When it comes to running a successful ecommerce business, you always have to be mindful of your budget, but many businesses make the mistake of overspending. For some businesses, they’re aware of areas where that money goes. However, for others, they may not even know they’re bleeding money. When we look at big expenses for ecommerce businesses, one of the costliest involves the supply chain.
Yes, the famous supply chain. Business owners do a lot of different things to remain competitive, they give their customers the best possible service they can, do everything in their power to give their customers an amazing experience. That’s the way you do business, this is how you build ROI, right? And then there’s logistics, often one of the biggest costs to your business. How do you keep logistics costs down?
How do you keep it down the plan is to grow at all cost? For most, it’s not easy. Yeah… it’s a challenge – but it’s not impossible to lower costs.
Although it’s never easy, you can improve bottom line. We’re going to share a few ways to make that happen.
Today, we’re discussing how to save on logistics costs and grow your business. Let’s get going!
What Are Logistics Costs?
Logistics costs refers to all of the expenses you accumulate when moving products, which includes sourcing raw materials, delivering orders to customers, and every step in between of the full process.
What Makes Up Logistics Costs?
Logistics costs throughout the supply chain are paid to a lot of different factors, these can include;
- Trucking companies
- Shipping carriers
- Freight brokers
- 3rd party logistics providers
You’ll find that most companies do track logistics costs, but they may do so in a number of different ways.
Let’s break down where those costs occur.
(1) Transportation And Shipping
No secret here, transportation costs are going to be one of the biggest costs you have in your supply chain, as well as getting inventory from manufacturers to your warehouse, then out to your customers.
Freight shipping is another big one, you could use it via air, land, or sea, a popular choice for those of you that need to send international orders.
Transportation costs also include delivering orders to customers at residential addresses using shipping carriers.
(2) Inventory Storage And Allocation
While a lot of people don’t think about it, it cost a lot of money to hold or store inventory. This is especially true for those that are outsourcing inventory storage. The pricing model is simple, the more inventory you have, the more you’re going to pay to store it.
One term you’re likely familiar with is Inventory accounting – which tracks and accounts for changes in inventory value over a period of time as it relates to manufacturing and costs of goods sold (COGS). The goal of that is to help properly value assets or goods sold, as well as budgeting your inventory for future purchases.
(3) Warehouse Rent
It can cost a lot of money to rent warehouse space, especially when you consider everything that’s involved in going that route. If you’ve never rented a warehouse before but you’re considering it, you’ll be paying a lot more than just “warehouse space.”
If you’re renting a warehouse, you’ll likely have to sign a lease or purchase land, both are long-term commitments you’ll need to make.
You also have to think about the future of your company, is the warehouse your renting going to be enough space for your growth? You will need an ecommerce warehouse that meets your needs and plans for growth in terms of square footage, loading docks to receive and ship inventory, and everything in between.
(4) Supplies And Equipment In The Warehouse
It’s one thing to have your warehouse, it’s another buying the equipment and supplies you’re going to need to run it efficiently. All of these expenses are why a lot of organizations are turning to 3PL companies for warehouse and fulfillment needs. No worry though, we’ll discuss that in just a moment.
You have your warehouse now, what else will you need? We haven’t touched on inventory, but you’re going to need it. You’ll need supplies, you’ll need equipment, and depending on the type of business you have, that could be a little or it could be a lot.
- Let’s touch on inventory first. If you’re going to be storing inventory, you know you’ll need shelving units and pallet racks.
- To have the ability to move goods in your warehouse, you need forklifts, conveyors, and other equipment.
- For packaging, you need shipping supplies, boxes, envelopes, tape, dunnage, labels, printers, and other packing materials.
- To manage the warehouse, you need to pay for technology such as a warehouse management system, internet, taxes, utilities, office supplies, and other administrative expenses.
It doesn’t take long before realizing purchasing a warehouse is very expensive. So is renting a warehouse.
