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US
Logistics Costs and Service Performance
Based on our logistics cost and service database,
logistics costs in the US
can be 5 to 20 percent of net sales*:
Transportation 2
to 10 percent
Warehousing 1
to 5 percent
Inventory
carrying 1 to 3 percent
Customer service 0.5
to 1 percent
Administration 0.2
to 1 percent
North American companies that successfully reduce inventories are most likely to reduce
overall logistics costs. Reducing inventories alleviates pressure on
warehousing, so warehousing costs in the US have declined since the last
North American recession (2001). Primary transportation (deploying inventory)
also comes down when inventory levels decline. These cost reduction actions are
the normal reaction to weak recession-related sales. Companies work hardest to reduce costs during
a recession. The actual cost reduction traditionally shows up in the years
immediately following the recession. By
then…….. SALES ARE UP AND COSTS ARE
DOWN.
Although
customer service remains a top priority for most companies, actual delivery
performance has remained steady over the years. From a positive perspective, the significant
reductions in inventory have had little affect on service performance.
Europe Logistics Costs and Service Performance
European companies have steadily reduced
logistics costs since the mid-1980s. Logistics
cost performance in Europe has steadily
improved. From 1987 through 2003, logistics costs as a percent of sales have
fallen nearly 50 percent and are now comparable to the United States. Transportation
costs are typically half of total logistics costs for companies operating in Europe. In Europe, the cost of fuel and tolls is a much
more significant operating factor than in North America.
As in North America, European-based companies that reduced inventory (down
almost one third in the last 10 years), have reduced overall costs. However, customer
expectations are still not being met, and except for “avoidance of damages”
companies have not improved customer service.
China Logistics Costs and Service Performance
In China, awareness of logistics efficiency and cost is relatively new. Logistics
costs in China
are typically 20 percent of a products price. These costs as a percent of sales
are up to 50 percent higher than in North America or Europe.
Most Chinese manufacturers do not systematically calculate logistics cost and inventory
carrying cost is not calculated as logistics cost. Transportation and
warehousing is typically the only cost they calculate.
Global Supply Chain Trends
- Companies
sourcing in China
will pay more attention to logistics costs – not just the product cost.
- Measuring
logistics costs between regions – what is the total landed cost from factory to
customer?
- Transportation
cost will continue to be the most noticed and watched cost in logistics.
- Total
supply chain strategy – including inventory management – can drive logistics
cost improvement.
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