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The costs of internal logistics (part 2)

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In our previous article we considered the direct fixed and variable costs of an internally organized fulfilment process. In this article we give more details about the less obvious costs, which are often forgotten or underestimated. These costs are also more difficult to calculate, but that does not mean that they are not there!

IT costs in logistics

As you know, digitization is essential. This means that you have to adapt the IT infrastructure of your operational activities accordingly. So you can’t say that the IT infrastructure is a one-off investment, which is sufficient for the next 20 years. After all, we notice that it would be best if you annually adjust your systems in order to respond to the new possibilities.

Companies often underestimate the real impact of these costs because they see it as a one-off investment with limited maintenance. Nothing could be further from the truth! If you want to remain flexible, you have to invest continuously in your IT infrastructure and therefore certainly also in your logistics IT infrastructure. How do you deal with the increasing role of marketplaces, the fragmentation of retail, the emergence of niche markets and the much more individualization of the end consumer? A correct picture of your IT costs takes into account the initial investment, but also provides a significant annual budget for further maintenance and expansion.

In other words, outsourcing your logistics ensures that you can respond much more easily to changes in your market and that you limit the cost of your IT infrastructure, since it is supported by a logistics specialist, who has every advantage in investing in this infrastructure.

Indirect logistics costs

These costs enable the first 3 costs. Think of your administration, your personnel department, …. The impact of an internal logistics operation is often much greater than you might think. On the one hand because of the order of magnitude of such an operation and all that goes with it, and on the other hand because we often find that companies invest too little in these services, which makes many of these services very labour-intensive.

When you outsource your fulfilment, you lighten these services and you can better support your core competencies. In other words, you can spend less money on these services or use them in places where they bring real added value.

Opportunity costs in logistics

By far the most underestimated and difficult costAfter allyou are looking for a way to calculate the cost of a missed opportunityWhen you handle your logistics operations internally, you lose out in terms of flexibility, but also in terms of process optimization and innovation. Think of a possibility where new sales channels are created, but where they are very difficult to reach because your logistics structure is nofully compatible.

You can express this cost as a coefficient, which will be a higher cost if you also have a need for the following:

  • Flexibility
  • IT infrastructure
  • Growth
  • Market diversification
  • Different target groups

In short, the greater the need, the greater the opportunity cost.

how to calculate logistics costs

It is of course difficult to determine these cost drivers precisely for each company. It does, however, give us an idea of all the costs that we have to think about in order to make the right decision. And don’t forget that when you outsource your logistics, you get a much clearer picture of your costs, as all parameters are individually determined. This makes it much easier for you to monitor and adjust these costs where necessary.

If you would like to test your calculation against our insights, please do not hesitate to contact us.