How to control Logistics Operating Costs for Your Business

Logistics operating costs are an important part of a company's total expenses.

Therefore, their control and reduction can have a significant impact on profitability and competitiveness.

What are logistics operating costs?

They refer to the expenses associated with the management and administration of a company's logistics activities, whether physical or e-commerce.

These costs include all expenses necessary to carry out logistics operations, such as transportation, warehousing and inventory management.

Controlling and reducing these costs is crucial to improving profitability and efficiency in the supply chain.

Types of logistics costs

Logistics cost can be classified into several categories, which include:

Transportation costs.

These costs are related to the movement of goods and include transportation fees, fuel, tolls and vehicle maintenance.

Optimizing transportation routes with software such as SimpliRoute helps reduce these costs.

Warehousing costs

These are costs related to the maintenance and management of the warehouse. They include elements such as rent or purchase of facilities, energy, maintenance and security costs, among others.

Optimizing storage space and implementing efficient warehouse management systems can help control these costs.

Inventory costs

These are related to the ownership and maintenance of products in stock.

They include obsolescence, depreciation and financing costs associated with holding inventory.

Implementing effective inventory management strategies can help reduce this type of cost.

Order processing costs

Receiving, processing and preparing customer orders involves various expenses, such as administrative and labor costs, as well as packaging materials.

Automating and digitizing order processes can help minimize these costs.

Other costs

This can include indirect costs such as customs, duties and insurance.

Strategies to control logistics operating costs

Supply chain optimization

  • Supply chain analysis: Perform a comprehensive analysis of the supply chain. From the acquisition of raw materials to the delivery of the product to the customer, try to identify areas for improvement and opportunities to reduce costs.
  • Identifying bottlenecks: These problems generate additional costs and delays in product delivery, so identifying them is the first step to implementing effective solutions.
  • Implementation of improvements: This may include reorganizing transportation routes, re-evaluating suppliers and improving internal processes.
Automation and digitization.

The adoption of automation and digitization technologies in logistics can lead to greater efficiency, reduced errors and lower operating costs.

It also enables companies to process a higher volume of orders with less human resources and time.

You can use numerous tools and technologies to automate and digitize logistics processes, such as warehouse management systems (WMS), enterprise resource planning (ERP) and route optimization software.

Efficient inventory management

Implementing efficient inventory control methods, such as Just-In-Time (JIT), can help minimize inventory costs by ensuring that the right amount of products are kept in stock.

It is also critical to properly manage inventory turnover and establish quality control procedures, which can help reduce these costs.

Negotiating and consolidating carriers and suppliers

Choosing reliable and efficient carriers and suppliers is crucial to controlling logistics costs.

Comparing and evaluating options based on factors such as price, quality of service and adaptability can help you make informed decisions.

Data monitoring and analysis

KPIs allow you to measure the performance of logistics operations and provide valuable information for decision making.

Establishing relevant and meaningful KPIs is essential to evaluate supply chain efficiency and control operating costs.

Take the time to analyze logistics operations data to see patterns and trends that you can use to optimize processes and reduce costs.

Benefits of controlling operating costs in logistics

In business, efficiency and profitability are crucial to long-term success.

By controlling operating costs in logistics, you not only improve the profitability of your business, but also unlock a number of benefits that can drive growth and ensure a sustainable future.

Optimizing logistics processes and implementing innovative technologies can increase operational efficiency.

In doing so, you make the most of available resources and minimize costly errors.

This operational efficiency can improve your company's image with customers and partners, positioning it as a well-managed organization capable of meeting its commitments in a timely and effective manner.

At the same time, logistics operating costs have a direct impact on a company's profitability.

When you reduce unnecessary expenses and improve efficiency, you can increase profit margins and reinvest capital in growing your business.

In addition, this profitability allows you to offer more competitive prices to your customers, which can result in a more significant market share.

By controlling logistics operating costs, you are also contributing to your company's sustainability and social responsibility.

Reducing the consumption of resources, such as energy and materials, as well as minimizing waste and carbon emissions, can reduce the ecological footprint of your business.

Adopting sustainable and socially responsible logistics practices can enhance your company's reputation and attract customers and partners who value environmental and social responsibility.