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A guide to reducing logistics costs
Issue 5: Logistics
Logistics is a critical function in any business. It directly impacts
business development, customer service, sales and market share
- above all, a company’s reputation.
It is not just about getting goods from A to B. It includes tips and advice on the
Speed to market, ever-increasing customer following areas:
delivery demands, fuel costs, inventory held
in the supply chain, heightened cost • International Freight – how to best
competition, product customisation, manage your air, rail and ocean freight
overseas manufacturing, fluctuating operators
exchange rates are all critical considerations
for users of logistics services as they impact • Parcel Distribution – how to best align
on business performance and ultimately with your distribution partner
• Warehousing and Order Fulfilment – how
This guide – the fifth in our series looking at to best select your partner and ensure
different areas of cost reduction - aims to value for money
provide a range of practical advice from
experts in the field to help ensure your • Fleet Costs – how to reduce your road
business manages its logistics costs transport costs
effectively and efficiently.
With many well-known brands now supplied from the Far East
and India for sale in the UK high streets, ocean freight has seen a
massive increase in demand. Consequently, these market forces
have resulted in a doubling of shipping costs during 2009.
None the less, expert Kevin Fryer says there Tips to control costs:
is evidence that companies are benefitting
from monitoring rates and building 1 Ensure you have the best relationship
relationships within the market, resulting possible with your ocean freight
in suppliers remaining market competitive carrier/agent.
relative to volumes of business placed.
Rates appear to have stabilised and looking 2 Appoint a carrier/agent with its own
forward, should remain at present levels representation in each country of origin.
until at least the third quarter of this year.
3 Challenge rates and surcharges regularly,
and ensure your carrier/agent provides
you with rates in advance of shipment.
4 Get explanations for each and every
5 Do not accept quay rent or demurrage
charges without explanation.
International Freight 03
During the past two to three years, in and outbound road freight
transport has remained very competitive and fairly stable. Carriers
have tended to regulate their prices by the use of fuel surcharges
and even currency surcharges. Kevin Fryer says companies need
to query and understand the basis for fuel surcharge increases
and always use well-known and published indices as the basis
Most reputable carriers will offer such Tips to control costs:
indices as the basis for fuel surcharge
adjustment and not an excuse to 1 Ensure you have a rate tariff that lists all
increase margin. the service options your firm requires.
2 Become familiar with fuel price indices
and understand the basis your carrier
uses for fuel surcharges.
3 Ensure your carrier is doing everything
possible to consolidate loads with the
consequent pricing benefits.
4 Maintain a close scrutiny of service
levels to ensure you do not pay more
for a lesser service.
04 International Freight
Air freight is a specialist but thriving market and widely used,
even though costs are substantially higher than alternatives.
Time is usually the deciding factor that forces companies to
use this international freight option.
Whilst air freight rates have been relatively Tips to control costs:
stable for the last 12 months, Kevin Fryer
says 2010 has witnessed a massive hike in 1 Assess forecast usage and negotiate rates
the airline fuel surcharge. based on forecast levels.
2 Understand all the aspects of costs that
are included in air freight rates, and
negotiate each aspect with your selected
3 Grasp all the aspects of costs incurred in
the UK. This is often misunderstood and
where carriers can take advantage and
increase margin easily.
International Freight 05
Selecting your parcel carrier(s) is no easy task, and poor alignment
with your distribution partner(s) can cost you dearly.
The current economic climate not only 1 Understand your traffic proﬁle:
highlights the need for cost and purchase Carriers vary on their core business
management but also the immediate strategy. Some charge per consignment
requirement for contingency. What would while others charge per parcel. By
happen to your business if its current parcel conducting a full analysis of your
carrier went bust? shipments, you can identify the
following, which will help you to
Expert Charles Reid says it’s essential to best select your carrier:
know alternative suppliers. That means o number of parcels per consignments
doing your homework. shipped
o average weight per consignment
o size of packages
o geographical spread of deliveries
o business-to-consumer or business-to-
06 Parcel Distribution
2 Research the market: 5 Look out for additional charges:
Carriers differ from a charged cost base Re-delivery charges, ‘no-one to receive’
and service offerings. Identify the best charges…be aware that additional charges
carriers for your business needs. Poor exist. Ask carriers about all of their
carrier selection could cost you dearly. charges in advance, and negotiate the
price per charge.
3 Compare the market:
Run a full market exercise and compare 6 Look for customer service technologies:
like for like. This will help you select the As a means to improve customer service,
right carrier at the right cost. some carriers are investing heavily in
software that provides parcel-tracking
4 Beware of fuel surcharges: information. ‘Proof of Delivery’ and
The price per litre has just reached an all ‘delivery window’ notifications are now a
time high of 120p per litre. Some carriers reality. Select a carrier that’s investing in
will use this as an opportunity to increase technologies that directly help you.
margins. Be prepared and specific when
negotiating fuel surcharges.
