Controlling logistics costs is a major challenge for all e-commerce professionals. In this article, discover all the levers you can activate to achieve maximum savings on your logistics: order preparation, storage, transport, administration, and much more.
For e-tailers, logistics costs represent a significant proportion of their business expenses. Indeed, the cost of transport, product storage, order preparation and logistics outsourcing (in the case of delegation to a logistics provider, supplier or fulfillment platform) can rapidly impact their profit margin. To remain competitive in a constantly evolving market, e-tailers need to be able to control and optimize these costs.
In this article, we’ll introduce you to a number of strategies designed to reduce and optimize your company’s logistics costs. Whether you’re a small entrepreneur or a large company, we’ll give you the keys to reducing your logistics costs and thus improving your profitability.
Definition: what are logistics costs?
Logistics costs represent all the expenses generated by the management of the various flows in the supply chain, from the production of raw materials to the consumption of the product by the end customer.
To optimize these logistics costs, it’s essential to be aware of the various expense items associated with them. Here are the main logistics costs to consider:
Transportation costs
Logistics costs include transport costs. These represent the expenses incurred in moving goods from suppliers to end customers.
These transport costs can be significant for e-tailers, as they represent a significant proportion of total supply chain costs. In fact, transport costs account for 70% of logistics costs. They are therefore costly, especially for companies operating on a national or international scale. What’s more, transport costs can be affected by factors such as fluctuating fuel costs, customs tariffs and vehicle maintenance costs.
Storage costs
Warehousing costs are also an important part of a company’s logistics chain. They cover all costs associated with managing the warehouse or, more generally, the storage site.
These can be divided into several categories:
- Rental costs: of storage space, whether owned or rented from an external service provider.
- Depreciation costs: these correspond to the cost of acquiring or building a warehouse, and are spread over a given period.
- Insurance costs: it is imperative to take out insurance to cover the risks associated with stored goods.
- Taxes on space: property tax, council tax, business premises tax, etc. also represent a significant cost for companies.
Warehouse location can also influence storage costs, particularly in terms of proximity to distribution centers and modes of transport.
Order picking costs
Order-picking costs are also an important element of logistics costs for e-tailers. They include the costs associated with order management and parcel preparation prior to shipment.
Order management includes checking incoming orders, identifying products to be prepared, checking stock availability, verifying delivery addresses and preparing shipping labels. All these processes have a cost in terms of time and resources.
On the other hand, parcel preparation includes product collection, packaging, labeling and packing into cartons or envelopes. Additional costs may also arise when it is necessary to provide additional packaging materials to protect products during transport, or for example, when mechanization is used to increase productivity.
Order-picking costs can be significant for e-tailers, especially when handling high volumes of orders. Labor, packaging and supply costs can quickly add up, impacting profits.
Administrative costs
Administrative costs are another important consideration. These include the costs of processing shipping documents, invoicing and customs.
Transport document processing involves the creation of invoices, waybills and other documents essential for tracking shipments and paying carriers. Processing these documents can be tedious and time-consuming, which can lead to additional costs for companies.
Invoicing, on the other hand, involves creating and sending invoices to customers for products sold. Invoice management can also take up additional time and resources, especially if invoices are sent manually.
Finally, customs costs can be substantial for companies shipping products abroad. These costs can include customs duties, taxes and brokerage fees, plus the time required to process all customs formalities.
Outsourcing costs
Outsourcing certain logistics tasks such as transport, storage or order picking can offer financial benefits to e-tailers by avoiding major investments in equipment and infrastructure. However, it’s important to choose logistics providers carefully and negotiate contracts to ensure that costs remain under control. Service providers’ rates can vary considerably, and it’s important to study the offers carefully before making your choice.
On the other hand, it is important to note that outsourcing can also generate additional costs, such as the cost of managing relationships with service providers. In addition, outsourcing can have an impact on service quality and customer satisfaction. Every e-merchant must therefore carefully assess whether outsourcing logistics is beneficial for their business, taking into account their products, their specific needs and the total costs associated with outsourcing. In the event of outsourcing, it is crucial to choose reliable service providers and put in place monitoring and control processes to ensure that everything runs smoothly.
E-commerce logistics costs
In e-commerce, logistics represent a central pillar of the business, directly influencing overall company performance. Understanding and effectively managing logistics costs is therefore essential to ensure the profitability and growth of your online business.
Stored and transported goods are exposed to a variety of risks, including damage, theft and natural disasters. Taking out transport insurance and complementary cover such as Ad valorem insurance, which protects goods at their actual value, is a prudent strategy for mitigating these risks. Although it adds an additional cost, insurance can prevent significant financial losses in the event of a claim.
What’s more, you’ll have additional costs linked to your website and potentially to your marketplaces if you’ve decided to diversify your sales channels.
Why minimize a company’s logistics costs?
Minimizing logistics costs is vital for any company seeking to optimize profitability while maintaining, or even improving, the quality of service offered to its customers. By fine-tuning logistics management, you directly reduce the pressure on your finances, increasing your ability to absorb and adapt to market fluctuations.
Efficient logistics management has a positive impact on several crucial aspects of your business. It improves purchasing management by enabling you to effectively compare supplier prices and select the best options in terms of cost and quality. This helps you avoid overspending, while ensuring the acquisition of quality raw materials for your products.
When it comes to inventory, a well-designed logistics strategy reduces costs by precisely balancing available stock, avoiding both costly overstocking and stock-outs that can lead to lost sales and customers. This optimized management translates into substantial savings and smoother operations.
