How can you measure the impact of distribution costs on your profits?

Distribution is very critical in entire supply chain as entire delay right from PO to product transfer in warehouse require to be covered by distribution by delivering products @right time @ Right place @right quantity @right condition and most important @Right Price. As all we are aware that distribution quality, processes and decision making will play pivot roles in organizations Top line and Bottom Line. To manage efficient distribution, one should leverage transport management system and detailed cost mapping with each component of transporter's /Freight forwarders bill. Can also explore possibilities of using 3PL and warehouse management system as well. All these steps will clearly identify gaps in system and help to improve quality.

distribution cost majorly includes, warehousing costs and transportation costs, MHE costs etc. It is very crucial to report these costs to track and monitor the performance of distribution system. Analysis of these costs will also give us the areas of improvements. To calculate these costs, you need to have robust data gathering and reporting system with high degree of compliance to process. Below are some costs heads that we can calculate to measure distribution cost impact 1. Transportation costs (Primary, secondary) 2. Warehouse costs (Rent of property, MHE cost, handling costs, CnF costs if applicable, utilities, safety costs , spares and consumables costs) 3. Administrative costs

Distribution costs have to be looked with perspective of the type of comodity been handled & unit price of that comodity & volume to be delivered. The distribution costs in % terms for an perishable, temperature sensitive high value food product will always be higher , as it would require to be serving specific Functional purpose. While voluminous B2 B industrial supplies for industrial goods have to be very cost effective as these are key raw materials to be supplied. It has to come with low cost distribution strategy.

Freight costs alone are typically 10% of your top line revenue, before you even consider the fulfillment and storage costs. This is a huge P&L line item which if not properly monitored can get out of control. But the adage of what gets measured gets done comes into play here. If you have the data, you can make an impact. If you don't, you are flying blind and won't know when or where to pivot.

I've always liked looking at cost per pound (CPP) for measuring logistical efficiency. Using attributes like product type and freight service mode (TL, LTL, IM, Air and Ocean for example) I've had success running variance analysis and picking out when and where logistical inefficiencies are happening. Those root cause fixes usually apply in other areas of the business that produce similar gains we maybe didn't realize we could do better at, too. Accessorial charge analysis usually helps identify the behavior but CPP shows me THAT there is something going on.

One way to understand how distribution costs impact profits over time is to determine the cost-to-revenue ratio. It's important to collect and understand each cost component, and look at it over previous periods to understand the trend. Once you have the components and trend over time, you can begin to analyze the underlying cost drivers and adjust. Another use of this ratio is to look at market & industry benchmarks to determine where you rank. This can be elusive to obtain, but worth a look. There are many factors that may require a firm to have higher distribution costs, & not all products, markets, channels are the same, so there is a certain level of discernment required to interpret the inputs & take the right actions. Fun exercise!

To measure distribution costs, you can start by gathering data on various cost components such as transportation, warehousing, packaging, and handling. Calculate the total expenses for each component and analyze them in relation to the volume of goods distributed. This will help you determine the cost per unit or cost as a percentage of sales. Regularly monitoring and tracking these costs will provide insights into the efficiency and effectiveness of your distribution operations.

In my experience, logistics doesn't have influence over their companies accounting practices. However, where you do have impact is the GL coding of your vendor invoices. Bring that into your department and ensure that costs are monitored at the level you require to make decisions and have the P&L reflect your wins and challenges.

I have always had the best ability to control and influence costs when using an activity based model. Since time is finite, everything that is required to move something from point A to B takes time. By focusing your effort to understand the activity you need to do in order to serve your customer, you will be in the best position to have an accurate picture of your overall costs. The best advantage of activity based costing is that it keeps you focused that everything has a capacity limit. Once that is reached, you need to add more resources, changing your costs.

Optimizing the distribution cost through operations research model like the 'balanced transportation model'; the 'assignment mode' et al, will come in handy in realizing similar results at a lower cost.

Certain costs are easier to benchmark than others. Cost per mile for example is a fairly broad measure used (or at least known) by each industry. Other costs are harder to benchmark as they may not be similar enough to your circumstance. Example - cost / package might be a metric people talk about. However it's totally dependent on what labour you use, what your base rates are, the types of vehicles and other equipment you need. Two carriers could be doing direct to consumer delivery, however if they required different equipment or time allocations, their cost per package will be different.

