Ways to Reduce Total Cost of Ownership (TCO) of Logistics Companies

Jun 24, 2024

Many organisations prioritise cost when making purchases, but they fail to recognise that modern supply chains are complex and interconnected, making the involvement of multiple stakeholders and industries difficult. This complexity further makes it hard to accurately determine the true cost of a supply chain.

This uneven analysis of finding the true cost of an asset can result in higher costs.

So, how can you predict the overall cost incurred during the supply chain?

This is where TCO comes into place!

Total cost of ownership (TCO) allows businesses to predict and account for all potential expenses associated with a product or service throughout its lifespan, including hidden costs. This method of calculation takes into account both direct and indirect costs, allowing for the creation of value.

TCO calculations help with making informed decisions and optimising costs. Refteck understands the importance of considering the total cost of ownership (TCO) in today's financial landscape, as it offers a comprehensive view of the financial environment and guides businesses towards long-term success in various areas such as procurement, supply chain management, and overall business strategies.

By embracing this effective approach, your company can reach its full potential.

Let's have a look at how.

Effective Way to Reduce TCO

Defining Total Cost of Ownership

The total cost of ownership (TCO) includes more than just the production cost of a business. Instead, it also includes other costs of a product, like designing, manufacturing, maintaining and disposing of or reusing it.

Thus, it includes both the direct and indirect costs of a product or piece of equipment throughout its whole life.

If you see an increased TCO of any product or equipment, it is a clear indication that unforeseen costs or maintenance problems will drive up future spending. So to increase earnings and lower costs, it is crucial to monitor the TCO and identify strategies for lowering it.

Let's have a look at some of the ways through which, if you have a logistics company, you can work on ways to revolutionise your supply chain and procurement decisions.

But first, there's something else you must know about.

Components of Total Cost of Ownership (TCO)

When it comes to calculating the TCO of an asset or product, here is what is considered:

  1. Direct Costs :

    These are the most obvious expenses that are the first ones to come to our mind:
    • Purchase price
    • Installation costs
    • Hardware costs
    • Software costs
    • Disposal costs
    • Maintenance costs
  2. Indirect Costs :

    These are the costs that are not directly related to the acquisition of an asset or equipment but are also an important part of TCO:
    • Infrastructure costs
    • Downtime costs
    • Security costs
    • Administration costs
    • Integration costs
    • Risk costs

By considering all these costs, businesses can get an accurate and true overview of the cost of ownership of their asset and then work on ways to reduce them.

Evaluate and Reduce TCO Cost

Ways to Reduce Logistics Companies' Total Cost of Ownership

Worried about seeing too much of TCO? Well, you shouldn't! Refteck is here to provide you with some strategies through which you can reduce your total cost of ownership (TCO).

Let's jump in to know what they are:

  1. Make Use of Automation :

    Utilising automation in various areas of the supply chain processes, such as warehousing and order fulfilment, can save time and money by reducing manual errors and streamlining processes. By automating tasks like data entry and inventory control, employees can focus on more important tasks and won't exhaust themselves into doing the same repetitive tasks. It will result in quicker turnaround times and lower storage costs.
  2. Optimise Transportation Networks :

    Efficient transportation networks can help logistics companies save money on fuel costs. Optimising routes, maximising truck capacity, using methods such as route planning software, implementing multi-stop deliveries, and utilising alternative transportation modes like rail for long distances can all contribute to cost savings. Therefore, it will further lead to savings in fuel consumption.
  3. Utilise Technology for Visibility Control :

    By having access to real-time inventory, vehicle locations, and shipment status, businesses can make informed decisions to prevent shortages, maximise warehouse efficiency, and anticipate delays. Moreover, implementing tools such as GPS tracking, WMS, and cloud-based solutions can provide the necessary data for better decision-making.
  4. Reducing Integration Costs :

    Have you realised how much time and effort it takes to integrate technology in a logistics company? And don't forget about money. Integrating technologies in a logistics company can be a time-consuming and costly process, which can also increase the total cost of ownership (TCO). All stages of the supply chain must function smoothly and on schedule to avoid delays in delivering goods. API integration greatly enhances the efficiency and workflow of supply chain processes, leading to reduced TCO through improved collaboration among sales, operations, and back-office teams.
  5. Educate Employees :

    Having a skilled workforce is important for any company's success. Therefore, you must provide training programmes for drivers, warehouse employees and customer service representatives to enhance not only your company's productivity but also minimise accidents and reduce errors. This, in turn, can result in reduced operational expenses and heightened customer approval.
  6. Maintain Good Relations with Suppliers :

    Having good relationships with suppliers and carriers can result in improved pricing and services. This may include bargaining for discounts based on volume with carriers or working together with suppliers to develop effective packaging and labelling methods that reduce costs related to damage and handling.

    Thus, by implementing these strategies as per the demands of your business's needs, you can achieve a significant reduction in their total cost of ownership.

The Bottom Line

The need to evaluate and reduce TCO costs is becoming more important than ever for many organisations as they become aware of the challenges they have to face with high costs. Therefore, TCO reduction is a vital tool you can use to improve your brand's overall image and promote better relationships with everyone.

If you need any assistance in putting the above strategies into practice, don't worry, Refteck is here! So, if you own a logistics company, it's time for you to fulfil all your needs, thereby reducing costs by collaborating with the experts at Refteck!

Get in touch with us now!

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