How to Reduce Logistics Costs: 12 Business Logistics Experts Share Their #1 Tip for Cutting Costs

Reducing logistic costs is often the number one priority for a businesses’ bottom line. There are many methods that can help improve supply chain processes and in turn save a business money. Methods of reducing logistic costs can range from optimizing inventory levels, to recharting better shipping networks, to creating better processes, to improving supplier/third party relationships and so on.

To help you find even more ideas, we asked 12 logistics experts the following question:

“What’s your #1 tip for how companies can reduce logistics costs (transportation costs or carry costs or warehousing costs etc)?

See what our experts had to say:

Meet Our Panel of Logistics Experts:

David Martinelli

David Martinelli David is an independent Principal with Blossom Growth and specializes in: Manufacturing and operational efficiency, Supply chain effectiveness, ERP and software implementation and improvement, Transactional due diligence and merger integration. Not only does David support Blossom Growth, he is also an entrepreneur and is in a development with his second start-up, Hydrate Technologies, where he serves as both the founder and president. Prior to his time with Blossom and Hydrate, David has worked as a software executive with NEWSCYCLE Solutions & Vista Equity Partners and as a Manager with Alvarez & Marsal. David holds an MBA from the University of Chicago, Booth School of Business and a B.S. in Chemical Engineering from the University of Illinois in Champaign, IL. He has also attained certifications as a Six Sigma Black-Belt, in Lean Manufacturing, and as a trained medical first responder.

The #1 tip on how companies can reduce logistics costs is…

“Identify and eliminate open spaces in an organized and diligent manner. This simple statement, when executed, drives the following business outcomes:

1. Increases storage density in bins & racks by improving vertical space utilization or bin re-profile as a means to achieve it2. Decreases freight costs through better truck utilization in both full.

2. Decreases freight costs through better truck utilization in both full (FTL) and less than (LTL) truckload shipments.
3. Reduces damage to case picked pallets by eliminating movement in transit.
4. Better utilizes available floor-space to increase storage density.
5. Encourages organized operations, which is directly linked to labor.
efficiency, asset utilization, and inventory accuracy.

Brian Stutzman

Brian recently invested in franchise ownership with BlueGrace Logistics. With an operation location in Indianapolis, IN but with a worldwide reach, Brian and his team are focused on becoming a part of a new standard in the third party logistics industry. Through transparent communication, providing a variety of options, and first class technology, BlueGrace Logistics Indy is prepared to truly consult with their customers and provide real benefits to their service.

The #1 tip on how companies can reduce logistics costs is…

There are several things that come to mind when thinking about how companies can save money on logistics costs. As a third party logistics provider, we hear a variety of reasons why prospects do not wish utilize real solutions to help save them money. But by far, the one response that actually cost companies money on a daily basis is we’ve always done it that way or we already have excellent pricing in place. In some cases, yes, their current operations and agreements are great deals but in many cases these statements are ill-informed and rehearsed. Yes, the market has a magnitude of companies that assist in logistics needs but what some do not realize is that there are more true savings than on the actual freight being moved or stored. Being able to implement more stream-line processes or reporting that saves your transportation and accounting teams time has been proven to save money. If on a monthly basis, while implementing these processes, companies might be able to save their teams time on operational duties, allowing them to spend more quality time handling other duties. That is just one example of how streamline processes save on overall costs rather than just freight or storing costs.”

Romy Taormina

Romy Taormina is the CEO/Nausea Relief Chief of Psi Bands. Psi Bands are sold at more than 10,000 US locations, including CVS, Target, Babies R Us, REI, etc. We import our product. With all the Port delays, planning for safety stock has become all that much more of a key component to reducing fulfillment costs, warehouse errors, and stress! Romy co-authors a blog with Vanessa Ting, a former Target buyer, called Both Sides of the Retail Table where we provide entrepreneurs tips and resources for how to get and keep their product on retail shelves. We recently highlighted the need for safety stock as a critical component of keeping costs down – and why!

