Corporate cards

Logistics cost management with corporate cards

Apr 05, 2024

Logistics cost management plays a pivotal role in the success and profitability of businesses, particularly in an era marked by increasing globalization and complex supply chains. With the rapid growth of e-commerce and the heightened demand for efficient transportation and distribution, logistics costs have become a significant concern for companies worldwide.

According to some industry specialists, the prevailing belief is that logistics costs in India account for around 14% of the country's GDP. The impact of logistics costs on businesses is undeniable. Rising transportation expenses, inefficient supply chain management, inventory carrying costs, and delays in deliveries can all contribute to higher logistics costs, ultimately affecting a company's bottom line.

In recent years, businesses have recognized the importance of effective logistics cost management to maintain competitiveness and improve profitability. Implementing corporate cards in logistics operations is one strategy that has gained attention due to its potential benefits, such as streamlining payment processes, improving expense tracking, and optimizing cash flow. Identifying the areas of expenses and optimizing them with corporate cards can do great for any business.

What is logistics cost?

To understand what is logistics cost you must know that it essentially refers to the expenses incurred by a business in managing the movement, storage, and transportation of goods and services throughout the supply chain.

Logistics costs include costs associated with transportation, warehousing, inventory management, packaging, and order fulfillment. Effective management of logistics costs is crucial as it directly impacts the overall profitability of a business.

Factors influencing logistics cost in India

1. Inventory management cost

Inventory management encompasses warehousing costs, inventory carrying costs, and related expenses. Inefficient warehousing practices, inadequate storage facilities, and suboptimal inventory levels can lead to higher costs.

Businesses must strike a balance between maintaining adequate stock levels to meet demand while minimizing carrying costs and obsolescence.

You might also like to read: Inventory turnover ratio - What is it and how to calculate?

2. Regulatory compliance costs

Regulatory compliance in India involves customs duties, taxes, documentation, and legal requirements. Adhering to these regulations incurs costs for businesses.

Changes in regulations or complex compliance procedures can further impact logistics costs.

3. Transportation cost

Transportation expenses involved in logistics cost management in India are influenced by various factors. Fluctuating fuel prices directly impact the overall cost of transportation.

Additionally, the country's infrastructure challenges, including congestion and inadequate roadways, can result in delays and increased transportation costs. Freight rates and handling charges imposed by logistics service providers also contribute to transportation costs.

4. Labor cost

Labor costs, including wages and benefits, play a significant role in logistics operations and logistics cost management. India's labor-intensive logistics industry relies heavily on manual labor for tasks such as loading, unloading, and sorting. Labor shortages and wage inflation can increase costs for businesses.

5. Cost of investment in new technology

Embracing new technologies such as supply chain visibility and tracking technologies, warehouse management systems, and automation solutions can drive efficiency and reduce costs in the long run.

However, the initial investment required for implementing such technologies can be a significant expense for businesses.

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What is logistics cost optimization?

Logistics cost optimization refers to the process of maximizing efficiency and minimizing expenses in the management of logistics activities. It is a crucial aspect in the broad spectrum of cost control of business expenses.

How to optimize logistics cost generally involves identifying and implementing strategies, such as improving transportation routes, optimizing inventory levels, streamlining supply chain processes, and leveraging technology, to reduce costs while maintaining or improving the service quality.

Key strategies for effective logistics cost optimization

1. Maintain supply chain visibility

To optimize logistics costs, it is crucial to have visibility across the entire supply chain. This involves identifying pain points, bottlenecks, and inefficiencies.

Implementing standardized processes, utilizing technology, and establishing clear communication channels with suppliers and partners can help map and monitor the flow of goods, enabling better decision-making.

2. Transportation cost optimization

Transportation expenses often constitute a significant portion of logistics costs. Optimizing transportation involves strategies such as route optimization to minimize distance and fuel consumption, consolidating shipments to achieve economies of scale, and selecting the most cost-effective transportation mode based on the nature of goods and the urgency of delivery.

3. Inventory management

Effective inventory management plays a vital role in optimizing and reducing logistics costs. Accurate demand forecasting enables businesses to maintain optimal inventory levels, reducing carrying costs and the risk of stockouts or overstocking.

Utilizing inventory optimization techniques, such as just-in-time (JIT) inventory, can minimize storage costs and improve cash flow.

