Business Management

How to Reduce Logistics Overhead Costs and Increase Company Profits



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In the manufacturing industry, a large portion of overhead costs go to packaging and transport. In addition to this, there are other hidden costs which may arise in the process of shipping products from one point to another. All factors considered in packaging and shipping products affect the overall cost of production and also impact the company profit margin. What are these factors that affect logistics costs?’

  • Transport cost. This pertains to the cost of moving the product from one end of the supply chain to another. These include fuel costs, insurance, and charges for shipping.
  • Product protection. While products are in transit, proper packaging ensures that items don’t get damaged. If packaging is not adequate and products get damaged, it may cost the company more money.
  • Storage cost. Warehouses are essential for storing products while they await transit. A warehouse should have proper climate control to prevent products from spoiling.

Aside from those mentioned above, other factors add to the cost of logistics such as paying for a dedicated office department specifically tasked to oversee product packaging and shipment. All these costs may significantly reduce the company’s profit margins if not properly managed.

How to reduce logistics costs

Reducing the cost of logistics can help a company recover some of their overhead costs. Here are some ways to reduce costs associated with packaging and transporting products.

  • Use returnable packaging. One of the recent trends in logistics is using returnable packaging. Using returnable packaging products such as the plastic crates at PPS is an excellent example of minimising the need to buy disposable packaging. Another advantage of returnable packaging is how it can decrease product damage as well as reduce waste produced by single-use product packaging.
  • Reducing administrative costs. It is possible for a company to simplify the supply chain and reduce the number of suppliers and vendors involved in the shipping process. By doing this, the company can save money on administrative costs which are funnelled back to the company’s budget.
  • Efficient product protection. Another way to mitigate losses during product transit is for a company to employ an efficient method of product protection. The level of product protection required during transit should match the type of product, length of transit, as well as the overall destination. For example, a company cannot use the same degree of protection for plastic products and ceramic products. Adjusting the packaging according to the degree of fragility ensures that the company can effectively use resources and reduce losses.
  • Reduce handling costs. Methods used in packing as well as shipping products can also add to the overhead cost of logistics. As much as possible, the company should invest in high-quality packaging facilities which reduce the amount of time spend on packing products. These packaging methods should also match the shipping option. For example, packing products for shipping by air differ from packing products for shipping by land transportation.

Through these effective methods of reducing logistics costs, a company can increase profit margins and lessen losses caused by improper shipping methods.

 

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