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How to Reduce Your Logistics Cost With Automation

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How to Reduce Your Logistics Cost With Automation

According to Markets and Markets, the logistics automation market is projected to reach a valuation of USD 80.64 billion. Additionally, researchers also estimate the logistics automation segment to register a CAGR of 11.8% for the forecast period 2018-2023. These figures indicate that the logistics industry isembracing automation for several reasons. Going by the experts at McKinsey Global Institute, the logistics industry has the third-highest potential for automation.

So, what is all the buzz surrounding automation in logistics? And most importantly, how can it help cut down the overall cost of operations? Let’s explore.

What are the problems with manual logistics operations?

An Edge Research study discovered that 15% of business leaders believe that manual processes limit the growth potential and transaction volume in the logistics industry. Manual logistics operations are typically plagued with the following issues:

1. High cost of operations

Manual operations are resource-intensive. They take an inordinate amount of time, labor, and computation for carrying out redundant and repetitive tasks. And to make up for the time, businesses will have to deploy a greater workforce to offset the inefficiencies. The corresponding cost of maintaining human resources or fleet shall yet again drive up the costs.

The overall cost of operations in a logistics ecosystem may be broadly classified as:

  • Cost of incoming goods
  • Warehouse rent
  • Picking and packing costs
  • Delivery costs
  • Cost of returns

From the above expenses, warehousing, fulfillment, and shipping occupy a significant chunk of the budget. Therefore, the manual operation within these areas shall have a cumulative effect in increasing the total cost of operations. For example, manual shipping could increase your warehouse rent. To streamline and optimize your shipping processes, consider exploring shipping apps. Additionally, utilizing pick and pack warehouse services can further reduce costs and improve operational efficiency.

2. Poor management and coordination

The logistics industry operates in a fragmented manner due to the number of parties and stakeholders involved. This decentralization of processes makes it harder to control or manage manual operations. Hence, any issue in the hand-off at one end will trigger a ripple effect at the other end or lead to catastrophic consequences. For instance, Walmart’s poor inventory management resulted in a loss of USD 3 billion due to misplaced goods - a loss that could have been prevented through better management!

3. Human errors

human error in computation

Human errors, such as a typographical error while entering data manually, can snowball to hurt the business’ bottom line. Imagine keying in the wrong zip code and having the package doing rounds infinitely! Similarly, think of all the resources wasted on tracking and maintaining inventory using pen and paper! Manual processes are susceptible to human errors, which will increase costs, reduce productivity, and cut revenue.

4. Disconnect from end customers

Ultimately, the end customers are the driving force behind the growth and improvement of the logistics industry. Thus, businesses can only grow and diversify when their customer requirements are met. However, manual processes dilute the overall customer experience by making the process riddled with errors and lags. Further, manual operations are rigid, with almost no scope for flexibility to accommodate dynamic customer requests. Hence, manual logistics operations are often disconnected from these customers.

What makes automation in logistics the most cost-effective solution?

As one may see from above, the high total operation cost is one of the greatest pitfalls of manual logistics. In contrast, automation can reduce these cost overheads in several ways - by reducing manual labor, through streamlining operations, improving productivity, and enhancing customer experience. 

As such, it is the silver bullet to overcome most of the inefficiencies posed by manual processes. Let’s review these advantages one-by-one:

1. Reduced labor costs

According to the US Bureau of Labor Statistics, the average hourly earnings for all employees is$21.14 and 40.3 average weekly hours. Accordingly, businesses would spend an average of $852 per employee per week. Nearly 4 million people work indifferent capacities, such as handlers, packers, supervisors, etc. Thus, companies nearly 3.4 billion as wages alone - this figure being a modest estimate!

Of course, automation may not replace every position. However, it does grant scalability to your business while also saving up on labor costs.

2. Faster movement of goods

Automation streamlines the overall movement of goods and can help you optimize inventory. Automation also ensures that items are traceable and reach their destination on time, mitigating other financial risks.

Thus, it makes optimum usage of resources and prepares the stakeholders in case of any delays. For instance, automated route planning software like Upper can accommodate dynamic external factors to find the best route, thereby saving on the cost of fuel, etc. Similarly, a palletizing robot will ensure that all the goods are packed and ready for shipping, which will quicken its delivery.