4. Supplier management

Collaborating closely with suppliers can help significantly in reducing logistics costs. Negotiating favorable terms, including pricing, payment terms, and discounts, helps reduce procurement costs.

Selecting reliable suppliers based on quality, efficiency, and delivery capabilities is essential. Regularly monitoring supplier performance and fostering collaboration can drive efficiency and cost optimization.

5. Adopt new technologies

Embracing technology is a sure-shot way to enhance logistics cost management and optimization. Transportation Management Systems (TMS) can automate and optimize routing, carrier selection, and freight consolidation.

Warehouse Management Systems (WMS) enable efficient inventory tracking, space utilization, and order fulfillment. Enterprise Resource Planning (ERP) systems provide end-to-end visibility and data integration. Internet of Things (IoT) devices can facilitate real-time tracking and monitoring for improved efficiency.

6. Implement corporate card and expense management solutions

Integrating corporate cards and expense management solutions into logistics operations can streamline payment processes, reduce administrative burdens, enhance security, and simplify invoice management.

These solutions enable centralized control and visibility over expenses, facilitating cost tracking and analysis.

7. Building a strong supplier network

Expanding and diversifying your supplier network can also give you a competitive edge and help with how to optimize logistics cost. Working with multiple suppliers aids in securing improved pricing, mitigating risks, and ensuring an uninterrupted flow of goods.

Cultivating enduring supplier partnerships founded on trust and mutual advantages can facilitate logistics cost optimization by enhancing dependability and agility.

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The role of corporate cards in logistics cost management

Corporate cards have become an increasingly popular payment method in the logistics industry due to their ability to streamline the payment process.

1. Streamline payment process

Corporate cards simplify and expedite the payment process in logistics operations. They eliminate the need for time-consuming manual processes, such as writing checks or processing invoices, by providing a convenient and efficient electronic payment method. This streamlining of payments leads to improved efficiency and reduced processing times.

Suggested read: Guide to bulk payment system in India - Types, features & benefits

2. Improved security

Corporate cards offer enhanced security measures compared to traditional payment methods. They often come with advanced features like EMV chips and PIN codes, reducing the risk of fraudulent transactions.

Moreover, businesses can set spending limits and track expenses in real-time, providing an additional layer of security and control.

3. Increased control and visibility

Corporate cards provide businesses with better control and visibility over their logistics expenses. Transactions made with corporate cards are typically recorded electronically, allowing for easy tracking and monitoring of expenditures.

This visibility helps businesses analyze spending patterns, identify cost-saving opportunities, and make informed decisions regarding logistics cost management.

Related read: Best business expense tracker app of 2023

4. Improved supplier relationship

Corporate cards can foster stronger relationships with suppliers. With prompt and reliable payments, businesses can build trust and credibility with their suppliers, leading to improved collaboration and favorable terms.

This can result in negotiating better pricing, discounts, or other cost-saving benefits, ultimately contributing to logistics cost optimization.

5. Easy vendor payment

Corporate cards simplify the vendor payment process, particularly in logistics where multiple suppliers and service providers are involved.

Instead of managing multiple invoices and payment methods, businesses can consolidate payments through corporate cards, streamlining the payment workflow and reducing administrative complexity.

6. Cost savings

The use of corporate cards in logistics cost management can lead to reducing logistics costs as well. Manual processes, such as paper-based invoicing and check writing, can incur additional expenses, such as printing and postage costs.

By transitioning to electronic payments with corporate cards, businesses can reduce these manual process costs and achieve overall cost savings.

7. Reduced administrative burden

Corporate cards alleviate the administrative burden associated with manual payment processes. They eliminate the need for extensive paperwork, manual reconciliation, and manual data entry.

This frees up time and resources, allowing logistics teams to focus on more value-added activities, such as optimizing supply chain operations and addressing customer needs.

Volopay cards for effective logistics expense management

Corporate cards can be invaluable tools in logistics cost management. Volopay corporate cards, for example, can help significantly by offering a streamlined and efficient payment solution. These cards provide businesses with real-time expense tracking and control, enabling better visibility and analysis of logistics expenses.

With Volopay cards, businesses can set spending limits, track transactions, and gain insights into spending patterns. This helps in identifying cost-saving opportunities, optimizing logistics expenditures, and improving overall cost management.

Additionally, Volopay cards simplify vendor payments, reduce administrative burdens, and enhance security, making them a valuable tool for effective logistics cost management.

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