(5) Labor Costs
What other logistics costs can they be? This is the last one we’ll touch on, but we wanted you to visually think about everything involved in this type of decision.
Last but not least, you’re going to need staff labor. You’re going to need staff to pick inventory and pack boxes in your warehouse. You will also need a management team, at least a manager. You will also need customer service and other team members performing inbound and outbound logistics tasks based on the needs of your business.
Since you’re going to need to hire people, you’ll have to think about employee benefits, workers’ comp, liability insurance, and payroll.
Unforuntaley, these are just the core expenses of logistics – there’s a lot we haven’t mentioned. To our point, it’s expensive.
9 Ways To Reduce Logistics Costs
Now that you understand what logistics costs are and ways to try to offset them, let’s dive into how you can spend less on logistics, whether it’s reducing shipping costs or cutting manufacturing costs and lead times.
(1) Optimize Purchasing And Storage
The first thing you want to do is review your SKUs to see if the products you offer can be optimized. For those of you that have a large product offering, this can help reduce logistics costs. The larger your product catalog, the bigger the investment for storing and managing inventory.
If you don’t know where to focus first, start with your data and analytics – specifically your sales data. You need to look at different data sets – going back 6 months, 12 months, 24 months, and so on.
Here’s some of the questions you should be focusing on;
- What items are selling at a faster rate than others?
- What products are needing to be replenished more often?
- What products are selling the most?
- What products are selling at faster rates?
- What products are not selling?
- What products are returned the most?
- What products are purchased together?
You need to know how your SKUs are performing at all times. If you’re monitoring your SKUs and data regularly, you’re going to get the insights you need to make the right decisions as it pertains to:
- Where to focus advertising spend
- What products you need to order
- What products you need to retire
- What products you need to revise
You may even want to look at your ecommerce returns policies for products are being returned more often than others.
There’s a lot to gain here if you’re willing to take the time to do it right.
(2) Product Sourcing Closer To Home
When it comes to product sourcing – it’s one of the most expensive logistics cost you have. If you’re importing your products from China because they are cheaper than being made in the US, you may want to look at how much the shipping costs are, especially with tariffs rising.
The right manufacturer can cut logistics costs for your business but will depend on the type of products you sell, the supplies needed to create them, the previous experience of the supplier, and much more.
(3) Time To Make Some Changes
If it’s not broke, don’t fix it or do I? Fixed doesn’t mean “optimized,” and when it comes to your logistics, you should be aiming for excellence. Review your logistics costs, processes, tools, and metrics often to determine if changes need to be made.
When it comes to operations, here’s a few things you should be asking yourself.
- Is our warehouse layout space optimized for full efficiency?
- Can pickers easily find items on their picking list?
- Is our packing stations optimized for high performance?
- Are we keeping inventory organized? Is inventory accurate?
- Is our processes optimized for production with our staff?
- Can any warehouse activities safely be sped up for maximum performance?
- Can we improve our average turnaround times? How?
- Are we missing any deadlines as it pertains to shipping?
- How can we lower our error rate?
Every month, you should be aiming to improve your warehouse operations. Asking these questions can help you do just that.
(4) Distributing Inventory Across Multiple Locations
One of the most effective ways for reducing logistics costs is by leveraging shipping zones.
Shipping zones help determine shipping costs by charging more to ship to distances that are farther away. If you’re only shipping from one location, you’re shipping to customers across the shipping zone spectrum – you’re going to have customers that are close, you’re going to have customers that are far away. The further you’re shipping, the more it’s going to cost you.
While you may feel that splitting your inventory up is an unnecessary strategy to take, split inventory in multiple warehouses across the country can actually reduce logistics costs by eliminating the need to ship to the highest, most expensive zones.
Another way you can save money is through ground shipping versus air shipping for expedited delivery, using logic to route each order to the facility that has inventory closest to the end customer.
