Logistics cost

The logistics cost, or logistics cost, is the sum of those hidden costs that are produced by the succession of activities such as the storage or transport of a good, from the producer to the final buyer.

Logistics cost

The logistics cost, in other words, is the sum of all those costs that occur in the value chain. When an apple is produced, for example, it must be transported to the warehouse, where it is packed with other apples. Subsequently, the apple is transported to the wholesale market, where it is stored until its purchase by a retailer. Thus, the retailer transports the apple to his store, where he keeps it until it is sold to the final consumer. All the storage and transport costs that have been produced, this is called logistics cost.

The logistics cost is usually hidden, since it is generated during the logistics process.

The logistics cost is related to the efficiency and effectiveness of the logistics process. The more efficient and effective, the lower the cost.

What elements does the logistics cost include?

When we talk about the logistics cost we are talking about a calculation of costs, which can be broken down into different services, such as the following:

  • Storage.
  • Transport.
  • Provisioning.
  • Maintenance.
  • Inventories.
  • Distribution of finished products.
  • Cost of the personnel necessary for the development of these activities.

Thus, these costs, among others, are some of the costs that, in their computation, make up the logistics expense.

Types of logistics costs

Depending on the task from which the logistics costs are derived, we can classify them into two types.

  • Operational costs : They are those that are related to logistics facilities. An example can be warehouses, markets, distribution centers, etc.
  • Transportation costs : They are those that are related to the movement of goods. A movement that goes from its origin to the respective destinations. In most cases, the cost of transportation is the most important component of the logistics cost.

Causes of logistics costs

Among the causes that end up causing an increase in logistics cost we could highlight the following examples:

  • A bad design of the delivery system can produce inefficiencies, increasing the cost of transportation and, therefore, the logistics cost.
  • The unproductiveness of the operators in a value chain can cause a slowdown in the system, causing increases in operating costs and, in the same way, in logistics costs.
  • When an inefficient production is carried out, having to incur transports that are not full and that do not occupy all the potential load.
  • When the transport, which has not followed its maintenance, suffers a breakdown and the products are delayed, or must be sent with other alternative shipping systems.

Logistics costs can be incurred in the supply, storage, transportation, distribution, and sales process, among other processes.

Therefore, these, among many other causes, are some of those that cause increases in logistics costs.

How are logistics costs measured?

For the measurement of logistics costs, what is known as logistics indicators are used. These are indexes that allow clarifying and defining the objectives, as well as impacts, that are intended to be achieved during the logistics process. Therefore, they are measures that allow us to identify deviations, as well as compliance, in the goals set. In this way, we can evaluate and estimate the cost of the logistics process, as well as possible increases or decreases derived from complementary activities or deviations.

Thus, among the most widely used logistics indicators are:

  • Supply : Through the quality of the orders generated, the deliveries received and the level of compliance of the suppliers.
  • Storage : Through the cost of storage per unit, the cost of the unit dispatched, the level of fulfillment of the dispatch, as well as the cost per square meter of the storage plant.
  • Inventories : Through merchandise turnover rates, merchandise duration index, as well as inventory accuracy.
  • Transport : Through the comparative transport index, as well as the degree of use of trucks or vans.
  • Customer service : Through the level of compliance with customers, the quality of billing, pending bills and the reasons for credit notes.
  • Financial data : Through lost sales, contribution margins, total logistics cost, as well as the cost per 100 monetary units.

These, among others, are some of the different indicators that, in each part of the process, allow us to know and approximate the logistics cost, as well as its efficiency and effectiveness.