Every year the Council of Supply Chain Management Professionals (CSCMP) issues a report on the current state of logistics in the US. The biggest takeaway from the 2019 report is that costs associated with logistics continue to increase. The latest analysis shows a rise of 11.4% for a total of $1.64 trillion, or 8% of gross domestic product (GDP). It follows that any reduction of logistics costs as a percentage of a company’s revenue will go straight to its bottom line. You can read more about the report’s findings here.
What Can I Do to Minimize Distribution Costs?
If you are a manager working in the field of consumer packaged goods (CPG), you often find yourself trying to satisfy competing demands. On the one hand, your retail customers are looking for smaller replenishment orders delivered more frequently. At the same time, higher management is putting pressure on you to reduce logistics costs. This dilemma is particularly difficult for small to medium-sized CPG companies because they lack the freight volumes, resources, and systems capabilities that their larger competitors can make use of to drive efficiencies.
- How Can Logistics Reduce Costs? – There are steps that mid-sized CPG companies can take to cut down on logistics costs and compete more effectively with their bigger cousins. The following are a few ideas to consider.
Use Fewer Carriers
Just as a purchasing manager streamlines the number of vendors to gain better prices with higher volume, a transportation manager can adopt a similar strategy when it comes to the number of carriers used. The use of multiple carriers often happens when the transport manager has successfully negotiated the very best deal for each individual route but has ignored the larger picture. By cutting down on the number of carriers, the volume of work offered to the carriers you choose to keep will go up. This will incentivize the remaining transporters to offer lower rates across all routes.
- Single-Sourcing – Some companies believe the best-negotiated prices can be obtained by using a single highly-reliable source for all their transportation needs.
Consolidate Loads With Similar Shippers
Since they don’t work with large volumes of freight, smaller businesses are forced to use more expensive LTL (less-than-truckload) shipments. One way to get around this is through the consolidation of loads with other CPG firms (even your competitors) going to the same customers. This shift from LTL to full truckload reduces your overall freight rate, and you are only responsible for your share of the lower-cost transportation.
Automate Your Logistics
Allocating available inventory with respect to current orders creates problems because it’s basically a subjective decision process. It can also be an invitation to personal bias, as sales reps may tend to steer available inventory toward their own customers. One solution is the better integration of sales and inventory data in order to facilitate decisions. The aim should be for fulfillment decisions to be based on customer priority so as not to disappoint key customers.
- Having a system in place to track shipments from the moment they leave your premises to when your customers receive them will enable you to spot problem areas in your transportation logistics. It will also provide you with real-time data on unexpected delays, allowing you to react quickly and more cost-effectively.
Cross-docking refers to a method of delivering products from a manufacturing facility directly to customers with a minimum of material handling in between. This strategy allows companies to expedite shipments to customers, resulting in a reduction in labor costs, less need for warehousing, and an increase in customer satisfaction. Cross-docking is another way for small to mid-sized CPG companies to move toward a just-in-time inventory model. It’s a proven strategy, but it’s not easy to implement. Effective cross-docking requires:
- A system to match up orders with inbound freight.
- Tight coordination with carriers.
You can read more about the different types of cross-docking here.
Make Use of Warehousing Services
If you do a significant amount of shipping from the same point A to the same point B, especially over a long distance, it may be helpful and reduce your transportation costs to warehouse goods closer to your customer.
Package Products in Your Distribution Center (DC)
Retailers don’t necessarily want to sell your products in the same configuration as they leave your factory. For specific markets, they may require different product configurations, such as different quantities in a pack. So, where does this customization take place? Many CPG companies will ship products from their DC to an outside packaging firm that then returns the customized products back to the same DC. This way of operating increases freight costs. It also causes the company to lose sight of the product during the packaging process with no way of knowing if the product has been packaged correctly or has been damaged. These problems can be eliminated by performing customized packaging services in your own DC.
Large CPG companies have departments that are responsible for monitoring chargebacks. But small and mid-sized companies often accept chargebacks as a cost of doing business. For such companies, the use of an experienced third party logistics (3PL) organization can result in significant chargeback reductions.
How Do I Effectively Use Logistics to Reduce Costs?
Increasingly, ever more consumer brands are becoming part of substantial companies that have the wherewithal to use supply chain synergies to lower their distribution and transportation expenses. This trend makes it harder for smaller and medium-sized CPG businesses to be competitive. However, by using an experienced logistics provider for transportation and distribution, the playing field can be leveled. You get the logistics capabilities of big companies without the overhead.
Find a Transportation Logistics Supplier
Osage Specialized Transport provides strong capabilities when it comes to logistical planning and transportation management systems. As a full-service logistics company in Denver, CO, you can rely on us to be always on top of your freight transportation needs. If your business is facing increasing distribution and shipping costs, your profit margins may be shrinking faster than you think. Osage is a leading specialized trucking company that can help you keep your logistic costs under control.