Review your order history data and analyze your customers’ zip codes to find common groupings of shipping destinations. From there, you will be able to tell which regions are in the highest zones and costing you the most.
For example, if you’re currently shipping exclusively from the East Coast but you have a high concentration of customers on the West Coast, you can eliminate shipping to higher zones by having inventory closer to the West Coast customers.
You need the volume to support it though — if you’re only shipping 100 orders per month, it will not be cost-effective for you to store your inventory in more than one fulfillment center. However, if you’re shipping 200, 500, 1000 orders or more, it may make a lot of sense to start splitting inventory.
(5) Buying Your Packaging In Bulk
This is another area that is often overlooked when you think about logistical costs, but “packaging” expense can add up quickly. As we always say, you need to know your dimensional weight. Once you have clarity on your order weights and dimensions, you can begin choosing the right combination of boxes and/or poly mailers. If you purchase boxes and poly mailers in bulk, you can usually get it for a good price.
Yes, you’re going to pay more up front – but in the long-term, it can save you a lot of money.
Just like most things in logistics, if you purchase big quantities, usually you can save a buck or two.
(6) What Are Your Carrier Options
Keeping up with carrier pricing can be a challenge, but it’s an effort you need to be making. Most of the major carriers will do pricing updates once a year, so paying attention to carrier pricing is another way you may be able to save money on your logistics.
Ecommerce shipping costs depend on a lot of different elements, which can have a big impact on your logistics expenses. You can never go wrong keeping an eye on their pricing charts and always pay attention to the annual price updates for each carrier.
Fortunately, all 4 of the major carriers have a shipping calculator you can use to calculate your potential shipping costs.
(7) Automating Your Logistics
Automation is king and while it can save you time and energy, it can also save you money. Having the ability to track shipments when they leave your facility to when they arrive to your customer is a huge benefit to you. It allows you to see the whole process so if you do have problems, you can correct them. Even better, with the right technology, you can real-time data back. If delays are going to be present, you’ll know ahead of time so you can make the right adjustments.
If you don’t have that ability, you’re likely already running behind your competitors.
(8) Making Data Driven Decisions
Decision making is vital to your company. You could be the logistics analyst wizard, but the best are going to struggle if they don’t have the right data to back their decisions. It’s going to be near impossible to know where excess logistics spending is if you don’t have the analytics in front of you to analyze.
This is exactly why you need a warehouse management system (WMS) or transportation management system (TMS).
Both a WMS and TMS will allow you to gather data to identify inaccuracies, excess expenditures and help you improve the operational effectiveness of your supply chain.
(9) Start Using A 3PL
We barely touched on 3PLs above – but they play key roles for some of the biggest brands in the world. But not to worry, millions of smaller companies use them just as effectively. A wide range of ecommerce businesses outsource fulfillment logistics to a third-party logistics (3PL) company – they do so because they’re growing, want to be more cost-effective, and it can save precious time.
Instead of going all in on a warehouse themselves, many companies choose to partner with a 3PL that has multiple warehouses. The benefits from that decision are immediate, it completely eliminates logistics costs that would include rent, equipment, and staff.
3PLs are logistics companies that are specialize on a particular set of services, these include inventory storage, packaging, shipping, returns management, value added services, and analytics.
Now, 3PLs do charge fulfillment costs, but it is often overall more cost-effective to leverage their scale and resources versus having to do it yourself. We touched on some of the core expenses above in this article.
Now, let’s discuss a few different ways 3PLs like Thill Inc. can help you reduce logistics costs.
(1) Warehousing Is Affordable
Every year that passes, warehousing gets more expensive. The reason it does is because the price is driven by demand. With the rise of ecommerce, millions of companies are competing for warehouse space. If you partner with a 3PL, you get to store your inventory in parts of their fulfillment center along with other ecommerce businesses. By using this model, warehousing costs are spread across many businesses, putting that extra savings right back into your pocket.
By only paying for what you use, you don’t have to worry about overpaying for a space that you might never completely fill. That my friend is a big win.