Parcel Distribution 07
Entrusting your product to an external provider should not
be taken lightly. Its ability to store and care for your product
and prepare it for despatch to your customer is not only costly
but key to your business success. Select your partner wisely
and ensure you are getting value for money, says expert
1 Decide what you actually need: 2 What to outsource:
Carefully consider your true requirements. Professional logistics providers can offer
Yes, you need the basic functionality of a more than storage and order fulfilment.
secure, environmentally sound and They can undertake other supply chain
professionally run operation. However, functions on your behalf such as order
do you need a state of the art building processing and stock replenishment.
(will you be taking clients there)? Do you There is a cost to this, but it may be more
need instant on-line access to stock cost-effective than your in-house
figures or order status? These come with operations and may free you to
a cost, which may not be necessary to concentrate on your core business.
08 Warehousing and Order Fulﬁlment
3 The tender process: 5 Contractual issues:
When going out to tender, ensure the Warehousing has a high fixed cost
supplier has as much information as element. Ensure you have not committed
possible about your current and future to any long term liabilities should your
business. Detailed product, stock and business requirements change.
order profiles, down to line item enables Contractual performance targets should
potential suppliers to accurately model also be incorporated with the right to
and cost the operation with few terminate should they not be met.
4 Get below the surface:
Always visit a prospective supplier. View
the operation. Is it clean and tidy with
care in housekeeping? Is the building
secure and watertight? Do they have long
serving staff? Are the employees working
in an orderly fashion? Interrogate their
processes. Warehousing is a relatively
simple but high volume activity. It is very
easy for things to get out of control,
especially at peak periods, if the
necessary processes and controls are not
in place and rigorously adhered to.
Warehousing and Order Fulﬁlment 09
With world oil prices set to rise continually, and the Government’s
ongoing determination to levy tax increases on transport fuels,
fuel now represents typically 35% of a road transport operator’s
costs. However, according to expert Ken Rogers, there are small
savings to be gained that when combined together, have
1 Review the market: Avoid situations where additional vehicles
When buying fuel, look to see what is are unnecessarily required to deliver your
happening in the local market. Typically, fuel requirements or where you buy more
hauliers ring around their local suppliers to volume to get a lower price only to see this
establish the lowest price. However, in eradicated by inefficient transportation.
time, the local market will soon establish Know the different size vehicles: 36,000,
the levels above wholesale prices where 23,500, 18,500, 17,500 and 10,000 litres.
you are buying. This means you will not
continue to get the best deals. Ask your 3 Fuel on the go:
local peers what they pay. Review extra charges paid when drawing
fuel on the road. Savings in fuel costs can
2 Fuel distribution: soon be lost in administrative fees, card
When it comes to distributing fuel, the charges, handling fees, etc.
biggest cost is UK terminals to end user
transport. Therefore, transport providers 4 Professional driver training:
(who buy in bulk) need to ensure they Look to engage with professional trainers
practice what they preach by ensuring to ensure your drivers follow best practice
their suppliers are proactive in suggesting and follow up with ongoing monitoring
an optimum load delivery size. programmes.
10 Fleet Costs
What else? Expense Reduction Analysts is a global leader
in cost and purchase management consultancy
There are other areas in which transport and focuses on reducing non-core operating
providers can secure cost savings such as costs for private, not-for-profit and public
the purchase of tyres. Manufacturers are sector organisations.
keen to promote the longevity of their
products and the positive impact they have Handling an annual supplier spend of millions
on fuel consumption. of pounds on behalf of clients in all sectors, the
consultants at Expense Reduction Analysts use
Hold them to these claims and agree, as their significant purchasing influence to
part of any tyre contract, mileage achieve optimum value from suppliers, often
guarantees and a credit if these guarantees successfully retaining incumbents and using
are not met. Also, get the supplier involved expert analysis and market intelligence to
as they know the best tyres for different combat ‘contract fatigue’.
applications. This will ensure operators
get the best tyre life. Expense Reduction Analysts has 170
consultants across the UK. It also has a
global influence in more than 35 countries
specialising in more than 100 non-core
business expenditure categories.
Other topics covered in our series of cost
reduction guides include:
Issue 1: Property and Premises
Issue 2: Banking and Finance
Issue 3: Back Office Supplies
Issue 4: Professional Services
For more information, contact
Expense Reduction Analysts
on: 02380 829 737
or visit our website at: 11
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