Be a Logistics Superhero
In recent months, there has been a steady stream of articles bemoaning the increasing costs and challenges within the logistics industry. You hear about driver shortages, rising labor costs, lack of available real estate, oversize package regulations, increased shipping rates, and additional governmental regulations. CSCMP's annual logistics study charted a 3.1 percent increase in 2014 U.S. business logistics over the previous year, at approximately $1.45 trillion, or 8.3 percent of gross domestic product (GDP). All of these costs are very real and affect your bottom line.
However, you seldom hear about what you can do to reduce the effects of these cost pressures. Rather than simply rolling over and accepting increased costs, you can become a logistics superhero to your company by proactively addressing these cost pressures. The following are a few examples of specific steps your organization can take to reduce logistics costs.
Inventory Control/Demand Management— According to the U.S. Department of Commerce, business inventories are at all-time highs of almost $2.5 trillion. By shortening your lead times through reliance on manufacturers closer to home, postponing assembly of your final product, and using big data to model demand, you may be able to significantly reduce inventory levels.
Packaging— Is your product packaging costing you money? By reconfiguring your product and packaging, you may be able to save significant logistics costs. The CEO of Ikea is fond of saying, "We hate air." Ikea considers the logistics costs of their products as part of their redesign/design process. This has resulted in as much as a 50-percent reduction in product package size. Smaller packages generally mean lower logistics costs because you can transport and store more product using less space.
Extended Ship Times— If you offer free shipping, you may want to take a cue from Amazon, which offers a "no-rush shipping" option for their Prime customers. In return for the customer agreeing to a slower shipping method, Amazon issues a nominal credit toward a future purchase. Given the significant savings that can be derived from extending small-parcel ship times, it is a great way to reduce costs without sacrificing customer goodwill.
Become a Shipper of Choice— Everyone is aware of the effects that the new hours-of-service rules have had on driver productivity. Add to this a nearly 100-percent annual driver turnover rate, and it is amazing that freight moves at all! As a shipper, there are many things that you can do to help the situation. When a driver arrives at your facility, is the yard clearly marked so he or she knows where to go? Do you issue appointment times and adhere to them? Is freight pre-staged, or better yet, do you have a drop-and-hook program in place? Is all the paperwork in order when the driver arrives? Do you have clean restrooms available for the drivers, and ideally, a lounge with fully stocked vending machines? (This doesn't mean week-old sandwiches.) These proactive measures allow a driver to spend more time on the road, while creating a preference to pick up from your site.
Outsource to a 3PL— One word—specialize. If you aren't in the logistics business, consider outsourcing these functions to a third party. A 2015 Capgemini study found that companies that outsource their logistics functions experience an average 9-percent reduction in logistics costs, 5-percent reduction in inventory costs, and an overall 15-percent reduction in fixed logistics costs. This does not take into account the improvements in order accuracy and fill rate that generally come with a switch to a 3PL. 92 percent of shippers report that they are satisfied with their 3PL, which is not a bad record for outsourcing a key operational component.
Automation— The robots are coming! The rising cost of employees, as well as a tight labor market, makes automation a necessity in many areas. It has been estimated that since industry began widespread adoption of robots in 1993, the annual productivity gains experienced have been the equivalent of those realized from the introduction of the steam engine. Automated Guided Vehicles (AGVs) have moved from the factory floor to increasing adoption in the warehouse environment.
By taking a page from the playbook of industry-leading companies like Amazon and Ikea, you may be able to reduce your own logistics costs and become a logistics superhero.
WSI delivers tailored, integrated, end-to-end logistics and supply chain solutions designed to maximize operational efficiency, ensure reliable performance, and minimize costs. For more information, go to www.wsinc.com.