Logistics Cost Reduction - Best Practices

November 13th, 2007 by Biz | Posted in Logistics and Shipping | No Comments »

Logistics cost form an important part of the overall cost structure in any organization. Focus needs to be on renegotiating freight and shipping rates, reduction in overall freight costs and streamlining operations.There are six best practices that can be followed by most businesses to reduce costs.

New carriers: Constant market rate check is a best practice. Usually, logistics managers get into a comfort zone with the existing carriers. This leads to cost creep. Market rate check will bring to light other more economical operations. New carriers may be more flexible in their quotes.

Freight costs: There are several options to optimize freight costs. Renegotiation of minimum billing to a minimum for a zone needs to be explored. Product delivery coordination is another useful tool to streamline freight costs. Today both the USPS and Canada Post offer viable options for small packages. Arrangements with a number of smaller local carriers sometime s provide the best rate/best service combination. Internet offers excellent tools for comparing and optimizing freight costs

Improve shipping and receiving: Streamlining shipping and receiving practices will offer substantial savings. This can happen through reduction of window time for receiving. Starting point should be mandating delivery appointments. A flow chart needs to be made of all the operations to determine wasteful processes and combining existing processes.

Technology: Internet tools enable substantial reduction in paperwork. Documents are scanned and emailed to customs, ports etc. In case of cross border trade, documents needs to reach at least twenty four hours in advance to avoid delays at the border. Technology also allows coordination of all shipments to optimize loading.

Managing returns: Reverse logistics is an important element of freight costs. Most companies offer a liberal returns policy. If the customer is not satisfied with the product, it can be returned in 30, 60, 90 days depending on the seller. At times, the seller also arranges to pick it up. To minimize costs associated with reverse logistics processes needs to be streamlined.

Audit of freight costs: Use specialized agencies that provide post payment audit of freight bills. These agencies are usually paid on a profit sharing basis. These audits also provide valuable insight into patterns and other cost reduction opportunities.

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UPS Vs Fedex - 100 Weight Program

November 13th, 2007 by Biz | Posted in General, Logistics and Shipping | No Comments »

UPS and FEDEX have typically charged shipping per package based on the weight of each package. But with the current ground networks being as big as they are now and most areas in the U.S. covered, they are both now focused on building more density into their existing routes.

One of the biggest costs associated with shipping and delivering any product on a truck is the number of stops that truck has to make. Let us take a simple example. How much time would it take to deliver 100 packages to 100 different houses on the same street versus delivering 100 packages to 1 house on that street. Those 100 packages get picked up by the carrier at the store, run through their sorting facilities, shipped out on delivery trucks, and then delivered to each destination. Each of the factors in this equation would be equal until the last. The same amount of packages would be handled, virtually the same amount of miles driven to get the packages there, but much, MUCH more time to stop at 100 houses than just 1.

So fedex and ups have decided to give volume discounts on orders over 200 lbs and multiple packages to entice customers to do bigger shipments. This adds packages and sales to the ups and fedex existing ground networks with very little incremental cost to them because the the number of stops on the truck do not increase.

I wonder how long it will take the post office to figure simple things like this out? Do they really need to deliver daily 6 days a week. If they delivered Mon, Wed, and Sat instead of Mon, Tue, Wed, Thu, Fri, Sat, they could cut their delivery costs by 50% and still get the mail there in virtually the same time. Of course, we are talking about a government entity and unions with a monopoly on mailbox delivery, so I don’t expect that brainchild of an idea to come to fruition any time soon.

Anyway, back to the multiweight program. There is one advantage with the multiweight programs that fedex has over ups. Fedex pools the orders together for volume discounts on a single day on delivery zipcode. So if you have 10 packages at 30 lbs each going to the same zipcode on the same day, the packages will qualify for the multiweight discounts with FEDEX even though they are 10 separate orders. As far as I know, ups does not do it by zipcode yet, just by address.

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