Challenge
A manufacturing company was grappling with exorbitantly high distribution costs per cubic meter (m3) of goods, severely impacting its bottom line. The primary issues contributing to these inflated costs included an inefficient in-house logistics operation, lack of competitive pricing in freight and distribution services, and a cumbersome goods preparation process that was both time-consuming and resource-intensive. These challenges were not only eroding the company’s profit margins but also hindering its ability to compete effectively in the market due to high product prices.
Actions
To address these critical issues, the company embarked on a strategic initiative to drastically reduce distribution costs through the following key actions:Outsourcing Logistics Operations: Recognizing the limitations of its in-house logistics capabilities, the company decided to outsource these operations to third-party logistics (3PL) providers with specialized expertise and economies of scale.Conducting a Freight Tender: To ensure competitive pricing, the company initiated a comprehensive tendering process for freight and distribution services. This involved inviting bids from multiple service providers, evaluating their capabilities, and negotiating favorable terms based on volume and service level agreements.Modifying the Goods Preparation Process: A critical review of the existing goods preparation process revealed several inefficiencies. The company implemented process improvements, such as adopting lean principles, automating manual tasks, and reconfiguring the packaging and palletization methods to optimize space utilization and reduce handling times.
Results
The strategic measures undertaken by the company led to significant achievements:60% Reduction in Distribution Costs per m3: By outsourcing logistics operations, securing competitive freight rates through tendering, and streamlining the goods preparation process, the company achieved a remarkable 60% reduction in distribution costs per cubic meter.Enhanced Operational Efficiency: The outsourcing of logistics operations to specialized 3PL providers and the optimization of the goods preparation process resulted in improved operational efficiency, faster turnaround times, and higher throughput.Improved Profit Margins: The substantial reduction in distribution costs directly contributed to improved profit margins, allowing the company to price its products more competitively in the market.Increased Market Competitiveness: With lower distribution costs and improved efficiency, the company was better positioned to meet customer demands promptly and at a lower price point, enhancing its competitiveness and market share.This success story exemplifies the transformative impact of strategic outsourcing, competitive tendering, and process optimization on reducing distribution costs and enhancing overall supply chain efficiency, contributing to the company’s financial health and competitive edge in the market.
Short summary
A omnichanell reatil and e-commerce company successfully reduced its distribution costs per cubic meter by 60% through strategic outsourcing of logistics operations, conducting a competitive tender for freight services, and optimizing the goods preparation process. These actions led to significantly lower distribution expenses, enhanced operational efficiency, and improved profit margins. As a result, the company was able to offer its products at more competitive prices, boosting its competitiveness and market share. This case highlights the importance of leveraging external expertise, competitive sourcing, and process improvements in achieving substantial cost savings and operational benefits in the supply chain.