In the eternal search for cost control, companies often look exclusively at what they can do behind the scenes. Or, when they look outside at their suppliers, they focus exclusively on prices and fees. This week we are going to see how collaboration with your logistics providers can be a much more efficient way to optimize your logistics costs.
Martin Christopher, in his book Logistics and Supply Chain Management, presents three sections in which these costs can be improved through collaboration: transaction costs, process costs and uncertainty costs.
Three logistics costs that you can reduce with collaboration
Carrying out transactions (orders, purchases, billing, etc.) requires placing an order in motion, which must be adequately communicated through a series of people and/or systems. Sometimes the order can be something as simple as an email or sometimes a complete technological integration between client and logistics operator is necessary.
Although these IT integrations can be complex, often the biggest costs are hidden under people’s willingness to collaborate and share information. Starting from a scenario of mutual trust, Martin Christopher cites studies that point to the logistics costs that can be saved with efficient collaboration. In addition, there are additional benefits such as greater satisfaction in the customer/supplier relationship.
Process logistics costs
“These costs arise because the processes of the suppliers are not always aligned with those of the clients. This is why there are considerable inefficiencies at the point of contact,” explains Christopher. This is because in many cases each of the parties does not speak the same language. For example, they may be using different types of pallets that involve subsequent manipulation, they may use files with different structures that imply partially redoing the work, reintroducing data, etc.
Customer and supplier need to be able to meet to discuss how they can optimize these touch points, which often also involve third parties. Many logistical costs will depend on the success of these initiatives.
Books have been written about the benefits of trust and how it greases relationships (both personal and professional). How do these translate into logistics costs? Imagine that you do not have confidence in the delivery times of your logistics provider; This can lead you to use more urgent services than necessary or to store more merchandise in your own or someone else’s facilities because you don’t trust the next shipment to arrive on time.
Contrary to what many people believe, the hidden costs of storage are one of the ones that end up increasing the logistics costs the most. Greater amount of merchandise in circulation, more occupied warehouse space… and all this assuming a cost that will not have an impact on higher sales or billing.
Martin Christopher’s book cites an old idiom that sums up this evil: “substitute inventory for information.” Logically we have to do the opposite, and fight to make communication, information, transparency and visibility of our supply chain a reality.