Logistics is the management of the flow of goods, information and other resources in a repair cycle between the point of origin and the point of consumption in order to meet the requirements of customers. Logistics involves the integration material of information, and transportation, inventory, warehousing, handling,

packaging, and occasionally security. Logistics is a channel of the supply chain which adds the value of time and place utility. Today the complexity of production logistics can be modelled, analyzed, visualized and optimized by plant simulation software.

There have been a lot of discussions both in business and research world about the cost efficiency and the importance of logistics performance. Companies are constantly trying to find out ways, how their cost structure could be lowered, and how the fixed costs can be transformed to variable costs. On the other hand customers are expecting price reductions and high performance of operations where total quality plays an essential role. This external and internal pressure drives companies to find out new and innovative activity models in their daily operations. Outsourcing of logistics partly or completely has become a normal way of doing business and in trying to solve the abovementioned challenges. Companies are concentrating especially their resources on core activities, and in metal industry the spare part logistics services are outsourced increasingly to external service providers. The decision whether a customer-company is willing to outsource economic its spare part logistics operation lies on expected some other issues. It seems that, savings among

generally speaking, companies seem to have problems to calculate their real costs of logistics operation, or the calculation does not take into account all necessary cost factors. This may lead to

bottom line profits. Logistics processes whether efficient and inefficient — impact revenues. it influences production and sale.logistics parts of the organization. Cost: So the Logistics cost is the expenses incurred by the company on the activities of Logistics. And in the long run the parties’ should try to find new activity models in finding innovative logistics solutions and cost efficiency. of course. I. These may be high or low on the basis of the efficiency of these activities. production schedules. It has been indicated that every operation in the organization has its cost attached to.difficult price negotiations and in the worst case the outsourcing will not be realized due to incorrect cost-calculation information. transportation cost could be regarded as a restriction of the objective market. In the logistics system. The expenses involved in logistic activities are such that it is generally difficult to collect the expenses incurred against them. facilities and the operations collect expenses incurred and derive the cost. Transport affects the results of logistics activities and. In order to reach a fruitful collaboration between a customercompany and a logistics service provider it is the interest of both parties to understand the costs involved in the investigated logistics operations. The personnel. human resource productivity and the technology that drives non. They are as follows: (1) Transportation cost: Transport system makes goods and products movable and provides timely and regional efficacy to promote value-added under the least cost principle. the balance sheet. Value of transportation varies with different .

Basic costs need to be understood. users will find it increasingly mandatory to implement near line storage. (2) Inventory cost: Inventory is a list for goods and materials. for those big. The owners should be conversant with the applicable charges. transportation cost simply occupies a very small part of sale and is less regarded. (4) Local delivery cost: . held available in stock by a business. As the warehouses grow in number and provide more services. heavy and low-valued products. There are generally three types of expenses involved and they should be understood. It is also used for a list of the contents of a household and for a list for testamentary purposes of the possessions of someone who has died. while calculating the costs. For those products with small volume. In. In business management. and therefore it is more regarded. low weight and high value. (3) Warehousing cost: Warehousing costs are levied by the warehouse owners and are an unavoidable expense for the companies that use the space. or those goods and materials themselves. In years to come.industries. determining the cost of the company gets more difficult. inventory is considered an asset. inventory consists of a list of goods and materials held available in stock. even if there is a third party involved. transportation occupies a very big part of sale and affects profits more. to reduce their data warehousing costs and make data analysis more efficient and effective.

producing an invoice. Here the direct expenses are easy to get. This method of costing is difficult to find the expenses of logistic activities. • Conventional Costing Method: In the conventional costing method the expenses are collected in such way that all the factory expenses are apportioned to calculate the product cost. but indirect expenses are difficult to get. (5) Order processing cost: The activities related to filling a customer's order . terms.checking the order.It includes cost for delivering goods from the place of production to the place of consumption. picking the goods from the warehouse. • Activity Based Costing: Activity-Based Costing Doing Things Right Doing the Right Things . customer credit and stock levels. By this the efforts are to get the idea to find the product pricing. packing and shipping them. prices.

