// industry insights

How to reduce logistics costs with a local distribution network?

Published on: 8th July 2020, 5 min read.

Overview:

The past decade and especially the past few months have completely changed the way consumers purchase products and there is no sign of the ever-increasing trend of online shopping coming to an end. Nowadays, consumers have – thanks to a more connected world – unlimited options to inform themselves about how, where and when to shop for their desired products. While this phenomenon has given many merchants the chance to sell their products to a broader audience, it has also significantly increased the pressure to meet consumer expectations regarding fast delivery times and low shipping costs. So how can merchants reduce logistics costs but keeping service quality high to meet customer expectations?

“In order to secure a competitive advantage and successfully expand business activities into new markets, improving last-mile distribution becomes more and more indispensable” comments Boris Bösch.

Most online merchants already have a holistic understanding of their consumers’ behavior, needs and expectations about order delivery. Using this knowledge, merchants should identify their best-selling SKUs (Stock Keeping Units) and build heat maps of their respective distribution paths and delivery destinations. Thus, they can track and trace the popularity of products varying by region. By predominantly focusing on top-selling products, eCommerce, Retail and B2B players should adapt their distribution network and bring flagship products closer to customers, accelerating shipping times and lowering transportation costs.

“Think about Amazon and how they only qualify their top-selling products for their one-day prime shipping option.”

Boris Bösch Co-Founder of everstox eCommerce, B2B and retail warehousing services

Boris Bösch,
Co-Founder at everstox

Optimizing Logistics: What does this mean for logistics operations?

Moving top-selling products closer to customers can be realized by adding additional warehouses to the existing distribution network. Before implementing this strategy, it is important to understand how additional fulfillment centres will influence the operational cost structure, known as the total logistics costs trade-off. Total logistics costs can be divided into four major cost categories:

  • Inventory costs for bound capital
  • Transportation costs for last-mile delivery
  • Foregone earnings through long delivery times
  • Warehousing & fulfillment costs for managing operational and technical complexity

This chart illustrates the correlation between the number of warehousing & fulfillment centres and the costs for each category in traditional warehousing setups. Here’s a link on how flexible warehousing differentiates from traditional warehousing.

Logistics costs - Traditional logistics distribution cost trade-off

We can clearly see that transportation costs and foregone earnings will drop when adding new warehouses. This is due to shorter and faster last-mile delivery. Inventory and warehousing & fulfillment costs increase due to mirroring stock levels at different sites and rising complexity from managing multiple locations. In particular, time and costs involved with operational and technical onboarding processes, as well as day-to-day operations and IT maintenance grow significantly with additional warehouses. Adding up the different cost categories in the traditional warehousing approach reveals that minimum logistics costs are reached at a relatively low number of fulfillment centres.

How does flexible warehousing impact the total logistics costs trade-off?

Flexible warehousing significantly reduces the increase in warehousing & fulfillment costs when further warehouses are being added to the distribution network. As a technology platform, everstox supports merchants in building and operating a flexible distribution network across multiple markets. As a result, operational and technical complexity are streamlined. Moreover, the everstox cloud technology helps to control the increase in inventory costs through smart order routing and demand planning tools.

“Flexible warehousing powered by everstox leads to lower total logistics costs at a higher number of warehouses.”

Visualizing everstox flexible warehousing and fulfillment concept in this chart shows that the new optimum level involves lower total logistics costs at a higher number of warehouses.

Logistics costs - how to reduce logistics costs with flexible warehousing

How can merchants reduce logistics costs with flexible warehousing?

If you want to decrease your logistics costs by following a distribution strategy based on multiple warehousing and fulfillment hubs, everstox can help by enabling you to:

  • Contract warehousing and fulfillment services from pre-selected third-party logistics (3PL) providers based on your operational and geographical needs – all on flexible terms
  • Run all of your logistics operations within one management tool with real-time data on inventory levels and order flows
  • Scale your logistics operations across Europe within our technology and our strong network of independent logistics partners

As shown by the chart above, with everstox flexible warehousing and fulfillment, you can add warehousing hubs without adding a significant stake of warehousing costs to the equation. Your operational setup can enjoy regional and local presence, thus improving last-mile delivery times while simultaneously lowering costs per order shipment; resulting in increased conversion rates and thus higher revenues.

However, one should keep in mind that pursuing a multi warehousing strategy without the right technology can impact the complexity of  business operations. Using the everstox Control Tower enables you to manage inventory levels and order flows in real-time, and navigate all operations in one single dashboard.

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About the Authors

Maximilian Nenning | everstox

Author:
Maximilian Nenning
Marketing Manager
everstox

About everstox

everstox is a technology and Logistics-as-a-Service (LaaS) platform enabling scalable and data-driven fulfilment for eCommerce, B2B and Retail businesses through a European network of independent logistics providers.

We enable transparent, efficient and ecological logistics solutions by forming Europes first tech-driven network of trusted warehousing & fulfilment partners.

Further information about everstox can be found under: www.everstox.com.

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