As your business grows, so too will your need for demand-driven logistics. This will help you run an agile operation that can respond to customer and market demands quickly. Read on as we explore the ways your business can implement “supply and demand” logistics.
What is Logistics Optimization?
You'll know, of course, that Logistics refers to the planning framework that enables businesses to store and transport their goods to their customers. So logistics optimization, therefore, is about finding the most efficient and cost-effective ways to do so.
Businesses may face challenges within their logistics network – for example, managing their inventory levels during peak season – but by leveraging technology, AI and data analysis, they can better navigate such hurdles.
Why is Logistics Optimization important?
The priority of any e-commerce business is to get their products to their customers on time. Logistics optimization supports this, whilst also helping the business reduce costs. Route optimization is an example – a business adopting route planning software across its logistics can get their goods to customers in the most efficient way, improving delivery times and reducing fuel costs. With enhanced logistics planning, any business can improve its logistics performance to drive higher revenue and profitability.
How to Optimize Your Logistics Operations
By investing in a logistics operations management strategy, your business will benefit from improved efficiencies and reduced costs. Here are some best practices to follow.
Review Your Logistics Capabilities and Areas for Improvement
The first step for logistics network optimization is to look at your existing performance data to establish your current weaknesses and limitations. This might include things like your on-time shipping rate (how many orders left your warehouse on time), your picking and packing times (could they be faster?), your inventory management accuracy (how often you’re overstocking or understocking), and your customer satisfaction record.
It's also important to consider reverse logistics optimization. Have you considered the best ways to process your product returns? Integrating a program that promotes the refurbishment, repair and resale of these products will help you reduce costs and waste.
Establish Clear Goals for the Process
You need to have a goal in mind for your logistics optimization. Metrics and KPIs (Key Performance Indicators) will help you stay on target. The areas of improvement you have already identified (see previous point) for your business’s logistics should guide these metrics, but the key ones to consider include:
- On-Time Delivery Rate: calculated by dividing the total number of orders by the number of deliveries that arrived with the customers after the promised delivery date.
- Picking Accuracy: calculated by subtracting the number of customers’ returns due to “wrong item” from the total number of orders.
- Inventory Accuracy Rate: the difference between the inventory you have tracked and what is actually physically present in your warehouse.
What all such metrics have in common is their connection to your business delivering a great customer experience. Improving these metrics ensures your customers get their orders on time, accurately, and without having to wait for stock to come back in.
Enhance Supply Chain Collaboration
Logistics is just one part of the supply chain. But to optimize your logistics, it’s important to look at the wider picture, as ultimately, the effectiveness of your business’s supply chain will impact how quickly you can respond to customers’ demands. For example, you may have set a logistics goal to improve your delivery times to customers, but this will be fruitless if the manufacturer(s) at the top of the chain has capacity constraints.
You should consider an audit of your current supply chain partners to identify where improvements can be made. Communication is key, too: sharing your goals and building common metrics and targets will improve the collaboration efforts.
Implement Logistics Management Software
Logistics management software covers a range of technology solutions designed to automate and streamline logistics processes – reducing the chances of human error, saving costs, and getting goods to where they need to be more efficiently. Examples include warehouse management, order management and inventory management systems.
Let’s take the last one as an example. As your business grows, and data becomes too complex for spreadsheets, inventory management software will help you track your inventory levels, orders, sales and deliveries. It will notify you if levels get too low (and even automatically place new orders with suppliers), and can determine more optimal use of your storage space. All of which means a more efficient system.
Use Logistics Technology and Digitization
The types of technologies used in logistics is evolving rapidly, as businesses seek innovative ways to save time and money. In warehouses, autonomous mobile robots use real-time path planning to pick and pack orders more quickly; blockchain is improving the flow of data between devices and logistics providers to streamline supply chains; whilst AI is enhancing customer service by better understanding shoppers’ intent. In short, logistics technology is transforming almost every step for more efficient operations. Dive into its full and exciting potential with DHL’s Logistics Trend Radar.
Logistics Costs Optimization
Reducing your costs will be a by-product of many of your logistics optimization strategies. But there are additional, dedicated steps you can take for logistics cost optimization. Some to consider:
- Identify and eliminate empty warehouse space: a warehouse management system can help you store your inventory in the optimal way and thus reduce your storage costs.
- Similarly, eliminate the empty space in your packaging. Shipping is typically charged by the size of your packages, so you’ll reduce your costs.
- Partner with a 3PL (third-party logistics) provider with in-depth knowledge of your business area. Research by McKinsey1 found specialized fulfillment drives cost savings of 7-9% in comparison to mainstream fulfillment. DHL, for example, has extensive experience helping SME e-commerce businesses reach their customers in the most cost-effective ways. Its Dynamic Discount pricing program rewards businesses with increasing discounts as their shipping volume grows, so the more they ship, the more they save.
Ensure Scalability and Flexibility
An agile logistics operation will enable your business to adapt quickly to market changes, anticipate spikes in demand, and meet customers’ ever-increasing delivery expectations. Discover actionable steps you can take for a flexible, resilient supply chain, here.
Align Team Goals
Lastly, ensure your staff are all on board. They should be aware of your business’s logistics optimization goal and how their decisions may impact its success. Invite their feedback on where they think improvements can be made. Teamwork makes the dream work!
1 – Everstox, 2023
