Overview

Logistic Cost
in Industry

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Overview of Logistic Cost

Logistics Cost
Plays very important role
◦ cutting down overall operational cost

Gives focus on
◦ reduction of material cost

Will help
◦ In reducing the cost of product
◦ Increases the overall profitability of the plant.

Measured in terms of percentage of turnover.

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Overview of Logistic Cost

Elements of Logistic Cost

Capital, Personnel,
Scrapping and Other Cost

Freight, Packaging cost and

Custom

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Overview of Logistic Cost

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Overview of Logistic Cost

Capital Cost
Incurred Inventory cost carried by the Plant and inventory in
transit.
It consists of
◦ raw material,
◦ WIP,
◦ finished goods,
◦ warehouse inventory,
◦ indirect material inventory including machine spares
◦ Trade goods Inventory
◦ Special Inventory

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Overview of Logistic Cost

Capital Cost
◦ Procurement , Customer order planning & Production
planning team plays important role in optimizing
inventory levels in the Supply Chain

◦ The Planners need to measure their inventory on daily

basis & they should have consumption data on daily
basis

◦ The Source team should develop Super market concept

for all A class items at Supplier end & inward material as
per daily requirement for local parts.

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Overview of Logistic Cost

Capital Cost
◦ The concept of daily Milk run should be developed for getting
the parts from Suppliers

◦ The lot size /packing size should be optimized in such a way

that material is inwarded based on daily requirement for local
material & weekly supplies for imported material

◦ The source team should work for reducing transit lead time
both for imports & local suppliers.

◦ All local parts should be brought thru daily milk run from
Suppliers .

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Overview of Logistic Cost

Capital Cost
◦ All B & C class parts to be stored as per Defined Min/Max
stocking policy

◦ Introduce Kanban System with Suppliers for getting the

material

◦ Introduce Super markets at Shop floor & withdraw

material from stores as per defined Super market .

◦ All parts to be delivered at Shop floor thru Cyclic Milk run

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Overview of Logistic Cost

Capital Cost
◦ Introduce Pull Concept at Customer Warehouse &
dispatch only those parts which are consumed by
Customer

◦ Production to be planned in levelled way & Produce

those parts which are consumed by Customer

◦ Daily dispatches should be planned to Customers for

Runner Part

◦ The whole Supply Chain should work on Pull Principle

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Overview of Logistic Cost

Freight cost
Major contributor of logistic cost.
Consists of following category of Freight :
◦ Special Transport within India
Air mode, Courier ,Special Vehicle
◦ Special transport from Outside India
A service ,Flash service ,Unplanned Air freight
◦ Normal Transport
Road Transport ,Sea Mode

◦ Planners need to optimize the freight in movement of

material in the whole Supply Chain .

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Overview of Logistic Cost

Freight cost
In case of inbound /Outbound freight (within India)
Need to have good quality of transporter who can give
best service with minimum cost.
This will be possible when we start developing following
KPI’s.

◦ Percentage utilization of vehicles on daily basis

◦ Lead time deviation from the agreed lead time and according
penalty to be recovered from the transporter
◦ Optimization of routes
◦ Follow the system of milk run
◦ Monitoring the premium freight and work out root cause analysis.
◦ PDCA(plan,do,check and act) approach should be followed for
eliminating the reasons of premium freight.

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Overview of Logistic Cost

Packaging Cost
Plays an important role in logistic cost.
Finished products must be packed in such a way that it
reaches to the customer without any damage and pilferage.
Good quality of packing plays important role in customer
satisfaction
We can find improved ways of packaging reducing cost.
Reduction in packing weight also leads to reduction in
freight cost. In case of Export Consignments it can play a
major role .

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Overview of Logistic Cost

Packaging Cost
The packaging cost can be minimized by following methods
◦ Plan & convert corrugated boxes to returnable packaging.
◦ Delivery of products with the aim of proper condition and quantity &
correct documents avoids the irritation to customer.

The returnable packaging for finished products has found a

very good solution in reducing overall cost ,reducing transit
damages and helping the environment.
Returnable packaging should also be planned for suppliers
located near to your Plant
Wooden packaging should be reduced as far as possible.

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Overview of Logistic Cost

Customs
◦ Many of the industries are importing lot of material

◦ We have to pay custom duty and CVD to the Government of

India.

◦ Goods should be tariffed and classified correctly so that we pay

correct duty to Customs

◦ Organizations can take countermeasures to minimize logistics

costs, such as order consolidation, multimodal transport, sea
freight versus air freight, and so forth.

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Overview of Logistic Cost

Customs
◦ Efforts are required on localization of imported parts.

◦ Localization will help to reduce Custom duty, Inventory

carrying cost, Freight and reduce lead time in delivery of
products to customers.

◦ The logistic department should have monthly MIS of import

and should demand localization Plan of import parts from the
Purchasing Deptt

◦ Due to high lead time of import parts, there is high risk of non-
moving/slow moving inventory due to fluctuation in demand
and localization will help in reducing this risk.

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Overview of Logistic Cost

Logistics relevant personnel cost

◦ Cost incurred on the manpower associate with logistics
department.
◦ Presently, this cost is much lesser in India compare to
Germany & other developed countries.
◦ Attempting to handle logistics activites in-house without
the proper expertise often leads to higher costs because
it’s not part of the organization’s core function.
◦ Logistics colleagues should find out ways to automate
manual operations in physical logistics area.
◦ Productivity Improvement should be the continuous
focus & should be measured on Monthly basis

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Overview of Logistic Cost

Other external logistics services

Mainly consists the cost incurred in running the outside
warehouse between
◦ suppliers and plant
◦ plant and customers.

We have to work in
◦ improving productivity of employees
◦ planning supermarket concept in warehouse
◦ reduction transit lead time using latest technology like RFID ,Bar
coding ,Alpa scan.

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Overview of Logistic Cost

Scrapping and others

◦ Cost for write-off and tool scrapping
◦ But, not very significant.

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Overview of Logistic Cost
Logistics cost measure tracking

Hardness
Action fields Description of measure Degree YTD CF03 CF05 CF09 Owner Comments
(HG)
1. Procurement Reduction in capital charges 5 200 200 150
Localization Localization projects
2. Goods receipt, 3. Incoming 0 0 0 0
inspection
3. Warehouse 0 0 0 0

4. Empties and packaging Sub Total 0 0 0 0

management
5. Freight Sub Total 0 0 0 0

Localization projects
Reduction in import air freight due saving start from July
to localization onwards

Reduction in import air freight due Additional measures to

to increase in sea freight compensate SI impact
6. Custom duties Sub Total 0 0 0 0

Localization projects
saving start from July
Localization onwards
7. Modification of contracts Sub Total 0 0 0 0

Optimization of vehicle
Re-negotiation of cost paid to 3PL utilization for milk run

Total SUM SUM SUM SUM

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