If you had your own warehouse, you could be limited to grow. If you grow faster than expected, 3PLs can help you scale. It doesn’t matter if you need additional shelf space for a new product launch, or your splitting inventory in other fulfillment centers, a 3PL is there to help.
Using a 3PL is an immediate way to leverage their many locations so you can begin to reduce logistics costs.
(2) Forecasting And Technology
Here at Thill, we’re shipping a lot of orders every single day. That’s good news for you and here’s why. With our high volume shipping and experience, we have best-in-class technology and tools you get to utilize for your business. This includes inventory forecasting so you know when to repurchase product to never run out of stock and also project any changes in demand during seasonal peaks. If you’re curious how it works, be sure to reach out and ask for a demo.
Inventory management is another great feature we have to help you handle the organization, real-time tracking, and handling of products. And while we can’t speak for every 3PL, we also have other tools and systems you can use.
(3) Easy Ecommerce Integrations
Most 3PLs make ecommerce integrations simple and easy. The last thing you want is complicated software. Here at Thill, our fulfillment software integrates with most popular ecommerce platforms. Here’s a few of the ecommerce platforms our fulfillment software works with.
- Amazon Ecommerce Integration
- Shopify Ecommerce Integration
- Magneto Ecommerce Integration
- Ebay Ecommerce Integration
- WooCommerce Integration
- CrateJoy Integration
(4) Major Carrier Discounts
When you’re shipping tends of thousands of orders for customers, you can get some pretty good rates from shipping carriers like UPS, USPS, FedEx, and DHL. This allows you to provide better rates for expedited shipping, 2-day shipping, and international shipping.
If you’re shipping more products, you can further reduce your logistics costs.
(5) No Warehouse Team Needed
How many people does it takes to run a warehouse? While it depends on a lot of different factors, we can all agree it’s going to take a full team to run it efficiently.
Warehouse management is complex, there’s a lot of moving parts, procedures, and processes. Starting your own warehouse would be a big challenge, but it’s also expensive. When you consider you’re going to have to hire and train people, you have to buy equipment and tools, you have to buy supplies, and then you have to ship accurate orders all the time.
If you choose to outsource fulfillment, you don’t have to worry about any of them. Think about that – that’s a lot to get off your plate.
(6) The Simplicity Of Scaling
Do you have plans on growing your business? If you ask that question to business owners, 99 percent would say “we want to.”
Ecommerce fulfillment can become hectic to as your business starts to grows. It can be a big challenge. If your outsourcing fulfillment, you’re going to have more time to focus on the growth of your business and that’s a great thing. You don’t have time to dedicate to warehousing, fulfillment, and shipping. Maybe you do, but a business owner should be focusing on the business, not working in the business.
You get the opportunity to eliminate those manual tasks – 3PLs can help you automate shipping and logistics processes, that goes for ecommerce order tracking to returns management, you won’t have to worry about that again.
We’ve seen a lot of companies partner with Thill Inc. over the last 5 decades and many of them have been able to see substantial growth simply for allowing us to take over their logistical needs.
(7) Partners For Growth
When you partner with a 3PL like Thill Inc., you’re getting a partner with decades of logistics experience – 50+ years and counting to be more direct.
We hope this guide has given you some clarity on some of the different ways you can begin to reduce your logistics expenses.
When it comes to logistics costs, there’s a lot of different things that can hurt your bottom line. If you’re looking to keep logistics costs down and want to hand off time-consuming tasks like order fulfillment and shipping, make sure you take the time to check out Thill Inc.
With a network of fulfillment centers across the United States, technology that easily integrates with leading ecommerce stores and platforms, discounted shipping rates, and a number of different services focused around helping your needs, Thill Inc. can help you lower logistics costs and drive revenue.
We’d love to show you the inside, answer any questions you may have, you can even come tour our facilities. Just know, we’re here to help and make a difference in your business.