Reducing logistics costs: issues and challenges for companies

In order to be sustainable, every company must constantly monitor its profitability: reducing costs, increasing sales, improving working capital requirements and self-investment capacity, etc.

Optimizing logistics costs is one of the first strategies implemented by companies, it is one of the simplest levers of action and the results are there. A small reduction in logistics expenses can lead to significant gains, as the effect is exponential due to the importance of logistics flows (physical, information, financial, human, etc.).

The optimization of the logistics chain and the inherent costs cannot be done without a precise analysis of the improvement areas (use of performance and financial KPIs), as well as a sales forecasting solution to permanently adjust the company's logistics activity to its market.

In addition, the company is confronted with numerous issues and must respond to certain challenges. Let's discover all this together.

Anticipating purchasing behavior, a challenge to reduce logistics costs

Logistics encompasses all the processes that enable the management of the physical flows of the company, from the purchase of raw materials or goods to the final delivery (to the customer for online sales or at the point of sale), in other words "from the supplier's supplier to the customer's customer". A better organization of the supply chain allows, in addition to an increased performance, to realize important savings for a very fast ROI (return on investment).

The effect is even stronger insofar as each sub-activity can be adjusted (transport, storage, delivery, handling, etc.), which contributes to improving the quality of service and consequently, customer satisfaction.

Les logiciels de prévision des ventes pour maîtriser ses coûts logistiques

Optimizing the functioning and costs of the supply chain cannot be done without a perfect knowledge of the company's activity, in particular by a complete audit of the processes (using KPIs adapted to the desired objective) in order to highlight the areas for improvement.

But this is not enough. The challenge lies in anticipating customer buying behavior in order to adapt supply chain activity to the needs of the unpredictable and volatile market. It is in this context that sales forecasting software has a major role to play.

Today, there are solutions integrating artificial intelligence (AI), and the results in terms of reliability and accuracy of forecasts are notable. A forecasting software with integrated AI and machine learning is able to analyze a large set of internal data while integrating external data that may impact the company's activity (legislation, news, weather, competition, fashion, etc.). In addition to this analysis capacity, artificial intelligence allows for a high level of forecast accuracy.

Forecasting software can therefore anticipate future trends and predict permanent sales and promotional sales, which is particularly useful for inventory management. Here are some examples of sales forecasting applications that can optimize costs:

reduce storage time (product immobilization), which is a source of cash flow lag (supplier payment can be made well before the sale to the customer), which affects the company's investment capacity and requires external investments;
avoid overstocking which generates higher storage costs, since the surface of the warehouses must be larger, as well as a more important handling;
reduce the number of unsold and lost goods or products (outdated, obsolete, technologically outdated, etc.);
limit stock-outs, in which case orders cannot be fulfilled and/or production must be suspended due to lack of raw materials, and the company's image suffers.

Control your logistics costs to optimize your pricing

The use of a sales forecasting software allows the company to be more profitable and represents a significant competitive advantage, source of customer satisfaction and loyalty. Indeed, the control of losses and unsold goods, of logistic costs, of stocks adapted to the current or future activity, etc., allows to increase the turnover (better margin and more sales), but also contributes to the price policy of the companies.

Let's take the example of e-commerce. The study conducted in 2020 (on 2019 figures) by the FEVAD (the Federation of e-commerce and online sales) shows that the main criteria for buying online is the delivery time and its price, free delivery being more sought after by consumers.

Thus, an e-commerce which controls its logistic costs and which knows how to anticipate the flow of the orders to come has then all the latitude necessary to propose a fast and free delivery. Of course, each sector, production mode, or company has its own logistics and its own stakes.

But if there is one dimension common to all companies, regardless of their sector of activity (mass distribution, food retail, online sales, restaurants, industry, luxury, etc.), it is customer satisfaction, the cornerstone of any business. This satisfaction requires the acceptance and integration of changing needs, such as flexible delivery or in-store pick-up, availability of products in stock, a varied assortment, attractive sales prices, interesting promotions, etc.

Reducing logistics costs, a challenge for profitability, performance and competitiveness

Because logistics costs are one of the main expense areas in a company, logistics is often considered as a burden whereas it should be perceived as a source of value creation.

Indeed, if a bad management of its logistics can have dramatic consequences, it is then legitimate to think that an efficient and profitable management of the supply chain allows a considerable gain in value.

The challenge of optimizing logistics costs for the company's development

Reducing supply chain expenses allows the company to increase its commercial margins. But more than a simple gain in profits, the savings made allow the company to increase its WCR and its positive cash flow to increase its investment and self-financing capacity, source of sustainability and innovation.

For this, companies must understand that it is sometimes (not to say often) necessary to know how to spend money in order to save it over a more or less long term. Investing in equipment or sales forecasting software, for example, must be seen as a global strategy for the future. There are many solutions to develop:

development of a "just-in-time" or real time inventory management process to reduce warehouse storage space;
reorganization of processes and/or work spaces in order to rationalize resources (material, computer, human, etc.) by pooling them between several activities of the supply chain or points of sale;
outsourcing all or part of its supply chain in order to benefit from the know-how, reputation, teams, etc., of external partners who are experts in their field of competence and to offload a time-consuming and costly activity so that the company can concentrate on its core business;
robotization of a part of the supply chain (for instance, the preparation of orders thanks to an autonomous handling management solution) in order to relieve the teams, eliminate travel time, reduce the storage space by eliminating access aisles, etc.;
etc.

The new processes implemented can (and should) also facilitate the work of the company's employees and improve their working conditions, particularly in terms of arduousness. Building customer loyalty is one thing, but building employee loyalty is just as important: better involvement, source of motivation, good "employer brand", reduction of turnover, work accidents and sick leave, favorable social climate, etc.

The challenge of optimizing logistics costs for customer loyalty

As we mentioned, optimizing logistics expenses allows a company to offer competitive prices to its customers. But attractive prices are useless if the quality of service does not (or no longer) follow. Reducing logistics expenses should not be done at the expense of service quality, which is a set of values specific to each business sector: quality of manufactured products, freshness of foodstuffs, variety of choice, after-sales service, technical support, etc.

On the contrary! The optimization of the supply chain processes and the savings made are a lever for the company to adapt to the evolution of its market and respond to the new needs or expectations of customers through the development of its activity: R&D, development of a new product range or a new service (returns management for an e-commerce for example, second purchase criteria for customers), implementation of environmental initiatives (increasingly sought after by customers), such as ecological or reusable packaging, less polluting modes of transport, circular economy, etc.

Moreover, today the use of forecasting software facilitates the company's innovation work insofar as it predicts market trends. Moreover, this type of tool allows to make precise simulations from many possible scenarios and to visualize the expected ROI in order to choose the most efficient business strategy with regard to the defined objectives.