When it comes to order picking, adopting intelligent logistics methods means choosing packaging solutions that are both economical and efficient, thus reducing material expenditure and improving the shipping process.
The logistics function also has a significant influence on transport and delivery management. By streamlining routes and choosing the most efficient delivery methods, companies can make substantial savings while meeting delivery deadlines, thus ensuring customer satisfaction and loyalty.
In short, integrating optimal logistics management at the heart of your business strategy does more than just reduce costs. It creates a more agile and responsive supply chain, improves operational efficiency, and delivers a sustainable competitive advantage in the marketplace, while promoting a better customer experience. Ultimately, these improvements contribute to an increase in sales and a strengthening of your company’s profitability.
How do you measure logistics costs?
To manage your logistics costs effectively, you first need to measure them accurately. This involves analyzing all costs associated with the supply chain, including transport, storage, order picking and administrative costs. Use tracking tools and warehouse management software to obtain real-time data on these costs. Analyze this data regularly to identify trends and anomalies, and use it to make informed decisions on how to reduce costs.
How to optimize logistics costs?
Inventory optimization
Inventory optimization is one of the key strategies for reducing your logistics costs. This strategy involves finding the optimum balance between stock levels and actual demand, in order to minimize storage, procurement and transport costs.
To achieve this, a number of processes can be put in place, such as setting up an efficient inventory management system to monitor stock levels in real time and identify overstocked or out-of-stock products. Accurate and regular demand forecasts are also essential to better anticipate stocking requirements.
In addition, it is crucial to implement optimized procurement processes, ensuring that orders are placed sufficiently in advance to avoid the costs associated with rush orders or overproduction, and choosing reliable, efficient suppliers.
Properly implemented, this strategy is formidable when it comes to optimizing logistics costs, since it minimizes storage costs, procurement costs and transport costs associated with shipments of surplus products. It also reduces the risk of stock-outs, which can lead to additional costs in terms of urgent restocking or loss of customers.
Transport optimization
When it comes to optimizing logistics costs, it’s important to adopt effective strategies for optimizing transport. One strategy is to use automated carrier allocation software, also known as “transport mapping”. This software optimizes the choice of carriers according to availability, proximity and cost, while taking into account the specific features of each delivery.
Another strategy is to use freight forwarders. Freight forwarders are professionals who specialize in managing and organizing the transportation of goods. They purchase large volumes of transportation services from several carriers and resell them at competitive rates to merchants. This strategy enables companies to benefit from advantageous rates on transport services, without having to negotiate directly with the carriers.
In addition, freight forwarders can help companies identify the best transport options for their needs, while providing solutions for tracking and tracing deliveries. This solution enables companies to optimize logistics costs, while benefiting from quality service.
Use of technological solutions
Optimizing logistics costs using technological solutions is an effective strategy for companies seeking to improve their profitability and competitiveness. This strategy involves integrating technological tools into logistics processes to automate and streamline operations, reduce errors and cut costs, while boosting productivity and service quality.
Technological solutions include three major software building blocks: OMS for omnichannel order management, WMS for warehouse automation, and TMS for order transport management.
Contract renegotiation
Contract renegotiation is a strategy that can be adopted as part of logistics cost optimization. It involves renegotiating the terms of a contract with suppliers, carriers or other service providers to obtain more advantageous rates.
This strategy can be implemented when transport or storage costs increase significantly, or when the terms of a contract are no longer advantageous to the company.
Firstly, it can enable the company to benefit from more competitive rates, which translates into direct savings on transport or storage costs.
Renegotiating contracts can also help optimize delivery times and service provider performance. This can result in greater operational efficiency and a reduction in indirect costs such as labor.
Finally, renegotiating contracts can also provide an opportunity to reassess relationships with suppliers or service providers, and develop stronger, more durable partnerships. This can result in long-term benefits such as continuous improvements in service quality and more stable long-term costs.
Digitalization and intelligent data management
The digitization of logistics processes paves the way for more agile and responsive management. The use of integrated logistics platforms not only simplifies operations management, but also enables real-time performance analysis. This encompasses everything from inventory management to order preparation and final delivery.
The key to success lies in data intelligence. By collecting, analyzing and interpreting data, we can identify operational inefficiencies and make evidence-based decisions to rectify them. The insights gained can reveal opportunities to optimize delivery routes, reduce lead times and minimize returns.
Implement sustainable logistics
Finally, integrating sustainability principles into logistics strategies represents not only an ethical imperative, but also a lever for cost optimization. Initiatives such as reducing the carbon footprint of logistics operations, optimizing packaging to minimize waste, and investing in energy-efficient vehicle fleets can lead to substantial savings while reinforcing corporate social responsibility.
In short, controlling logistics costs in today’s environment requires a holistic approach that integrates technology, data analysis, flexibility and sustainability. By adopting these innovative strategies, companies can not only reduce their logistics costs, but also improve their competitiveness and brand image in the global marketplace.
Ideas for optimizing your logistics costs
In conclusion, logistics costs can rapidly impact e-tailers’ profit margins. It is therefore essential for them to control and optimize these costs in order to maintain their company’s competitiveness. In this article, we’ve looked at the various expense items linked to logistics costs and how to reduce them. We strongly recommend automating logistics processes, as well as working in collaboration with suppliers, carriers and other partners. Finally, planning and analyzing your actions is also essential.
Find out more about the subject and the 5 levers to activate to reduce your transport costs by watching the replay of our webinar below!
