Wednesday, 11 June 2014

Logistics Total Cost Approach - Part Two

Yesterday we looked at the different kind of accounting systems used in the logistics total cost approach. Today we’re going to investigate how the approach is used to improve customer satisfaction and service levels.

Customers are only satisfied when they receive an excellent service. This applies to when the order and delivery goes through without problems and also when issues arise, such as the need to return goods.  This requires a modern logistics system and they sometimes need huge investments, which can take up chunks of the total costs of the company at times. A successful modern logistics system includes:
  • Channels of distribution – different options are available for manufacturers when it comes to distribution. Costs need to be examined in the alternatives to find the right solution without reducing customer satisfaction, such as using wholesale dealers, using an agent at a national level, direct distribution to retailers, customers or different retail outlets.
  • Communication and Data Processing Costs – order pricing, accounts receivable, dispatches, inventory control and dispatches used to improve customer services.
  • Customer service costs – Providing guarantees to customers requires adequate movement and systems in place when goods need to be returned or replaced. Managing customer service needs organisation but results in benefits for the company.
  • Inventory costs – the costs of the transport, warehouses, and levels of inventory maintained etc. The costs include the goods, spaces, losses, theft, damage and insurance and the money it takes to maintain the inventory.
  • Packaging costs – select packaging that considers factors such as handling and transportation.
  • Production/supply costs – as production increases the production costs can reduce. Production costs effects the transit times, warehousing inventory and transit times.
  • Material handling costs – a system that reduces the cost of material handling is essential and requires manual and mechanised handling systems.
  • Transportation costs – costs of transports depends on the speed goods are transported.
  • Warehousing costs – where the goods are stored regardless of the time they are being stored for.

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