Performing Activities More Efficientl y Activity Management Business process Reengineering Total quality Performance Measurement Choosing the Activities We Should Perform Product design Product-line and customer mix Supplier relationships Customer relationships Pricing Order size Delivery Packaging Market segmentation Distribution channel .

the seller also . Most companies offer a liberal returns policy. There are six best practices that can be followed by most businesses to reduce costs. documents needs to reach at least twenty four hours in advance to avoid delays at the border. logistics managers get into a comfort zone with the existing carriers. Arrangements with a number of smaller local carriers sometimes provide the best rate/best service combination. In case of cross border trade.Logistics Cost Reduction: Logistics cost form an important part of the overall cost structure in any organization. ports etc. 4) Technology: Internet tools enable substantial reduction in paperwork. Today both the USPS and Canada Post offer viable options for small packages. 5) Managing returns: Reverse logistics is an important element of freight costs. 2) Freight costs: There are several options to optimize freight costs. Usually. Technology also allows coordination of all shipments to optimize loading. Documents are scanned and emailed to customs. Focus needs to be on renegotiating freight and shipping rates. This can happen through reduction of window time for receiving. This leads to cost creep. Product delivery coordination is another useful tool to streamline freight costs. A flow chart needs to be made of all the operations to determine wasteful processes and combining existing processes. Renegotiation of minimum billing to a minimum for a zone needs to be explored. Starting point should be mandating delivery appointments. 1) New carriers: Constant market rate check is a best practice. it can be returned in 30. Market rate check will bring to light other more economical operations. reduction in overall freight costs and streamlining operations. 90 days depending on the seller. New carriers may be more flexible in their quotes. Internet offers excellent tools for comparing and optimizing freight costs 3) Improve shipping and receiving: Streamlining shipping and receiving practices will offer substantial savings. If the customer is not satisfied with the product. 60. At times.

the work of the logistic department seems very simple. As known. . prices fall many products include transportation costs. A logistic department spending too much money on delivery of products and cargoes makes the whole companies suffer losses and increase prices for products. Performance Measurement: “Failing to plan is planning to fail” Why is it necessary to Evaluate Logistics Performance? Evaluation of performance is important for any business. Most large production and sales companies have own logistics departments or use services of logistics companies. shipment expenses may exceed the prize of the delivered product itself which makes it two times expensive. To minimize costs associated with reverse logistics processes needs to be streamlined. At a first glance. II. But in fact. Competition is getting tougher and that is why every company needs to make sure it efficiently spends every dollar.arranges to pick it up. These agencies are usually paid on a profit sharing basis. especially taking into account post crisis realities of the recession hit economy. One should take a unit or a product and take it to another place. These audits also provide valuable insight into patterns and other cost reduction opportunities. 6) Audit of freight costs: Use specialized agencies that provide post payment audit of freight bills.

• Work on the right things.(2) Methodology for Measurement It is essential to improve the system.20 theory paraetto principle. 80. • Fix and stick with the targets. like brain storming. • Have a “scoreboard”: • Use standardized methods. For that matter different techniques are to be used. . etc. Once the list is finalized to identify the areas of improvement. • Adopt a holistic approach. it has to be finalized where to attack.

Logistic resources: working Productivity depends upon resources.Logistics Productivity: Following is the process for logistic productivity: 1. transportation . Resources like persons [workers]. inventory cost.

etc which are required for production . All this resources incurred costs or expenses. Logistic output: The last step of logistic productivity is output.system. inventory management. customer response. supply to customers. Production is done and is supplied to customers and gets response from customers about product. Operation includes transportation. 3. This largely depends on sales. Logistics operation: After resources are allocated next step is operation or process for production. . Logistic output can be achieved by getting perfect orders and appropriate storage capacity. warehousing for storage purpose. 2.

logistics-management-kpi.com/ .Bibliography: • • Wikipedia Logistics Cost Structure And Performance In The New Concept By Pasi Kivinen – Anita Lukka • http://www.

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