Distribution costs must be well managed if an organization has to remain competitive and it can also be a good guide toward achieving a sustainable supply chain

Great! One way this can be evaluated is through constant market prices analysis and evaluation This will help all parties adjust all reasonable costs and ensuring that there is an equal share to mean no relationships is broken and hence continued customers based growth.

Tenders also provide a great way to benchmark not only what you're competitors rates are, but also their service offerings and negotiation tactics.

How to Optimize Distribution Costs (bite-size tips) - ERP - centralizes and streamlines backoffice, operational functions. Leverages automation internally and reduces waste. - CRM - Customer Relationship Management. Enhances relationships whether individual, private or government. Contracts, treaties, memorandums of agreement (MOA) or memorandums of understanding (MOU) can reduce costs between partners (EU, NAFTA, USMCA, etc) - Knowledge Management - Metadata, data mining, insights from large data collection, bleeding edge, tip of the spear information. This includes not just TIMELY information but ACCURATE and relevant information to the end user.

implementing efficient route planning, streamlining inventory management, embracing technology, collaborating with suppliers, consolidating orders, optimizing warehouses, adopting sustainable practices, and harnessing the power of data analytics, organizations can achieve a balance between cost reduction and operational excellence. This not only bolsters financial health but also fortifies their competitive edge in the ever-evolving market landscape.

My best advice is to focus on time. If you are making sure that you do everything you can in order to maximize the number of transactions (i.e. deliveries) per hour worked, you will generate more profit. Of course, you need to be looking at vehicle costs (fuel, R&M, insurance) as well as other incidentals in your business. Labour and vehicle costs will usually cover 55-70% of your total operating costs for a delivery business.

The best way to diagnose what should be improved is having dashboard with KPI’s to measure effectiveness of distribution cost in all streams: - Storage capacity (in commodity and/or currency units); - Warehouse capacity (in commodity and/or currency units); - Warehouse Utilization Rate %; - Pick and Pack Costs; - Inventory Turnover Ratio; - Financial Leverage; - Equipment Utilization Rate; - Pick and Pack Cycle Time; - Truck Turnaround Rate; - Fuel Efficiency; - Lead Time (Order Cycle Time) - Delivery Time; - Order Accuracy Rate; And many others, depending on your business processes specifics. It is crucial to have monthly\quarterly meetings to monitor KPI’s and implement action plan for improvements.

Analyze and improve your distribution processes, systems, and networks. You can use different tools and techniques, such as value stream mapping, lean principles, six sigma, or simulation, to identify and eliminate waste, inefficiencies, and errors

To measure the impact of distribution costs on your profits, you can follow these steps: 1. Cost Analysis 2. Cost-to-Sales Ratio 3. Gross Profit Margin 4. Net Profit Margin 5. Break-Even Analysis 6. Comparative Analysis 7. Customer Feedback 8.Scenario Analysis

Find the core KPIs that drive your day to day operations. Make these the main elements whenever you are talking about your costs. Focus on the the costs or activities that you have influence over. You have more influence to change your process and the amount of time you spend on site delivering to a customer than you might with a direct price increase.

Para acompanhar e medir os custos de distribui??o poder?o ser usadas vários KPI's (indicadores chaves de performance): - Valor por quilometro rodado. - Valor percentual de frete pelo custo da mercadoria. - Valor médio das rotas. - Balanced score card das transportadoras. - Prazo médio de entrega X satisfa??o do cliente. Importante estar alinhado com a estrategia da empresa e com o objetivo que se quer alcan?ar nas metricas.

To measure the impact of distribution costs on profits, calculate the distribution cost as a percentage of total revenue. Compare this percentage over time to identify trends. Analyze the correlation between changes in distribution costs and fluctuations in profit margins. Conduct sensitivity analyses by adjusting distribution cost variables to assess their impact on profitability. Finally, consider benchmarking against industry standards to evaluate your cost-efficiency in distribution.

Cost of distribution plays an important role in deciding sustainable options. Sustainable transportation is gaining importance due to GHG emission targets set up organizations across globe. Product categories with longer demand could move to ocean mode. In turn lower distribution cost and sustainable option.