The #1 tip on how companies can reduce logistics costs is…

“One could argue that carrying safety stock will increase ones warehouse costs. Yes. But, consider the alternative and how money, time and relationships can actually be saved:

* You are NOT spending hours per day trying to figure out which retailers are going to receive your limited goods and which ones are not. Thus, you are saving time by NOT having to contact your retailers to try and justify why you are not sending them their desired quantities and asking for them to re-issue POs with new delivery dates.

* You are NOT jeopardizing relationships with your buyers – and risking them terminating their business with you.

* You are NOT incurring retailers noncompliance fees for undeliverable POs.

* You are NOT having to expedite shipments to your warehouse from your manufacturer at costly air freight prices because you have the goods on hand.

* You are NOT having to expedite shipments from your warehouse to your retailers at costly 2- or 3-day shipment rates vs standard Ground rates. ”

Tom Wilkins

Tom Wilkins is the owner of Metano IBC Services, Inc. Metano supplies intermediate bulk containers (IBCs) to consumer product, chemical and other manufacturing companies who need to move bulk liquids in their production process.

The #1 tip on how companies can reduce logistics costs is…

“For manufacturers who need to move bulk liquids, intermediate bulk containers (IBCs) are an economical and efficient transportation solution vs. standard drums. One IBC holds the equivalent of 6 drums, yet has a footprint that is 33% smaller. By choosing square IBCs over round drums, you can move more liquids in fewer containers and realize substantial savings in labor, warehousing and shipping costs. Stainless steel IBCs can also be rented for additional flexibility and savings.”

Bryan Mattimore

Bryan Mattimore is the Cofounder and Chief Idea Guy at Growth Engine, Innovation Agency. He’s the author of  “Idea Stormers, How to Lead and Inspire Creative Breakthroughs (Wiley Jossey-Bass).”

The #1 tip on how companies can reduce logistics costs is…

“Our best logistics/supply chain tip is this: Use suppliers to help reduce costs. Suppliers can sometimes absorb direct logistics costs, but can also be partners in cost reduction. One idea, for instance, is to create a consortium of buyers (our client and several of their suppliers) to buy needed logistics supplies (i.e. transportation fuel) at a reduced cost that comes with buying in greater quantities. ”

Lisa Henthorn

Lisa Henthorn is Lisa Henthorn; VP, MarketingCommunications at Eyefreight. Lisa Henthorn is a seasoned marketing and HR professional with more than 16 years of experience in sales, marketing and consulting. As vice president of marketing communications, Lisa guides corporate
communications at Eyefreight, where she is responsible for marketing strategy and planning. Prior to Eyefreight, Lisa was vice president, marketing and human resources at PartnerData. There, she executed the organization’s growth strategy through the marketing of PartnerData’s products and services as well as the design and implementation of all human resources strategies, policies and processes. Lisa currently lives in Evanston, IL with her three daughters. She’s an avid writer and blog contributor.

The #1 tip on how companies can reduce logistics costs is…

“For companies to reduce logistics costs, automation is key. Regulating, automating and optimizing manual processes can reduce staff requirements, centralize production operations to lower-cost areas and create a more proactive approach to ensuring customer satisfaction, all while providing scale and controlling costs. With an automated, cost-effective transportation and logistics system, a company can implement major strategic changes to provide visibility, reduce costs and increase customer service levels. Plus the emergence of cloud-based technologies have made this considerably easier/more affordable than ever before; so even small companies can take advantage.

Keeping the per order cost of logistics support low requires keeping customers happy (so companies keep them as customers). By maintaining customers’ satisfaction, companies can keep business up and therefore, spread out the cost of logistics support over a greater number of orders/customers. Because of this direct correlation between customer satisfaction and overall cost reduction, customer service should be factored into any measurement of changes in logistics costs accordingly.

When the appropriate tools to manage complexity and guarantee visibility are in place, organizations have greater opportunities to continuously create operational efficiencies, keep customers happy and improve the bottom line.”

Scott Stone

Scott Stone is the Director of Marketing for Cisco-Eagle, a provider of integrated material handling systems for industrial operations. Scott has over 23 years experience in industrial operations and marketing.

