the costs eventually start to add up. AI can assist with this process and completely eliminate the need for teams to spend hours and hours into processing each PO.
Automation solutions like Pantry AI can instantly convert emailed sales orders and invoices into EDI-like digital transactions, ensuring fast and accurate processing. Whether you’re a brand or a major distributor, Pantry AI can help you with order automation.
4. Cost per Pallet
Pallets range in pricing and reducing the cost per pallet without sacrificing quality is important - especially since broken pallets can translate into broken products. Materials are one of the main factors that affect pallet pricing (i.e., wood or plastic.) Another factor that affects pallet pricing is the number of pallets purchased. Purchasing in bulk may be better for the bottom line; however, if the pallets are going to sit idle in a warehouse they can start eating up costs.
The best way to reduce the cost per pallet is to diligently forecast inventory and select materials that will ensure the product arrives safely to its final destination.
5. Shipping Lanes
Shipping Lanes are set routes, like the Panama Canal, that ships and other vessels (i.e., trucks, planes, rail, etc.) use to transport products from Point A to Point B. Finding the most efficient and reliable shipping lane is essential for any successful business, and the cost of shipping lanes can fluctuate depending on several factors including vessel requirements, economic conditions, cargo type, and more.
Businesses can find more affordable shipping lanes by using a freight broker to get several quotes and investigating different methods of shipping. For example, sea shipping is typically the most cost effective shipping method whereas air freight is more expensive.
Looking Ahead
By focusing on logistics cost optimization, you're not just cutting expenses – you're positioning your business for greater efficiency, improved customer satisfaction, and ultimately, increased profitability.
Start optimizing your logistics cost today by integrating with Pantry AI.
Want to learn how Pantry AI can help you with your B2B Commerce Operations? Book a Demo here.