Modern day commerce knows no geographic boundaries. Consumers can shop across the globe from the comfort of their couch. This was made possible by the vast global logistics network that powers the movement of goods from one country to the next.
Consumers have more power now than they did in the past and this power comes from choice. With so many different merchants to choose from, it’s becoming more important for merchants to offer more than just high quality goods at good prices, they need to offer fast and reliable delivery times too.
Ecommerce, B2B and retail companies have to put a lot of effort into minimizing the costs of their logistics operations, but what goes into successful logistics operations? How many key service points are there and just how much do they cost?
We’ll examine this from the perspective of a third party logistics provider (3PL) in Germany.
First of all
The two items at the base of all logistic costs are:
- Time
- Volume
The goal for logistics operations is to operate optimally, to do this they focus on reducing time wherever possible to increase efficiency. To increase efficiency, logistic operations aim to standardize as many tasks as possible to make sure they can be done in large volumes quickly.
3PL’s make the world go round and thanks to them we’re all able to get items delivered to wherever we need them.
Here’s how they do it.
3PL’s usually offer at least the following 4 key services to merchants.
- Warehousing
- Fulfillment
- Shipping
- Returns
What is warehousing?
Merchants make use of warehouses to get their products closer to their customers, so that when the customer makes the decision to buy something, the product is already close to the customer and the delivery time is reduced.
The costs of warehousing can be split into two areas: 1. Incoming goods and 2. Storage.
1. Incoming goods
Costs accrue from the point that the goods are received by the warehouse. The incoming goods are checked then checked. These checks can range from an order content completeness and counting check to full functionality tests depending on the service level that has been agreed upon.
Another cost driver for incoming goods is the number of Stock Keeping Units or SKU’s and the quantity of each product type.
For checks, visual inspection and counting, the average costs are:
3 – 6 EUR per SKU pallet and 3 – 4.5 EUR per SKU parcel
2. Storage
Storing goods in a 3PL’s warehouse costs money, essentially each pallet or parcel has to pay rent for the space it takes up in the warehouse.
This cost is dependent on the product’s shape and size and naturally, larger items are more expensive to store as they take up more space. If the product requires temperature control or extra safety and security measures the storage costs will increase.
What does it cost?
Storage costs are split into two categories, pallet or shelf space.
Pallet space: ranges from 6.00 – 9.00 EUR per month depending on the pallet height or weight.
Shelf space: single parcels or shelves range from 0.80 – 3.50 EUR per month depending on the size of the goods.
What are picking and packing services?
Picking and packing services are part of the fulfilment process. When an order is placed, the items are picked from their storage location in the warehouse and then packed and prepared for shipping.
What does it cost?
The costs of picking and packing vary as they are directly linked to the amount of orders and are also dependent on the number of SKU’s, the size of the product, the number of units per order and the level of customized packaging required. Another aspect that influences the cost of picking and packing is the degree of automation used at the warehouse the goods are stored in.
Ecommerce products under 1KG: ranges from 1.20 – 1.70 EUR per order for one SKU’s.
- Additional picks items of the same SKU: 0.10-0.50 per pick
Packing material: 0.20 – 0.50 EUR per box.
- If any customisation is required, i.e Branding, the cost will increase.
When it comes to B2B orders, large volumes can be expected, most of these orders will be processed using pallets.
Pick and pack per pallet: 7.00 – 10.00 EUR
What is shipping? / How does shipping work
After the fulfilling process is completed, the order moves to the shipping stage. At this stage merchants use either courier, express or parcel service providers, freight forwarding agencies or carriers.
What does it cost?
Shipping costs vary depending on the effort involved in transporting and handling the specific product. These costs are determined for each individual order or by a fixed agreement.
Shipping costs for a parcel under 2KG: 3.00 – 3.50 EUR
Shipping costs for a parcel between 2-31.5KG: 3.50 – 4.00 EUR
When shipping pallets volume weight, tolls, fuel surcharges and transit times are used to calculate the price.
Shipping costs of a pallet weighing 50KG from Cologne to Munich with a transit time between 24 – 48hr range from 45.00 – 70.00 EUR per shipment.
Pallet shipping will differ from one service provider to the next.
How do returns work?
When a customer is unhappy with the item they’ve received, they almost always have the option to return the item for free.
What does it cost?
When returning an item to the warehouse it was shipped from the cost can be broken down into parts.
1. Shipping costs: 4.00 EUR per parcel
2. Return handling: General costs: Ranges from 2.00 – 4.00 EUR per order (Depending on the products and additional services that may be required)
3. Return handling: Additional costs: This is calculated on a case by case basis.
For example, when an item is returned in a state that it has to be disposed of, or any state that makes it unsuitable to be sold at it’s original price there will likely be an additional return cost.
What about the hidden costs?
Hidden costs are nasty and go undetected until you receive an invoice. These costs can come from manual data transfer, lack of transparency, not meeting service level agreements or even compliance issues.
Be sure to enquire about all possible charges when you work with a new provider.
Successful logistics operations
Successful logistics operations display process efficiencies at all 4 key service areas: Warehousing, Fulfillment, Shipping, Returns. When the processes at these 4 key service areas are done optimally, they can become a differentiator and source of competitive advantage for retailers around the world.
TrustedTrucks can help you to minimize variances in your logistics processes
By optimising and automating the qualification process TrustedTrucks helps you to remove complexity and save time during qualification, which in turn helps you get transport orders processed faster.
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