| Today Logistics Management has gained special | | | | required delivery time. Each mode has its own |
| attention because of high emphasize on quality of | | | | advantages and disadvantages in terms of costs, |
| goods and services as well as intense price | | | | speed, capacity, flexibility and safety. Appropriate |
| competition which is forcing companies to control the | | | | selection reduces the opportunity costs involved due |
| costs to survive in the market. | | | | to unavailability of goods at right time. Loss due to |
| Logistics Management is conventionally defined as the | | | | damage to goods during transit can be avoided. |
| process that ensures the delivery of the right | | | | Proper vehicle routing and scheduling can reduce the |
| product at the right place at the right time in right | | | | in-transit inventory. Today various mathematical and |
| quantities to its customers. Normally when logistics | | | | analytical methods are available to solve the problems |
| management is talked about, the entire supply chain | | | | of vehicle routing like shortest route method, |
| is considered, from the procurement of raw material | | | | transportation method, etc. |
| to the delivery of finished good and services to | | | | Freight consolidation can reduce the transportation |
| customers. | | | | cost to a greater extent. In involves bringing |
| Logistics activities can be categorized as inbound and | | | | together smaller quantities of inventory in order to |
| outbound logistic activities. Activities from | | | | create a bigger quantity for transportation. |
| procurement to final production are called inbound | | | | Transshipment |
| activities while activities concerned with distribution | | | | Controlling the express shipping costs, typically when |
| channel that is delivery of the finished goods and | | | | a company have an entire shipment sent on an |
| services to the customers from the | | | | express service level basis for which higher cost is |
| manufacturer’s place are called outbound | | | | incurred. Such Panicking often results in higher costs. |
| activities | | | | If the companies just do a little bit of calculating and |
| Four main areas of logistics management are | | | | planning it can determine the amount of goods that |
| procurement, transport, transshipment and storage | | | | are needed immediately and have that amount sent |
| of goods. Supply chain logistics costs account from | | | | by express service level, while the balance of the |
| 5% to 50% of a product’s total cost, depending | | | | shipment can be sent using a standard service level |
| on the industry. Following are the tips to reduce cost | | | | which leads to lower cost. |
| in these four areas: | | | | Inventory |
| Procurement | | | | To build up inventory sufficient capital has to be tied |
| Keep your scope wider and search for the suppliers | | | | up for a length of time. By proper analysis on |
| of your required inputs who can offer you in more | | | | demand and supply side and nature of the product, |
| favorable terms. Look for import options also. This | | | | such capital cost can be reduced by optimizing the |
| does not mean changing the suppliers very frequently | | | | level of inventory. Use scientific method like EOQ |
| but just awareness about such suppliers can | | | | (Economic Order Quantity) to decide on order |
| strengthen your company’s bargaining power. | | | | quantity. |
| Always try to negotiate for favorable prices. | | | | Use proper inventory control system. |
| Understand the true costs of sourcing. Consider all | | | | Try to avail the quantity discounts from raw material |
| the costs freight, duty, inventory carrying costs, | | | | suppliers by ordering in a lot. |
| brokerage involved in procuring. Comparing these | | | | On the basis of past experience, insure the stock |
| costs will help company to decide on the best option. | | | | against such contingency as fire, theft, accidents, etc. |
| Work with suppliers on the design and specifications | | | | Reduce the number of storage points to reduce the |
| for each order to identify cost savings that allow | | | | total variability in demand. This practice is called risk |
| them to lower their prices. | | | | pooling. The total carrying costs get reduced with a |
| Switch to lower priced substitutes available for the | | | | lesser provision of safety stock at different storage |
| required inputs. | | | | points. |
| Try to switch to just-in-time deliveries from suppliers | | | | 4 Step process of lowering logistic costs: |
| that can lower a company’s inventory as well as | | | | 1. Determine the customer service targets and |
| internal logistics costs. It may also allow its suppliers | | | | organizational goals. |
| to economize on company’s shipping, | | | | 2. Compute the current logistics costs. |
| warehousing, and production scheduling costs that | | | | 3. Benchmark cost of performing a given set of |
| can result in a win-win situation for both the parties. | | | | activities against the best companies in similar |
| Transportation | | | | business. |
| Select the mode of transportation (air, water, rail, | | | | 4. Develop a plan and implement the lowest cost |
| road and through pipeline) which best suits the | | | | method that meets the core business needs. |
| quantity and quality of goods to be supplied and | | | | |