How to reduce supply chain logistics costs
Controlling costs is one of the key factors for those involved in international trade. One important ingredient of total cost is the supply chain logistics costs which accounts for 5% to 50% of a product’s total landed cost. Logistics management covers all activities relating to the procurement, transport, transshipment and storage of goods. There are various reasons which contribute to high logistics costs. Some of them are high fuel prices, port delays, complex international trade laws, increasing warehouse costs and so on.
However, following certain steps one can cut down these costs to some extent:
1. Asctertain which area is costing more: Calculate freight, duty, brokerage, and inventory carrying costs involved in your supply chain. Once you understand the true total landed cost and total impact to the business, that domestic buy may look a lot better. You can also opt for alternate sourcing, one you realize how much the current sourcing is costing you.
2. Keep your transit times certain because 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.
3. Consolidate your shipments to avoid LCL (less than container load). If you have multiple suppliers in one country, consolidate their goods into one shipment.
4. Tariff engineering. Strategically source and manufacture products to take advantage of classification duty rates and eligibility for special trade programs such as NAFTA.
5. Automate compliance processes 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.
6. Give out clear and precise information to your decision-makers/customers of your logistics network about 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.
7. Re-check your insurance costs and avoid the extra cost of Carrier’s Insurance if your company is self-insured and the policy covers shipment of goods.
8. Check if you really need express shipping costs because more often than not 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. In this case, you just need to do a bit of calculating to find which goods express/expedited service level, so that the balance of the shipment can be sent using a standard (lower cost) service level.
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