How to reduce logistics costs?

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The year 2029. Self-driving cars aren’t widespread yet, but self-driving trucks are quite common on the roads. Does it feel like you’ve already seen this somewhere? You are right, in the movie Logan and that is how the creators of the movie see our near future. This means that we have just 12 years left (maybe even less?) before we see self-driving vehicles on our roads.

In the meantime, Elon Musk is doing his best to build a capable self-driving truck. His aim is to release an 18-wheel electric Tesla truck that can deliver goods all over the continent without a driver.

The motivation is clear. An electric truck is environment friendly, the software that operates the self-driving mechanism will reduce the number of accidents, and the cost of such delivery will be generally lower.

As you can see, logistics has a great future! But what about the present? Are there opportunities to optimize processes and reduce logistics costs? Definitely! If you are curious about saving money on logistics, this article is a must-read for you.

Choosing the right model for logistics

First of all, you have to define the actual needs of your business. Some companies create their own logistics department, while others outsource this part of work to a third-party logistics provider, or a 3PL. Both options may save you money, but which one to choose depends on your volumes.

In-house logistics department

Large companies usually create a logistics department to conduct and control all shipments. This is a profitable solution for companies that have high volumes and large daily workloads. The company invests in equipment and staff, but gets much more in return: loyal drivers, full control over all processes and independence from third-party providers. 3PL are middlemen and have to earn a margin, so having an internal logistics team might save you money.

Outsource the logistics services

This tip is for small to medium sized businesses that cannot afford to have an in-house logistics department or just don’t need one. Such a department requires constant running expenses, such as salaries for the employees and regular maintenance of the equipment. But what if a company has to make only two deliveries per week? Outsourcing will definitely be a better solution, as the company will pay for only the services it actually uses.

So, carefully consider which of the two options will be more profitable for your individual case. The right decision will save you a lot of money in the long run.

Find the optimal number of carriers

This advice applies to both in-house and third-party logistics providers. Having several carriers may seem to be a necessity when you have to deliver goods to different locations. However, the more carriers you have, the greater the expense. Try to optimize the routes and reduce the number of trucks involved in your day-to-day processes. This work can be handled by logistics software, which can compute the optimal routes with a high degree of precision.

Sometimes the number of carriers depends on the rates, since different providers offer different rates for different routes. Choosing the cheapest option for every route seems reasonable first, but isn’t always the optimal solution.

Working with several providers on different routes will require that you spend more time managing the processes, or you can hire an employee to do this, which incurs additional expenses. Offering a large portion of the work to a single provider may result in lower rates across all routes. Even if the price for a single route is higher than competitors offer, the overall savings can be impressive.

Preparing for delivery

After you’ve decided on the model you are going to follow in logistics, it’s time to optimize the workflow. The importance of proper planning cannot be overstated. This allows you to optimize the usage of available resources, foresee different issues and avoid unexpected problems. You will need to pay close attention to the following points:

Technical equipment

This does not refer to trucks and forklifts, but to mobile devices such as tablets and smartphones. Now is the opportune time for these to replace paper schedules and old-school reporting books. Mobile devices are portable and have a wide range of applications. When paired with modern logistics software these devices can significantly improve productivity by reducing the time required to complete routine tasks.

Detailed timeline

Detailed planning should be an unbreakable rule if you work with logistics. Last-minute decisions can sometimes cost too much. Proper planning should consider all stages of product manufacturing. You should know when the product will be ready for shipment, how much time it will take to prepare the necessary documents, and your customer’s required delivery date. Having a clear timeline will enable you to plan the truck loading, create the optimal route and even negotiate a discount for certain shipments.  

Scheduling is more efficient with timely notifications in mobile applications — another way of improving productivity.

Standardize the processes

Developing standards for all logistics processes means having as little variation as possible. As a result, the probability of mistakes is minimal, which, again, saves time. Moreover, standardized processes can be easily optimized with the help of logistics software, which in turn can reduce the number of man-hours required to manage the processes.

