Smaller, less competitive logistics companies are finding it increasingly challenging to survive in the market. How to effectively manage logistics costs and enhance competitiveness is an urgent issue that third-party logistics providers must address.
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I. Cost Composition
The costs of a logistics company, as the name implies, refer to the various expenses incurred by the company in its daily business operations. These are the monetary manifestations of the materialized and living labor consumed in logistics activities.
Third-party logistics companies are external providers that offer partial or full logistics services to clients, characterized by not owning the goods, integrating one or more logistics functions, controlling logistics equipment such as warehouses and transportation, and providing labor and management services as needed.
The products manufactured by logistics companies are a five-star logistics service, an integrated service chain that encompasses various logistics processes. As a third-party logistics provider, upon signing a logistics contract with a client, it determines the specific logistics services the company must offer. The product produced by logistics companies—the logistics service chain—determines the cost composition characteristics of the enterprise, which can be categorized into: operational costs and non-operational costs.
1. Operating Costs
Operating costs refer to the expenses directly associated with the production of logistics service products. They primarily consist of three major elements: direct materials, direct labor, and operating indirect expenses.
Direct Material Costs
Direct material costs refer to the materials that can be traced back to the provision of a specific service, i.e., materials that can be attributed to the cost of a particular logistics service product. This includes items such as cardboard boxes and packaging tape used for packaging.
1.2 Direct Labor Costs
Direct labor costs refer to the labor expenses that can be traced back to the services or products provided, such as the labor costs incurred by personnel specifically assigned to input, verify, and track various documents for a particular product, which can be classified as the direct labor cost for that product.
1.3. Operating Indirect Expenses
Operating indirect expenses refer to the costs in a logistics company's expenses that are not directly related to labor or materials, such as equipment, equipment costs, and their operation, maintenance, etc., required for activities like loading and unloading, transportation, warehousing, distribution, and Liu Tong processing.
The costs associated with the transmission and processing of logistics information, as well as the expenses for the equipment and facilities required for these activities, cannot be classified as direct costs of the product. Instead, they are treated as indirect costs, which constitute a significant portion of the overall operational expenses.
2. Non-operating Costs
Non-operating costs mainly include sales expenses and administrative expenses. For third-party logistics companies, sales expenses typically encompass the costs of obtaining and processing orders. They mainly involve costs related to research and development and overall management.
No matter the size of the enterprise, the logistics resources they possess are always limited. To maximize the logistics effect with limited resources, third-party logistics companies must excel in logistics planning. The quantitative representation of this planning is known as a logistics budget. The cost and expense budget is an important component of the logistics budget. In logistics management activities, companies must control the execution of logistics plans, comparing actual data with predetermined goals, plans, budgets, standards, and quotas to identify deviations. From these, they discover issues or potential improvements, taking corrective actions or revising plans to enhance the economic benefits of logistics activities.
Common cost control methods used by third-party logistics companies include standard cost control, activity-based cost control, and quality cost control methods.
Standard Cost Control
Standard cost control involves comparing actual costs to the predetermined standard costs, identifying the causes and responsibilities for cost variances, and implementing measures to effectively manage costs. The establishment of standard costs is linked to pre-cost control, while cost variance analysis, determining accountability, and taking corrective actions are associated with in-process and post-cost control.
Job Cost Control
Activity-Based Costing (ABC) is a method for calculating and controlling product costs based on activities. Its fundamental principle is that products consume activities, activities consume resources, production causes activities to occur, and activities lead to the occurrence of indirect costs.
Quality Cost Control
Quality cost encompasses all expenses incurred by a company to maintain or enhance the quality of its products or services, as well as any losses resulting from failing to meet the prescribed quality standards.
Quality costs encompass two aspects:
Firstly, the costs of prevention and inspection.
Secondly, loss cost: The first step in quality cost control is to determine the cost, which should serve as the overall objective for quality cost control; secondly, an organizational system for quality cost management needs to be established; finally, the calculation and analysis of quality cost variances should be conducted.
