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Logistics is a fancy business term given to the process of transporting manufactured goods from the source to the final destination, such as a retailer. At each point in the logistics or supply chain, a company pays money that adds to the cost of each product produced. Logistics benchmarking allows a company to review each part of this process and determine if it is paying too much. Different business activities under the microscope of logistics benchmarking may be manufacturing or supplier costs, wholesaler fees, transportation payments, and opportunity costs. Benchmarking does not necessarily use a single method for review as different situations may exist for each different business model.
The purpose of any benchmarking process is to make a comparison between two or more businesses or a business against the industry average. Logistics benchmarking is a bit more particular to certain industries, namely manufacturing, retail, and the like. Companies within these industries often have to ship goods from a source to multiple outlets that sell goods to consumers. Especially elongated supply chains can add copious costs to the standard cost of manufacturing for each item or batch of goods. Therefore, logistics benchmarking is necessary to ensure the total cost remains low, so the company can be competitive in the business market.
Many types of tools are available in logistics benchmarking. A company can use cost-benefit analysis, financial ratios, cost comparison, or another method. For example, a cost-benefit analysis starts with outlining the costs related to the entire logistics process. Next to each cost, the company should list the benefits received, such as special discounts, secure warehousing, or short transportation distances. Calling other logistics or supply chain providers to inquire about recent market costs can help determine if the current logistics providers are pricing services competitively.
Two common methods for completing logistics benchmarking are to conduct a supply chain audit or hire a consultant to review the company’s logistics. An audit — with a team of accountants from a public accounting firm — can turn up copious amounts of information relating to both cost and performance. It is then up to the company to make decisions on changes to the logistics process based on this information. When using an outside supply chain consultant, a company tends to get the same data — though possibly less formal — as with an audit. The consultant, however, may be more willing to help make changes in the company’s supply chain.