Optimizing the routes

It is important to pay enough attention to optimization of the processes. For logistics business optimizing the routes is one of the crucial tasks. Routes that are randomly selected will result in lost time and additional expenses, such as gas. However, a little preparation will save you a bunch of resources. A mobile application can calculate the optimal route, and in most cases it will show even better results than an experienced logistician, due to algorithms which consider every factor to find the optimal solution.

With planning, you can include several warehouses or shipment addresses in one route, instead of renting several trucks to deliver your orders. Route optimization can be done manually or with the help of specialized software. This is one of the main features provided by the logistics module of the UDK Weboffice software is solving.

Full truck load

One of the black holes in your in-house logistics department is LTL - less than truckload. Allowing a half empty truck to leave your warehouse means you are just throwing money away, because you are not using all the service you paying for.

If you find that you are delivering a half-loaded truck daily, why not review your shipments to see if you can deliver a full truck every second day? It is likely that most of your customers don’t expect their delivery on the same day, so they will easily tolerate the next-day shipment. Reducing the number of trips will save a significant amount of resources.

The already mentioned system UDK Weboffice uses this principle to schedule shipments. The logistics software considers the volumes and destinations to automatically plan shipments and create optimal routes for it. With such software the savings become obvious!

Consolidate shipments

It is possible that your volumes aren’t sufficient for a full truck. Another option is to consolidate shipments with other companies. Not every manufacturer is able to deliver a full truckload every day, however, several companies will certainly do that. Collaborating with other companies is an optimal choice for small manufacturers. One truck that collects goods from several warehouses to deliver on the same day can reduce the logistics expenses.

Adopting LIFO approach

Besides loading full trucks, it is also important to load trucks correctly, as this also affects the logistics costs. That’s why the logistics companies have adopted the LIFO approach, or last in first out to optimize the delivery process. How does this work? Quite simple. You should start loading the truck only when you have a detailed route. Then the items that will be delivered last must be loaded first, and items that will be delivered first should be the last to load.

Optimizing the load process will save plenty of time for your carrier, and this approach will also minimize damage upon unloading — a clear benefit for the business.

Support seamless workflow

Focus on preventative maintenance

Some companies think that maintaining equipment in working order isn’t a big deal, believing that everything will work as it should, and if something gets out of order it can be fixed without major expenses. This approach is totally wrong. Preventative maintenance is not an extra expense. Instead, focusing on preventing breakdowns will actually save a lot of time and money.

Firstly, breakdowns can cause a halt to all work until the equipment is repaired. If this occurs, you lose time, the products aren’t delivered on time and as a result you lose money and client loyalty.

Secondly, repairs always cost more than maintenance. You need to call and wait for the maintenance team, obtain the repair parts. Sometimes it turns out that the equipment is out of order due to lack of maintenance and can’t be repaired at all! And the worst scenario - defective equipment may cause accidents.

This is another example of how custom software can be very helpful. It can automatically schedule technical inspection for the equipment, assist in ordering parts, and even provide instructions for carrying out small repair.

Focusing on preventative maintenance is the right decision. It’s like investing money to achieve seamless workflow, which won’t be interrupted by unexpected breakdowns.

Labour cost reduction

No, we are not encouraging you to pay your employees less. Our message is to optimize expenses according to the value the company receives in exchange. And there are several ways to reduce the costs.

First, analyze the KPIs of your employees. It may turn out that some of them are over-achievers, while the work of others may not be worth their wages. How do you find this out? Logistics software can help. Every employee has access to the software and works with data related to their tasks. The system can also track the performance of employees, helping you to discover their weaknesses. Sometimes, additional training can help to improve performance, in some cases it is better to farewell an employee that does not bring the value that you expect.