3. Improved coordination

Automation shifts every process on a centralized platform, which leaves room for seamless communication. As a result, managing all activities becomes easier. Furthermore, it becomes equally easy to handover tasks from one section to another, say transitioning from transportation to warehousing. 

4. Better accuracy

Automation in logistics come equipped with cutting edge features, such as commodity integration, access to address books, entry of fuel surcharge, etc. through ERP systems. Hence, it cuts down the possibility of entering incorrect values or information. Keying in the correct freight details and classification ensures that your deliveries will neither get misplaced nor will you pay a higher rate!

5. Real-time data analytics

:real time data analytics

Real-time data analytics is one of the greatest contributions of automation to logistics. It grants greater visibility to your logistical processes and helps in the identification of inefficiencies and bottle-necks. Most importantly, it allows businesses to leverage the power of data to make informed decisions. Hence, whether you are looking for freight availability or maintaining stock - real-time data will help you in every way.

6. Better customer relations

Internal process managers are not the only ones keen to know about the status of deliveries. In fact, B2B and B2C end-users or intermediaries are even more eager to have a bird’s eye view of the movements! Through automation, you have the opportunity to share a blow-by-blow account of the package from the instant it leaves the seller until it reaches their doorstep. Naturally, this proactive stance will earn their loyalty and improve customer retention.

Areas for automation in logistics

Robots, software applications, cloud integration, IoT, smart devices - all these technologies are unlocking opportunities for automation in logistics. About 49% of logistical activities can be streamlined through automation. Don’t know where to start?

Here are a few use cases to inspire you:

1. Labor

Before the COVID-19 outbreak, the logistics industry was facing an acute labor shortage. If anything, the pandemic has intensified this paucity. Companies can invest in co-bots, automated storage and retrieval bots, palletizing bots, automated guided vehicles, drones, conveyor belts, and other such advanced tools to augment labor-intensive tasks, especially for moving around warehouse supplies. Thus, you can deploy bots for inventory management, storage, sorting, and packing. 

2. eCommerce

e-commerce logistics

The rise of eCommerce is stimulating the growth of the logistics sector. However, businesses can only capitalize on these opportunities if they have the products ready to ship and deliver. Customers are spoilt with rush-hour and next-day delivery options, and they may even change their sellers to cash on these benefits. Automation through software applications introduces greater efficiency and improves package visibility.

3. Transportation

Automated fleet management and transportation management systems(TMS) are raking in big freight savings. Shippers can use software apps to schedule deliveries at the best rates. Industrial robots can scan RFID tags and barcodes to update shipment status in real-time and move these loads as per their size and shape.

4. Customer service

Businesses that register a 5% increase in their customer retention rates also notice a 25% to 95%increase in the profits. Thus, it is a proven fact that customer retention is more valuable than acquisition.

In a Statista survey, customers stated that fast shipping, quick and easy returns, accurate delivery date predictions, knowledge and expertise, and personalization are the top five reasons customers repeatedly buy from a retailer. Three out of the five factor scan be improved through software-based automation.

5. Error reduction

Manual data entry is the primary culprit behind logistical errors. And incorrect freight classification is a close second. As automation vets these entries and cross-verifies them, one can introduce such tools at every data entry points.

Final Thoughts

Upon closely observing the logistics sector and automation, one may find that their growth and development have gone hand-in-hand. It has made quite a journey from steam engines to robot packers. Hence, it is safe to assume that automation has spurred the growth and maturity of logistics and will continue to do so in the years to come.

Stay ahead of the curve and cut logistics cost through automation now!

Suggested Case Study
Automating Portfolio Management for Westland Real Estate Group
The portfolio includes 14,000 units across all divisions across Los Angeles County, Orange County, and Inland Empire.
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Rushabh Sheth
Written by
Rushabh Sheth

Co-founder & CEO of Docsumo, Rushabh is passionate about improving people's lives through AI & automation. Over the last 10 years, he has worked around the globe in data science consulting, e-commerce, classifieds and document analytics.

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