Five hidden logistics costs to watch out for

512x512-MyBus-Icon-V3_flattenIn his first blog for My Business Walter Scremin, General Manager of the OnTime Group, looks at five areas that could trip you up when you're budgeting for logistics.

Seamless transport and logistics are often the backbone – or at least the nervous system – of many small to medium enterprises. Yet many businesses struggle to pin down the real costs of running a logistics system and in many cases do not accurately know what it costs to run a single vehicle.

In the case of a single vehicle, the costs may seem relatively straightforward on the surface:

cost to buy or lease vehicle + driver + admin + registration + insurance + servicing + fuel

If only it was so simple in reality. Even taking into account that fairly long list of expenses, there lurk hidden costs that only the most organized can keep a track of.

For example, on those days where you have surplus vehicles and a car, van or tray sits idle in the parking lot, what is the cost to your business?

Reigning in hidden costs will go a long way to having a successful year. Here are the five most common hidden costs of transport and logistics that business must consider for 2012:

Hidden cost one – Delivery Inefficiencies: Inefficient delivery systems result in higher fuel costs, higher maintenance costs, wasted time and therefore money. They can also negatively impact service levels. Yet the tools exist today for any SME to efficiently optimise and track their delivery systems.

Hidden cost two – Wasted management time: Things go wrong in logistics, guaranteed. Too many organisations have management waste valuable time fighting logistical spot-fires when they could be working on other more profitable core business issues. The cost of wasted time is difficult to measure but can be exponential, so it is important to have systems for efficiently dealing with disruptions.

Hidden cost three – Over/under capacity: The hardest logistical issue is to know exactly how many vehicles and drivers you need at any time. Running under capacity, with too few vehicles for need, becomes a hidden cost because it puts strain on your responsiveness, places clients at risk due to poor service and often leads to costly band-aid solutions such as temporarily hiring couriers. Over capacity, having too many vehicles, can be equally bad – one of the greatest costs to a business is having vehicles sit idle.

Hidden cost four – Anything non-fixed: This can be difficult to pin down, and a good reason why many SMEs choose to outsource their logistics requirements. Because when you run your own fleet, you are at the mercy of fluctuations in the price of fuel, along with other non-fixed items including maintenance. Vehicle break-downs or accidents will occur without warning, interest on loans will fluctuate, wage increases and the ongoing issues relative to the costs associated with personnel injuries or accidents such as Workcover and insurance – your premiums are only fixed until you have an accident or injury, which will lead to increases.

Hidden cost five – Driver absenteeism and turnover: Getting quality, professional and loyal drivers can be tough. Replacing drivers when absent is one of the greatest disruptions and costs to any business. Absenteeism often means poor service, disgruntled staff and the cost of additional resources being employed just in case they’re required if people are absent. And every time a driver leaves it costs in term of advertising, interviewing, time spent training and becoming familiar with the business and delivery routes.

There is no easy answer to reigning in all of these costs – outsourcing to specialists is one option. But identifying these hidden costs is the first positive step toward more efficient logistics.

Walter Scremin is General Manager of OnTime Group www.ontimegroup.com.au

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