The #1 tip on how companies can reduce logistics costs is…

“The very first thing any company should do is strive to truly understand
its costs—per pallet, per sku, per order shipped, etc. Assuming that is understood, answers to this question may come easier. In general, though, the cost of labor is always the top, or near the top for any warehousing operation. Every project should be seen through the prism of labor costs which can be addressed in multiple ways. Incentive programs for warehousing employees, if well structured, really work. So do projects that automate repetitive structured tasks—things like ligh or voice directed picking,
carousel storage, robotics, etc. A much less elaborate answer is to review product slotting to reduce the cost of picking and putaway. Anything that reduces returns can truly make an impact as well.”

Brian Sutter

Brian Sutter is the Director of marketing at Wasp Barcode Technologies.

The #1 tip on how companies can reduce logistics costs is…

“Inventory cost is defined as the cost of holding goods in stock. If you’re looking for a way to reduce your inventory cost, chances are you’re stocking too much inventory. Too much on-hand inventory increases your storage costs—thus your cost of goods sold—and ties up liquid cash.

Here are three ways to reclaim that cash and reduce your inventory cost:

Know Your Up-to-Date Inventory Levels:
Keeping track of your inventory levels is the most straightforward way to prevent overstocking inventory and, as a result, reduce inventory cost. Although a spreadsheet-based inventory management system might give you a general idea of how much inventory you have at a given point in time, solutions like Wasp’s Software and Inventory Management systems, help keep that information automatically up-to-date; allowing small businesses to make quick, strategic decisions about how much inventory to have on-hand.

Evaluate Your SKUs:
Simply put, SKU intensity is how many SKUs your business has per unit. If your business sells items like gifts, you might only have one SKU per item. However, if your business sells items like clothing, which can come in multiple colors and sizes, one item can have numerous SKUs, which can lead to a higher SKU intensity.Are you not selling any size two dresses because there is no demand for size two dresses or because you don’t stock size two dresses? Knowing the difference will help your business not only avoid
stock outs but also avoid overstocking items that aren’t selling. The information needed to understand your SKU intensity is available in your inventory system’s history file, but you also need to understand what your system is telling you. Tailor your SKU intensity by pulling together sales and inventory information to figure out exactly what’s going on with your inventory.

Track Inventory Movements to Automatically Re-Order:
How quickly can you get replacement merchandise when you run low? The longer it takes, the more items you must keep on hand and, as a result, the higher your costs. Implementing a perpetual inventory system will allow you to track sales and inventory movements in real-time—allowing you to automatically re-order stock when it makes the most sense for your business..

Olivier Larue

Olivier Larue has 20 years of experience in the hands-on implementation of Lean/TPS
(Toyota Production System). He joined the Toyota Supplier Support Center (TSSC, Inc.) following a successful consulting career in California’s Silicon Valley. Eventually, Olivier decided to fuse his unique style of shop floor-based teaching with his proficiency in TPS to create Ydatum Operations Management Engineering, Inc. Olivier is a guest lecturer at the University of California at Berkeley School of Engineering and has been a presenter for SME. His expertise also includes Six-Sigma, Hoshin Kanri, and a proven ability to help companies achieve sustainable, system-wide improvements and customer satisfaction that is measured in terms of improved quality, cost and lead time.

