How much should you pay for logistics?

It is difficult to define the correct – or even a reasonable share of logistics costs from the total costs.

Availability, customer experience, and costs

As a company is concentrating on developing its logistics, the first thought that comes into mind is how to cut logistics costs down to a minimum. What is more important is how to build a supply chain which is most attractive to customers.

For example, the availability of a product is an essential part of customer experience. A customer will be willing to wait for some products for weeks, whereas others must arrive within a couple of days. If a product is really low-priced and the customer does not need it before, say, the following Christmas, she may be ready to wait for its delivery for a longer time.

Co-operation improves decision-making

Decisions on buying logistics services and on financing are often made by different people within organizations. This means that calculations on logistics sometimes fail to take into account that valuable products tie up capital during transportation. Companies should advocate internal co-operation in planning logistics solutions.

A good practice is to calculate the costs for a few chosen transport alternatives and to choose the best. In choosing the correct solution, it helps if one remembers to take into account capital cost in determining the total costs. If a company is importing laptops to the value of one million euro by sea from China, it has for a long time a considerable amount of capital tied up in these gadgets. From the viewpoint of income formation, it may be more rational to use air freight, which is more expensive but faster than using sea freight.

Correct form of transportation

Different forms of transportation should be combined in creating the best total solution. It is also evident that the country of production clearly affects logistics costs. For example, a freezer is technically a simple product and vis-à-vis its size relatively cheap. However, a considerable share of its costs may be logistics costs, if the product is manufactured far away.