As companies continue to manufacture and source materials from overseas, controlling costs remains a top priority for all those involved in international trade. One key factor that should be monitored more closely is logistics management, which covers all activities relating to the procurement, transport, transshipment and storage of goods. Depending on the industry, supply-chain costs account for 5 to 50 percent of a product’s total landed cost.
Some issues affecting logistics costs: Fuel prices remain high, and ports continue to experience delays, resulting in higher transportation fees. Increasingly complex international trade laws and security measurements threaten to lengthen delivery times and increase warehousing costs. According to a recent report by TechnologyEvaluation.com, a typical airfreight shipment takes eight to 12 days. Of this, the cargo is en route only 5 percent of the time. It spends the rest of the time sitting in warehouses waiting for the required documents and compliance checks.
Here are 10 tips on how to reduce supply-chain costs:
1. Understand the true costs of sourcing overseas.
Calculate freight, duty, brokerage, and inventory-carrying costs to support these lengthened supply chains. Factor in such items as the costs of flying engineers overseas. Once you understand the true total landed cost and total impact to the business, buying domestically may look a lot better. Sourcing from Ohio to your U.S. plant, distribution center or customer may, in the long run, be more cost-effective than sourcing from China.
2. Focus on eliminating the variability from transit times.
The more variable the transit times are, the more likely it is that the receiving party is using more premium freight, building buffers of inventory or ordering more often and more quantity than necessary to compensate for the uncertainty. Understanding these dynamics can lead to the conclusion that paying higher freight costs to ensure higher variability actually saves your company in total costs.
3. Tariff engineering.
Strategically source and manufacture products to take advantage of classification duty rates and eligibility for special trade programs such as the North American Free Trade Agreement.
If you have multiple suppliers in one country, consolidate their goods into one shipment. In addition, if you always have less-than-containerload shipments out of one country, try to find another LCL importer of goods from that country. You may be able to partner and consolidate to a more cost-effective full-containerload shipment.
5. Informed decision-making.
Provide to the decision-makers/customers of your logistics network the cost of freight for each service level, the reliability of each lane for each service level, and the true cost of carrying inventory so they can make informed decisions. People generally want to be good corporate citizens and will select the less expensive option that still meets their needs.
6. Sometimes insurance doesn’t pay.
When a company has a shipment of premium goods, they often tend to use the carrier’s insurance, which is very expensive. If the company is self-insured, as most companies are, it should check its insurance policy to see if it covers shipment of goods. If it does, the company does not need to add the extra cost of carrier’s insurance.
7. Automate compliance processes.
Companies that implement software solutions to automate trade compliance are able to speed the cycle times associated with tasks being performed manually, such as document preparation, and eliminate the associated errors. Automated compliance procedures also bring fewer delays at border crossings, resulting in on-time delivery, adequate inventory levels, increased customer satisfaction, and the avoidance of fines.
8. Control your express shipping costs.
When a company runs into a supply-chain issue, it typically will have an entire shipment sent on an express/expedited (highest-cost) service basis. Panicking often results in higher costs. A little bit of calculating can help the company determine the amount of goods needed immediately. It can then have that amount sent using express/expedited services, while the balance of the shipment can be sent using a standard (lower-cost) service.
9. Planes, trains and automobiles.
Which is cheapest? In general, rail is more cost-effective than trucking or air. Water is cheaper than air shipment. No matter the mode of delivery, always try to get three quotes for movements.
10. Be aware of non-tariff trade barriers.
Companies need to be more aware of the increasing level of non-tariff trade barriers that are in force to reduce sweatshop labor and support human rights and animal welfare issues. These restrictions can bring importers increased liability and compliance costs.