COST EFFECTIVENESS

Poor logistics planning and decision making can result in excessive expenditures, missed delivery
deadlines and damaged goods. This is why optimizing operational efficiency and reducing logistics costs
are very important. In fact, they should be among the top priorities for any business that does a lot of
shipping and hopes to remain financially viable.

When it comes to logistics cost management, it’s important to remember that efficient performance and
timely delivery are as vital as reducing logistics costs. You shouldn’t sacrifice the former for the sake of
the latter. In short, you must consider both cost and performance, and balance them against each other.

The major cost components affecting cost are:

1) MANPOWER:

 The cost of Unplanned Distribution of Manpower: Utilize and segregate the resources as per the
volumes in shift. For example right segregation of manpower in outbound and inbound shift as
per the volume
 The cost of Adhocs manpower: Hiring of ad hoc manpower (e.g., during peak, holiday season)
should be kept in close accounts. Once the peak/contingency is over we should not use these
manpower as the volume goes down but the cost remains same/increased when ad hocs are
removed
 The cost of low productivity: Productivity of staffs, if not managed properly results into inflated
overtimes, which in turns increases the cost of the SVC. In order to keep a check on this, ensure
proper distribution of resources in inbound and outbound team, better planning of routes, keep
a check on in time and out time of staff, undistributed volumes between different routes

2) TRANSPORTATION COST:

Vehicles that are not being used well are adding unnecessary costs to your fleet. Empty trucks on
the road are using fuel without purpose. These types of problems can be improved with better
vehicle utilization.

 Consider Backloading: A truck that is on the road without a load is a cost that is not affordable
for many modern fleets, yet eventually your vehicles will need to return to the facility after
delivering their load. Backloading is a way to avoid this problem. If you can deliver a load, and
then pick up a new one that is to be delivered on the way back to the main facility, you can limit
those unproductive legs of the trip.

 Monitor Vehicle Use: Make sure each and every vehicle is being used to delivery and pickup of
load. Non use of vehicle will not only result in wastage but also increased cost in hiring or reusing
other vehicles

 Avoid Ad-Hoc Vehicles: ad hocs amount to the maximum cost that we incur while doing pickup
and delivery. We have to keep a tab on AdHocs and plan our daily activities in such a way that ad
hocs are used minimally.
 Maximize the Capacity of Vehicles: Whenever possible, run vehicles at full capacity, rather than
running multiple vehicles at a less-than-full capacity. When replacing existing vehicles, consider
downsizing to a smaller size so that vehicles can run at full capacity.

Running a smaller vehicle that is full will cost less than running a large vehicle that is only half-full,
simply because of the lower cost of running a small vehicle.

3) Process:

The cost of poor process follow: when a process is followed poorly it can have direct and indirect
effects on the cost that is incurred.

When a process is not followed properly it can result in many issues e.g., it can lead to wrong
delivery, wrong sorting, shipment delivered late shipment lost, shipment damanged. All these
cases accounts to unnecessary costs to company through the MPG that we offer to the customer.
If the process is followed correctly, there are chances of less errors and thus no extra cost

Following a process wrongly does not only leads to extra cost but also jeopardies the relations
FedEx has with its customers.

REGULATORY

Indian logistics is a multi-billion industry, yet it suffers from business trade-offs due to its
distance from technology.

Due to every state in india having his own rules and regulations, the costs associated with travel,
for instance, inter-state permits, check posts, licensing etc, remains constant and not only
affects the P&L of the industry but also affects the TAT.

With the introduction of GST the challenges mentioned above has become minimal if not
negligible. GST, which promises to integrate India’s multi-layered indirect tax system into a
single unified one, unshackling India from its bureaucratic web and improving the ease of
doing business.

Advantages of GST in Logistics and Transportation Industry

1) Cost/Time Saving: Bigger warehouses and end market driven logistics planning is likely to
result in meaningful costs savings over time. On account of entry taxes and heavy paper
work at state check posts, there is an additional 5-7 hours added to the transit time for
inter-state transport of goods. Abolishment of entry tax and easier tax compliance
procedures is likely result in easier movement of goods across the country.

2) Forward Integration: As these companies gather scale, that will enable them to offer
services at lower costs. As a result, companies for whom transportation is not a core part
 of their business will increasingly outsource their logistics operations to third party
logistics (3PL) and fourth party logistics (4PL) service providers.

3) Single Rate: Standard tax rates will allow corporations to move away from the practice of
building a warehouse in different states to adhere to each state’s tax code. A big
packaged consumer goods company could thus make do with one large mother
warehouse at critical points in the country and employ logistics companies to manage
distribution and supply chains

4) GST will also bring in scale to logistics companies as there will be a lot of savings, stoppage of
wastage and lower delays,
These above changes will lead to greater economies of scale for transport operators and lead to
more companies outsourcing their logistics operations.