The #1 tip on how companies can reduce logistics costs is…

“The best thing companies can do to reduce warehouse inventory is to make a choice between fixing quantity or fixing time — not both. Let me explain: One purpose of the pull system is to act as a
countermeasure against the effects of processes that can’t be located near each other. Ideally, there is no need for inventory due to conveyance because processes are co-located and they work at the same pace. But in those instances when processes are actually far apart and conveyance is required, if the pace of
conveyance is equal to the pace of production, then all the material will in route and the quantity of material transported will be determined by the conveyance time divided by the rate of pull.
However, batch conveyance might be necessary to reduce the cost, and the rate of supply will not equal to the rate of pull. In this case, some inventory will be in the stock and in the store.
*Fix quantity, variable time*
There are two methods used to trigger the conveyance of parts from a process that is far away. One is to deliver a fixed quantity, but at variable intervals. The trigger is when the quantity left in the stock gets
down to a certain point, whether that’s tomorrow or next month. The timing depends on the rate of consumption of the following process. The ideal demand quantity is one part, with one kanban for every part.
*Fix time, variable quantity*
The other method is to deliver at a regular interval but in variable quantities. The choice depends on the situation, as supply chains involve too many variables — cost and size of parts, distance, shared processes, transportation method, and so on — to allow for a general solution. However, the closer we come to the ideal condition, the less difference there is between the two methods.
But even when one-by-one is not achieved, there are some basic rules to follow and basic errors to avoid.

For example, it is a mistake to fix both time and quantity. This is an error we often see with automated material replenishment process such as MRP and other IT-based solutions. Fixing time and quantity may be practical, but it falsely assumes that over time there are no changes in customer demand. This invites —actually, it begs for —both overproduction and shortages. These, in turn, will later necessitate large adjustments. Not only are large adjustments a pain, but they violate Toyota Production System thinking, which seeks to reduce fluctuations through frequent small adjustments.

Here’s a simple example that will illustrate the difference: If you live close to the grocery store, you are likely to choose a fixed quantity/variable time method of shopping, since it’s so easy to just go
get something when you need it. If you live far away from the grocery store, you are likely to choose a fixed time/variable quantity method, so you can combine your grocery shopping with other errands in town, saving on time and gas. Once you have chosen the correct method for your situation, you need to calculate the lead-time in order to have the correct inventory to support it.

Shel Horowitz

Shel Horowitz is a green business profitability consultant, copywriter, speaker, and author, currently introducing a new aspect to his work: showing businesses how they can profit while making a difference on such issues as turning hunger and poverty into sufficiency, war into peace, and catastrophic climate change into planetary balance–and going beyond sustainability to the world we all want.

The #1 tip on how companies can reduce logistics costs is…

“As a green profitability consultant, I always look at how to cut costs by going greener. For logistics, I’d look at the overall area of fuel costs and examine reducing fuel consumption–by streamlining routes, making vehicles more aerodynamic, changing bad driver habits (like long idles), and perhaps fuel remixes that include vegetable oil.”

Andrea Stroud

Andrea Stroud is the Research Program Manager for APQC’s supply chain management, product development, and innovation research. She conducts research and publishes relevant, meaningful content for APQC members and other clients.

The #1 tip on how companies can reduce logistics costs is…

“The #1 way to reduce warehouse inventory/carry costs is to improve inventory accuracy and visibility throughout the supply chain. Here are some of her findings and insights from her research (it’s a bit long but has great data points in it): This is an important part of supply chain management because organizations that allow their inventory accuracy to drop run several risks. Misleading inventory levels may make it seem that these organizations have more inventory than they actually do, which leads the organizations to sell stock that is not there and can result in dissatisfied customers. Inaccurate inventory data may also mask inventory that is actually there, which can lead to stock remaining in a warehouse until it becomes obsolete.

A related issue is increased inventory carrying cost. To get a better idea of how much additional cost can be related to carrying inventory, APQC reviewed data from its Open Standards Benchmarking(r) in logistics. The data shows a $101 difference between top-performing ($51.89) and bottom-performing ($153.33) organizations regarding inventory value per $1,000 in revenue. For an organization with $5 billion in revenue, this difference translates into $505 million worth of inventory stored in warehouses.

Aside from lower inventory value and more satisfied customers, higher inventory accuracy can lead to improved performance in other logistics processes.. APQC’s Open Standards Benchmarking(r) data indicates that an increase in inventory accuracy from 98 percent to 99 percent is associated with a decrease in the pick-to-ship cycle time for customer orders, a decrease in the percentage of orders expedited, and an increase in the amount of sales orders delivered on time. When the organization spends less time picking materials ordered by customers it needs to expedite fewer orders. Faster processing and delivery of products leads to more satisfied customers and lower inventory carrying cost.”

