Logistics Costs and Service Performance
published: cw 47, 2005 in Logistics & ShippingCompanies sourcing in China will pay more attention to logistics costs ? not just the product cost.
Measuring logistics costs between regions ? what is the total landed cost from factory to customer?
Transportation cost will continue to be the most noticed and watched cost in logistics.
Total supply chain strategy ? including inventory management ? can drive logistics cost improvement.
US Logistics Costs and Service Performance
Based on our logistics cost and service database, logistics costs in the US can be 5 to 20 percent of net sales*:
+ Transportation 2 to 10 percent
+ Warehousing 1 to 5 percent
+ Inventory carrying 1 to 3 percent
+ Customer service 0.5 to 1 percent
+ Administration 0.2 to 1 percent
North American companies that successfully reduce inventories are most likely to reduce overall logistics costs. Reducing inventories alleviates pressure on warehousing, so warehousing costs in the US have declined since the last North American recession (2001). Primary transportation (deploying inventory) also comes down when inventory levels decline. These cost reduction actions are the normal reaction to weak recession-related sales. Companies work hardest to reduce costs during a recession. The actual cost reduction traditionally shows up in the years immediately following the recession. By then??.. SALES ARE UP AND COSTS ARE DOWN.
Although customer service remains a top priority for most companies, actual delivery performance has remained steady over the years. From a positive perspective, the significant reductions in inventory have had little affect on service performance.
Europe Logistics Costs and Service Performance
European companies have steadily reduced logistics costs since the mid-1980s. Logistics cost performance in Europe has steadily improved. From 1987 through 2003, logistics costs as a percent of sales have fallen nearly 50 percent and are now comparable to the United States. Transportation costs are typically half of total logistics costs for companies operating in Europe. In Europe, the cost of fuel and tolls is a much more significant operating factor than in North America. As in North America, European-based companies that reduced inventory (down almost one third in the last 10 years), have reduced overall costs. However, customer expectations are still not being met, and except for ?avoidance of damages? companies have not improved customer service.
China Logistics Costs and Service Performance
In China, awareness of logistics efficiency and cost is relatively new. Logistics costs in China are typically 20 percent of a products price. These costs as a percent of sales are up to 50 percent higher than in North America or Europe. Most Chinese manufacturers do not systematically calculate logistics cost and inventory carrying cost is not calculated as logistics cost. Transportation and warehousing is typically the only cost they calculate.
Source: Establish
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