If you operate more than one shift, analyze the revenue earned during each shift. It is normal that logistics department will earn more during day shifts, compared with night shifts. This means that you pay more for less amount of work done. It may be possible to reduce the number of night-shift employees by moving them to day shift, where they can generate more revenue. And, do you really need your logistics department working around the clock?

Employees usually receive different salaries based on skills and job requirements. Even though you are willing to pay more for education and experience in certain fields, does the work necessarily require that mastery? Think carefully about the responsibilities of your workers. If certain tasks don’t require a high level of responsibility and can be assigned to a person without experience, why pay for excessive expertise? Hiring students or trainees for manual work with low responsibility will greatly reduce your expenses.

But don’t be tempted to employ too many students because some tasks will require a lot of training before a newcomer is ready for the position. In some cases, the cost of trainings/meetings/courses will exceed the actual savings. So, be sure to assign trainees to tasks that require only entry-level expertise.

Do you necessarily need full-time workers? Full-time employees cost more, so consider whether the work can be completed within fewer hours. Changing tasks to part-time or outsourcing the work to a third-party may also reduce logistics costs.

Decisions related to reducing labour costs are usually difficult to make, however, optimizing your workforce can result in significant savings.

Optimize paperwork

In the era of modern technology, doing all the paperwork manually is strange, to say the least. Nowadays, logistics software can replace most of the paperwork and do it faster, more exact, and at a lower cost. Additionally, working with the data stored in the application is easier, quicker and much more secure. One more bonus — you will save plenty of space, since all the data is stored in the cloud and not in huge folders and boxes.

Secure your data

Replacing paperwork with a computer system can protect your data from being leaked, stolen or sold. Data security directly correlates with financial risks since your databases can be used against you unfairly by your competitors.

Excel, for example, is a popular tool for gathering and storing various data. Excel databases are at risk for several reasons: anyone can access them, all the data is in one place, the data isn’t encrypted, the file can be copied or deleted in several seconds and no one will find out that it happened.

The modern logistics software is designed to manage the risks that can occur in industry, and protect your company from the dangers of insecure data. The system will display only the information that employees actually need to complete their tasks. Access can be granted to specific data according to responsibility level employees, and the system will track their actions, including downloading and exporting of files.

For example, it is possible to hide the contact details of your service providers by implementing IP telephony. Your employees won’t see the provider’s contact number — only a “Call” button will be displayed. As a result, employees will never have access to this information and won’t be able to leak the data.

Proper data security offers businesses the potential to save thousands, or even millions of dollars. Usage of the correct software will protect you from unnecessary risks.

Use a single platform for process automation

Some companies integrate multiple platforms to manage their business processes. For example, a tool can be used to schedule loadings, another to build optimized routes, and a third to keep track of items in the warehouse. Implementing diverse software for multiple tasks may at first appear to be a low-cost solution, but it actually drains money. Your workers spend time to open the right tool, to find the needed information, and time to import data from one tool to another. Even worse, some have to enter the data manually. This is a complete waste of labour, and when this occurs the software is not able to optimize the working process, but makes it even more complicated.

A single platform can bring all the data “under one roof” and make working with it quick and easy. Doing this will also reduce mistakes and avoid duplicates. Moreover, you can grant your employees access to certain information, depending on their position. So, for example, warehouse workers won’t have access to financial data, etc.

Finding the right tool to satisfy the needs of a particular company isn’t easy, and if a ready solution doesn’t exist, a custom system is an option. The software is developed to ensure that it adheres to all the processes of the company. Here are the features of logistics software that will save you money.

Conclusion

Most businesses see logistics as a rigid approach with no room for variation and creativity. They follow the same techniques that were followed 20 years ago, and are certain that these will work for the next 20 years as well. The world around us is changing rapidly, so you should be ready for changes in business as well, otherwise your more innovation-ready competitors will leave you far behind.

The advice we have offered is based on the actual experience of hundreds of companies. They show how optimization and automatization of business processes can save plenty of time, resources and money.

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