Many companies manufacture and source materials from outside their borders and overseas. Consequently, controlling costs remains a high priority for firms involved in global trade and international shipping. One critical factor that companies make a strategic decision to monitor more closely concerns logistic management.
Logistics covers all activities associated with the procurement transportation, cross-border shipping logistics services to and from Mexico, overseas freight shipping, transshipment and storage of goods. Depending on the industry, supply chain logistics can comprise 5 to 50% of the product’s total landed cost.
Issues affecting logistics costs
Companies consistently encounter a variety of challenges that affect logistic costs. Issues may include high fuel prices and port delays, which increase transportation fees. Transportation costs rates high on the list for most enterprises because it makes up as much as 50% of all logistic costs.
Inventory carrying costs also has a significant impact, comprising more than 21% of total costs, according to Hofstra University. Companies incur the following expenses when holding goods in inventory:
In addition, management must take under consideration labor costs, which involve the physical handling of products— receiving and processing customer orders, labeling, packaging, and customer service. Furthermore, complicated international trade laws and security concerns may also lengthen delivery times and increase warehousing expenses.
Three tips for reducing costs
There are multiple approaches firms can take to reduce their supply chain logistic costs. Here are three of the most common solutions:
1. Accurate cost of overseas sourcing
Companies who have lived in surprise supply chains must work harder to ascertain the true cost of sourcing overseas. This includes accurately calculating freight, to the, brokerage, and inventory carrying costs. Management must also factor in other such as the cost of flying personnel overseas. Gaining an accurate understanding of the true total landed cost and total impact to the operations can help you make better comparisons when it comes to domestic procurement. Sourcing from the United States to a Canadian plant, distribution center, or customer may provide a more cost-effective alternative than sourcing from Asia.
2. Cost-efficient compliance processing
Transportation companies understand the value of implementing software solutions that automates the trade compliance process. These applications speed up the cycle time for many tasks routinely performed manually, such as document preparation and evaluation. Software can also eliminate common mistakes associated with manual responsibilities, improve internal controls, and enhance overall operational efficiency. Companies that automate compliance processes experience fewer delays at border crossings, which is improve on-time delivery. Firms can also maintain adequate inventory levels, increase customer satisfaction, and avoid costly penalties and fines.
3. Minimize express shipping costs
When some companies encounter a supply-chain issue that causes a delay, many will panic and approve an express global cargo shipping solution—the highest cost service level—for the product order. Control expedited overseas freight shipping costs or other international shipping expense by calculating the amount of goods the customer requires immediately and ship only that amount at the express service level. Transport the balance of the goods using the standard service level and lower cost.