When thinking about logistics, many businesses will focus on the cost of getting their product from point A to point B. While that is undoubtedly a critical consideration for anyone with something to ship, many more logistics costs are involved than most people realize.
With so many moving parts in the process of getting your product from a warehouse to the end customer, there are logistics costs that you should know about before you begin planning your supply chain. In this blog post, we’ll cover five of the most common costs associated with logistics.
#1 Procurement & Receiving
The process of sourcing goods or raw materials, also known as procurement, is often viewed as a separate function. However, the steps necessary to have products that can be sold are the first step in the retail logistics chain. Procurement includes finding reliable sources, establishing second sources, creating and managing purchase requisitions, and placing purchase orders. Once received, goods must be inspected and approved before being made for sale. For the largest retailers, procurement and manufacturing can account for up to 75% of a product’s retail price. Therefore, this is an excellent place to start when seeking to save costs.
#2 Warehousing Costs
Warehouse storage is a high cost and one that you can’t ignore. Warehousing costs depend on the volume of your incoming goods, the size of each product, and how quickly each product will make it out the door to the customer. There is a balance between timing demand and reducing inventory turnover. Overstocking can lead to high warehousing costs and lower profit margins, whereas mistiming demand can lead to customers heading to competitors.
According to Shopify, the average inventory turnover ratio is 10.86 for retailers.For retailers, inventory turnover is the time a product sits in inventory or on store shelves before being sold and replenished. Higher ratios reduce the cost of warehousing costs on a per item basis but can increase the probability of an item being out of stock. Retailers must determine optimal stock levels, weighing the cost of carrying more inventory versus the cost of a lost sale.
Fulfillment, also called pick and pack, refers to the costs associated with warehouse workers or automated systems to ready products for shipment. The costs can vary when fulfillment is handled internally,where economies of scale can have a substantial impact. However, outsourced warehousing and fulfillment are becoming increasingly economical for even the smallest retailer as more than 60% outsource their pick and pack needs to a third party logistics company.
The cost of pick and pack will vary depending on the number of products shipped, the packing material, the size of each product, and individual order size. Fulfillment costs per item can range from as low as $.20 per product for retailers with many SKUs and high volume to more than $2.00 per product for businesses with small inventories.
The cost of shipping products to your customer is a significant factor in determining the overall cost of your logistics. In a world where free shipping is demanded by the customer and transportation costs continue to rise, retailers are scrambling to find more efficient delivery solutions.
Most goods are transported using third-party couriers such as FedEx and UPS. While shipping rates may be negotiated, there is only so far they can be reduced. 2022 will see some of the most significant rate hikes in years. The U.S. Post Office implemented a 3.1% increase, Canada Post 3.5%, and private carriers like DHL are expected to levy increases up to 5.9%.
Global energy pricing drives much of the cost, and often the only way to reduce delivery costs is to encourage alternative methods, including the promotion of Smart Lockers, BOPIS services, or delayed/combined shipments for multiple product orders.
We place returns at 4½ for a variety of reasons. For certain specialty retailers, those just beginning, or micro-retailers, returns may be minimal or even non-existent. On the other hand, larger retailers see returns as a thorn in their side, a cost of doing business they have little to no control over. And as such, the costs associated with returns are often placed in a bucket other than logistics.
However, retailers are taking notice, with more than 16% of merchandise returned in 2021 and costing more than $750B, the highest figure ever recorded. Today, the returns process is clunky, with neither retailers nor customers happy with the experience.With no sign of returns slowing down, companies are scrambling to find ways to reduce the associated costs while providing customers with a reasonably pleasant experience.
Fortunately, new technologies are emerging to improve customer returns while reducing retailers’ costs. Return bars, Smart Locker networks, “like-new” resale programs, and others are ushering in a new era of how returns will be processed in the future, benefiting everyone involved.
At ParcelPort, we believe last-mile delivery and the returns process are outdated, costly, and environmentally unfriendly. This is why we are building North America’s first publicly accessible Smart Locker network; to provide a more economical, convenient, and environmentally friendly way to move the goods we love from point A to point B.
To learn more about how your organization can maximize Smart Lockers to reduce cost, increase revenue, augment your brand, and delight your customers, contact the ParcelPort team online by visiting www.theParcelPort.com, email at sales@theParcelPort.com or calling 1-800-818-0870.