Dennis Maliani

Dennis Maliani is a Business/Technology Executive who is innovative and results-oriented leader with extensive experience defining business strategies and developing transformative solutions that deliver immediate results and improvements across enterprise-level environments. Proven track record of designing and executing new initiatives that optimize IT operations, elevate service and support delivery, and strengthen technology capabilities. He’s an exemplary leader with a tactical background in lean business processes, system infrastructure, and technical support. He holds MBA with dual emphasis in International Business and Information Technology from University of LaVerne.

The #1 tip on how companies can reduce logistics costs is…

“The number one thing companies can do to reduce warehouse inventory errors (transportation costs or carry costs or warehousing costs etc.) organizations as a whole have to adopt and apply lean principles to their company’s business and workflow processes. The principles include:

1. Value: Solicit feedback from their clients or tap into their company’s’ knowledge base. Based on their past business demands and supply needs define what is of most value to their customers.

Ex: If its product quality issues based on their customers feedback then they have to work on their Quality assurance and quality control standards to ensure they produce a superior product. Customer loyalty is critical, on average it costs five times more to acquire a customer than to retain a customer.

2. Value Stream: Work with their teams to identify the company’s value and eliminate waste. Analyze their processes against the types of wastes below and remove them.

a. Transport – unnecessary movement of materials from one location to another.

b. Inventory – over production of goods which might require huge costs in storage, space consumption, packaging costs etc.

c. Motion – unnecessary movement if workers have to access equipment or tools in various locations of the company to do their job – time and money wasted. At times, it requires to redesign the warehouse floor plans and have everything thing at their disposal in one location.

d. Waiting – Due to un-synchronized or breakdown in interdependent processes, poor technical support etc. leads to loss of time and missed opportunities.

e. Over-Processing – Caused at times by lack of standard operating procedures every employee performing a task as they see fit or using wrong equipment for a task.

f. Overproduction – Too much inventory causing inventory costs due to lack of demand & supply data.

g. Defects – Due to poor quality control and quality assurance measures results in defective products, returns, law suites.
3. Flow: Create constant flow and strive to a attain balance between their supply and demand needs.

4. Pull: A company should produce based on demand. This in most cases requires having a supply chain management system that’s well integrated with their back-end warehouse, suppliers/vendors and their front eCommerce for their clients. With all those integration points in place when a customer places an order the entire works are just in time.

5. Perfection: Continuous mechanics or tools must be put in place like the PDCA (plan–do–check–act or plan–do–check–adjust) the Deming cycle.”

Richard McGirr

Richard McGirr is the marketing manager at floship, an e-commerce logistics company based in Hong Kong. I have worked in venture capital and venture backed start-ups for the past 4 years.

The #1 tip on how companies can reduce logistics costs is…

“In our experience one of the best things companies can do to reduce the cost, complexity, and logistics headaches in general is centralizing their distribution.

Oftentimes companies have products in an unnecessarily high number of warehouses. This makes inventory management much more complicated due to constantly having to manage and transfer stock between warehouses around the globe. It is better to have one distribution center in a major logistics hub, such as Hong Kong, that can service a very large area or possibly even the entire world from one location.

For example, a company that manufactures in China only has to send their goods to a Hong Kong warehouse and from there can effectively handle most if not all B2C and B2B shipments worldwide quickly and cost-effectively. This leads to a simpler supply chain and having inventory on the books for only a few days in transit compared to having their inventory in an ocean container for a month, and then waiting another 2 or 3 weeks to clear customs.”

Bob Shirilla

Bob Shirilla is the Owner / Manager – Simply Bags – Leading US distributor of personalized and custom tote bags.

The #1 tip on how companies can reduce logistics costs is…

Consider Supplier Location: Our marketing starts with an analysis of supplier locations and potential clients in the same region. For example, we are doing a marketing campaign targeting Beach Wedding Planners and have developed a business relationship with two manufactures in Florida. This gives us a competitive price advantage over other suppliers that have higher shipping cost.