Types of logistics costs

Types of logistics costs depends on various supply logistics tasks performed within the company. Each task performed in the logistic system incur cost. Strict cost calculation in the logistics systems allows to distinguish them from the overall costs of the company.

Main types of logistics cost

• direct costs (transport, storage, inventory, handling, communications) and indirect costs,
• fixed and variable costs,
• the cost of supply, production and distribution,
• tangible and intangible costs,
• the cost of the development of logistics and projects recommended by the logistics,
• strictly logistics costs.

Logistics costs are expressed in money the consumption of human labour, resources and objects of labour, financial expenses and other negative effects of events. They are caused by the flow of material goods in the enterprise and between enterprises, as well as during maintaining inventories.

Stage of production and logistics cost type

Logistics costs arise in the following stages of production:

• acquisition of materials, intermediates and other products from suppliers,
• storage of materials and waste,
• external and internal transport,
• production planning,
• storage of semi-finished products,
• storage of finished products,
• transfer of finished products to customers.

According to the criterion of variability we can be on fixed and variable. To fixed costs include, among others, depreciation costs of storage, transportation, cash outflows from taxes and fees. Variable costs are labour costs, costs of involved capital, consumption of materials and fuels. Cost calculation allows to identify the threshold of profitability. Thus it is possible to determine the type and nature of the relationship between these logistics costs and overall company's performance.

Strategic segmentation and logistics costs

For the purposes of strategic management we distinguish between the analysis of separate market segments:

• operating costs of transport - freight forwarding and movement,
• the cost of maintenance and operation of the warehouse,
• cost of maintaining the inventory,
• costs of unavailability – depletion of stocks and costs of inefficient operation,
• administrative costs.

Logistics costs reflect the consumption of enterprise assets, caused by the planned and unplanned events, implementation and control of technological processes involving moving various materials in time and space.

Examples of Types of logistics costs

• Transportation costs: This includes the costs of fuel, labor, and maintenance for vehicles used to transport goods. It also includes costs for shipping, freight, and insurance. For example, the cost of shipping a package from San Francisco to New York City can include the cost of fuel for the truck, the driver’s pay, and the cost of insurance for the shipment.
• Inventory costs: This includes the cost of storing, maintaining, and tracking inventory. It also includes the cost of accounting for inventory, such as depreciation and amortization. For example, a warehouse may need to pay for storage space, equipment, and personnel to manage the inventory.
• Labor costs: This includes the cost of hiring and training personnel to work in the logistics system. It also includes benefits and payroll taxes. For example, paying the wages of a warehouse manager or the salary of a logistics analyst.
• Technology costs: This includes the cost of purchasing and maintaining software and hardware used in the logistics system. For example, the cost of purchasing a warehouse management system or an inventory tracking system.
• Outsourcing costs: This includes the cost of contracting with third-party logistics providers to perform specific tasks. For example, hiring a 3PL to manage the inventory or a courier service to deliver the goods.
• Administrative costs: This includes the cost of managing the logistics system, such as documentation, compliance, reporting, and auditing. For example, the cost of filing paperwork for customs clearance or the cost of hiring consultants to analyze logistics processes.

Advantages of Types of logistics costs

Types of logistics costs can provide companies with many advantages that can help them become more efficient and cost-effective in their operations. These advantages include:

• Enhanced Visibility: By tracking and monitoring the costs associated with logistics activities, companies can gain greater insight into the costs associated with the different stages of their supply chain. This visibility can help to identify areas for cost savings and help to eliminate unnecessary costs.
• Improved Efficiency: By accurately tracking and monitoring the costs associated with logistics activities, companies can identify areas where they can improve efficiency. This can help to reduce costs and help to optimize the performance of the supply chain.
• Improved Coordination: With better visibility and understanding of the costs associated with logistics activities, companies can better coordinate their activities to reduce costs and improve efficiency.
• Improved Logistics Planning: By having accurate and up-to-date information on the costs associated with logistics activities, companies can better plan and manage their supply chain activities. This can help to reduce costs and improve the performance of the supply chain.

Limitations of Types of logistics costs

Logistics costs can be a significant expense for businesses, but there are limitations to the types of costs incurred. These include:

• Transportation Costs: Transportation costs are the highest costs incurred in the logistics process, and they depend on many factors such as the distance, mode of transportation, and the size and weight of the cargo.
• Inventory Costs: Inventory costs are the costs associated with storing, ordering, and maintaining inventory. It includes costs associated with warehouse storage, order processing, inventory control, and inventory management.
• Equipment Costs: Equipment costs are the costs associated with purchasing and maintaining the equipment used in the logistics process. It includes costs for vehicles, containers, and other specialized equipment.
• Personnel Costs: Personnel costs are the costs associated with the labor and staff needed to perform the logistics tasks. It includes costs for hiring, training, and managing personnel.
• Technology Costs: Technology costs are the costs associated with the use of technology in the logistics process. It includes costs for software, hardware, and other technology-related services.
• Regulatory Costs: Regulatory costs are the costs associated with regulations that govern the logistics process. It includes costs for compliance with customs, safety, and environmental regulations.

Other approaches related to Types of logistics costs

Introduction: Types of logistics cost can be divided into several categories based on the type of logistics tasks that are performed within the company.

• Transportation Costs – These costs cover the cost of shipping goods from one place to another, including fuel, labor, and other related expenses.
• Inventory Costs – This type of cost covers the cost of storing inventory for a long period of time, including storage space rental, insurance, and any other associated costs.
• Warehousing Costs – This cost covers the cost of setting up and running a warehouse, such as personnel costs, support services, and maintenance.
• Technology Costs – This cost covers the cost of any technology used to manage the logistics process, such as software programs and hardware.
• Management Costs – This cost covers the cost of management, such as salaries for personnel and consultants.

Summary: In conclusion, Types of logistics costs can be divided into several categories, such as transportation costs, inventory costs, warehousing costs, technology costs, and management costs. Each of these costs covers the costs associated with the specific tasks that are performed in the logistics process.

Types of logistics costs — recommended articles

Distribution cost — Cost element — Cost avoidance — Procurement logistics — Dependent demand — Added value (logistics) — Process innovation — Conversion cost — Coordinative function of logistics

References

• Arvis, J. F., Raballand, G., & Marteau, J. F. (2007). The cost of being landlocked: logistics costs and supply chain reliability. World Bank Policy Research Working Paper, (4258).
• Blumenfeld, D. E., Burns, L. D., Daganzo, C. F., Frick, M. C., & Hall, R. W. (1987). Reducing logistics costs at General Motors. Interfaces, 17(1), 26-47.
• Havenga, J. (2010). Logistics costs in South Africa–The case for macroeconomic measurement. South African Journal of Economics, 78(4), 460-476.
• Saldanha, J. P., Tyworth, J. E., Swan, P. F., & Russell, D. M. (2009). Cutting logistics costs with ocean carrier selection. Journal of Business Logistics, 30(2), 175-195.