What are the costs of good logistics?

Usually valued at between 10 and 15% of a company’s turnover. Logistics costs, or at least the costs of the physical movement of products. Can differ significantly from one sector to another. But also according to the degree of sophistication of flow management. And the technological solutions adopted. Similarly, storage policies modify the final results of any analysis of physical distribution costs. According to the directions pursued.

Quick recall on the logistic

Logistics must coordinate all organizational, administrative, and management processes. To ensure that a product or service is delivered or made available to the right recipient. In the shortest possible time, in the right quantity, and at the most competitive cost.
To achieve this, logistics must therefore cover actions ranging from purchasing: supplier management. Through warehousing: stock and warehouse management, to final distribution transport: delivery.

Logistics, therefore, includes all activities designed to ensure the proper coordination between demand and supply. It manages the flow of products and materials. As well as the flow of information relating to an activity.

The logistics function occupies an increasingly important place within organizations.

Good logistics includes different costs, both external and internal.

External costs

External Costs include the costs of products purchased. That is to say the basic purchase price from the factory or sales outlet, the cost of packaging. Which will depend on the type of product, but also on the chosen mode of transport.

Particular attention will be paid to its weight and volume. Which are two essential elements as they influence freight.

But also the cost of the pre-carriage, which precedes the main transport. The cost of the export dedication. Depending on the nature of the product and foresees fixed taxation.

As well as the cost of loading operations. The cost of loading operations is broken down into multiple costs, handling, storage, documentation, loading… To this is added the cost of the main transport. Which will be determined for the organization of internal logistics, one influence: the delay.

As well as the cost of insurance, all goods intended for transport must be insured.

There is also the cost of unloading operations. It can be broken down into multiple costs, hoisting, handling, storage, documentation, etc.

There is also the cost of import customs clearance. Made up of customs duties and taxes plus various costs related to the declaration formality.

And also the cost of reverse logistics. This is a form of particular costs managed in any company that integrates a returns management activity. It generally concerns the return of packaging (containers, crates, crates…), the return of treated products….

The list of external costs of good logistics is quite long, but at least you are sure not to miss out on anything. And so you won’t be surprised when it comes to accounting.

Internal costs

Internal costs include the cost of storage and warehousing. We are talking here about the constitution and management of stocks, which are at the origin of several costs.

The production cost, which includes all expenses incurred in the manufacture of a product.

But also the cost of the vehicle fleet. When a company has its own fleet of vehicles, the management of these vehicles generates various administrative costs (vignettes, insurance, license).

The logistics mix is made up of 6 cost components

Logistics can therefore be seen as a strategic function for organizations. Indeed, it must first and foremost guarantee coherence between internal processes. Specific to the organization and market expectations. While integrating external constraints.

Logistics is of course a source of added value. It aims to implement the principles of continuous improvement in all supply chain processes. Optimization, adaptability, and robustness are watchwords for the logistics function. But it must also ensure that it has a good understanding of customer expectations and needs. Otherwise, it risks bringing value where the customer is not aware of it.

If we draw a parallel with the marketing function, logistics is also based on customer satisfaction. While the marketing mix is based on the 4 Ps (Price, Product, Promotion, and Points of Sale), the logistics mix is made up of 6 cost components:

• order processing costs
• the inherent costs of inventories
• storage costs
• production costs defined by batches
• transport costs
• customer service levels

This logistical mix makes it possible to quickly locate the levers on which logistics can and must act in order to be as efficient as possible. The comparison with marketing also makes it possible to demonstrate that for the logistics function. As well as for marketing, customer satisfaction is the source of all strategic thinking.

Finally

Over the years, logistics has become a management discipline in its own right. This is due in part to its strong potential to bring significant improvements to business processes and organizations. Improvements that translate into savings in time, costs, and resources.
However, logistics remains an area of expertise. Due to its technical nature, its rapid evolution, and its direct connection with the notions of production, information systems, and organization.

Logistics costs must be analyzed frequently. It is important to know the strong and weak points of its logistics in terms of cost. Because these points can and must be improved.

If logistics is a subject that interests you don’t hesitate to take a look at the articles in this category.

In addition, we are specialized in e-commerce so take a look at the other articles and categories on this blog. Feel free to contact us or leave a comment. We’d love to hear from you.