Logistics Costs Are Up, But So Are Ways To Manage Them

As eCommerce encourages omnichannel procurement and shopping by both businesses and consumers, suppliers and manufacturers have had to scramble to manage their warehouses and logistics. From same-day delivery to rising freight truck driver salaries, businesses are strained to manage the increasing cost of their logistics operation.

A new report published by the Council of Supply Chain Management Professionals (CSCMP) released this week found an array of aspects in the supply chain that are piling on costs for suppliers and manufacturers. PYMNTS takes a look at how diverse the emerging solutions to these challenges have become.

Where The Problems Are

The Council’s annual “State of Logistics Report,” published in collaboration with Penske, found that 2014 costs for warehousing increased by 4.4 percent, due in part to declining inventory vacancy rates — suppliers and manufacturers were largely at capacity. Inventory carrying costs also rose.

But the most prominent reason for rising supply chain management costs, researchers found, was transportation. According to the CSCMP, transportation costs increased by 3.6 percent last year due to larger shipment volumes, the emergence of same-day delivery models and the continuing adoption of eCommerce. These trends are forcing warehouse management strategies to change and have largely led to the adoption of warehouse management Software-as-a-Service solutions.

CSCMP President and CEO Risk Blasgen said that while some of these issues are novel, other issues that lead to rising supply chain management costs have been around for some time. “We’ve been talking about driver shortages for the past five to 10 years,” he said. “The position needs to become more professional in our economy. The shortage is forcing suppliers and retailers to do different things to shore up capacity.”

According to Blasgen, transportation will continue to place the largest burden on suppliers and manufacturers when it comes to supply chain management costs. Reports say that many players in the industry are already feeling the weight.

“We continue to hear about the driver shortage, in addition to regulatory issues around driver hours of service and other impediments, all of which are leading to increased costs,” said Jonathan Gold, vice president of the National Retail Federation’s supply chain and customs policy. Gold said he sees similar effects from the warehouse capacity squeeze, and that omnichannel commerce is making warehouse management and logistics a much more difficult feat.

Emerging Solutions

There are multiple market trends emerging that aim to help alleviate these cost burdens. Gold mentioned current legislation in the works in Congress that would aim to boost spending of logistics support. The bill, which would increase spending up to $90 billion over the next six years, would provide funds to address some of these issues, like transportation between ports and highways and facilities that would alleviate warehouse over-capacity issues.

Alternative financing can be another strategy. Logistics giant UPS has boosted efforts through its UPS Capital unit to increase lending to businesses, connecting the logistics and transport expertise of UPS to businesses in need of financing to cover logistics costs.

“Since the recession small businesses have had a difficult time accessing the capital they need to manage cash flow, hire new employees or purchase new inventory and equipment,” said UPS Capital President Ronald Chang in a statement following the news that UPS Capital has partnered with alternative lending platform Kabbage.

Another approach is being taken by eCommerce conglomerate Alibaba. The corporation operates in an industry partially responsible for the more strenuous warehouse and logistics management segment — as more businesses and consumers shop online, they demand faster delivery. To address this, Alibaba offers its own logistics services and has boosted its commercial lending and financing operations in recent months, allowing businesses to access both resources and financing to handle their logistics and warehouse management struggles.

Other solutions combine the use of technology with longstanding logistics services. Researchers noted the rise in third-party logistics software providers — according to the CSCMP, use of these technologies grew by 5.8 percent in 2014. Domestic transportation SaaS use alone increased by 20.5 percent. Working closely with third-party logistics providers, Blasgen said, gives companies better oversight of the rise and fall of inventory levels and capacity, helping them to save money by being able to foresee more accurate needs for products and materials.

Warehouse management, for example, is not only employing the use of software but also the Internet of Things to manage inventory levels and reduce wasted spending. Fuel cards are also becoming more sophisticated to help businesses save money. Today, fleet card issuers are adding on new services that provide dramatically improved insight into spending on fuel costs and other data that helps businesses keep track of their fleet spending.

But the market will continue to be tasked with alleviating the financial pressure warehouse management places on suppliers and manufacturers. And according to Rosalyn Wilson, who authored the CSCMP’s report, that pressure will likely mount in the near future. Wilson expects the inventory-to-sales ratio to decline. Combined with rising warehousing and transport expenses, businesses will need to control these costs — whether by alternative financing, third-party logistics services or more sophisticated technologies and software connected to their fleet and warehouse management solutions.