DEV Community

Cover image for Logistics Cost Components

Posted on

Logistics Cost Components

Understanding Logistics Costs
The logistics industry has been the backbone of economies for a long time. The industry is not only critical to the administration of countries but also to ensure that business is able to thrive. However, the industry is complicated involving a myriad of stages and players, making it difficult to identify what it is composed of.

There are several components of a logistics operation, and all of them play an important part in ensuring that consumers and producers are connected through a network of vehicles and facilities. In this article, we discuss what are the different components of logistics and how they contribute to logistics expenses.

Components of Logistics Costs
1. Shipping
Shipping can be considered one of the most basic activities of the logistics industry. The process is simply the movement of goods from one location to another, however, can include a variety of methods to do the same depending on the distance, time frame and type.

Shipping costs include moving the product from the first mile to the last mile, typically involving air, sea and surface transportation, and last-mile delivery. It can be used to get products to a retail outlet or in the hands of a customer.

2. Warehousing
Storage of products is another important role that the logistics industry plays. It is necessary to maintain a facility where businesses can store their products, till such time as they are required by the customer or perhaps another location.

The cost of warehousing may include expenses associated with construction and maintenance of a self-owned facility, or the expense of rent should a business lease storage space from a third-party provider.

3. Inventory
Managing inventory is critical to ensure the smooth flow of products and information within a business. The process ensures that the right products are being moved to the right locations, within the stipulated time. The practice of inventory management also helps businesses keep track of their stock levels.

Inventory management is done through software and staff that operate a storage facility. These costs usually include software licensing fees, staff operating costs and other maintenance costs.

4. Packaging
Packaging is often overlooked as an expense, however, is a very important part of the logistics finances. If a business ignores the expenses associated with the packaging of products, it is likely that the costs will mount up quickly. Packaging includes the price of packaging materials, wages for labour involved in packaging and moving the packaging material itself.

Managing Logistics Costs
Since logistics is so important for the business economy, it is important that companies assess their costs and manage them accordingly to maintain profitability.

Here are some ways businesses can manage their logistics costs in the eCommerce industry

1. Find a source closer to the base of operations
Finding a source for the materials required to conduct business is a great way to save on logistics costs. Since the distance travelled by-products will be reduced, the costs associated with it will automatically go down.

2. Distribute inventory based on analytics
When businesses decentralize their inventory, they can move their products closer to their customers depending on where the demand is. This not only allows faster dispatch and delivery but also saves costs in terms of long hauls of single items for every order placed.

3. Purchase packaging material in bulk
Packaging material cannot be eliminated from the logistics process, therefore, it makes financial sense to buy products from enterprises in bulk. This allows businesses to save on upfront costs while also getting a lasting supply.

4. Choose the right logistics partners
Choosing the right logistics partner is extremely important for a business. The ideal partner would price its services reasonably, while also enabling businesses to scale faster and reach more customers. The right partner can help businesses become more efficient and profitable.

Logistics costs are important to understand before starting a business. Even for already existing businesses, understanding the dynamics of logistics and how the costs affect a business is critical to the success and expansion of the enterprise. Since the industry and the processes involved are so complicated, only a deep understanding and study of the sector can help businesses tackle unnecessary expenses.

Top comments (0)