Logistics Costs - Definition & Meaning
What is Logistics Costs?
Logistics costs are defined differently by different companies. Some companies do not account interest and depreciation on inventories as logistic costs. Others include the distribution costs of their suppliers or the purchasing costs. In some cases, even the purchase value of the procured goods is included in the logistic costs. So, there is no generic definition of this term but every company needs to define the logistics costs for itself and the KPI’s it will be tracking to lower the costs.
Generally, logistics costs include:
1) Transportation costs
2) Inventory carrying costs
3) Labour Costs
4) Customer service costs
5) Rent for storage costs
6) Administration costs
7) Other costs
Normally, the share of each is as follows:
Source: Establish, Inc. / HWD & Grubb & Ellis Global Logistics.
Generally, companies have to do a trade-off between cost and performance while managing logistics costs. This is because the lowest cost transportation may not be the fastest and hence higher costs need to be incurred to provide higher on time delivery and performance. Also, logistics costs is also a function of the type of goods that need to be transported. The mode of transportation for a perishable good will be different from an imperishable good.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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