Article By CognitionUAE.com

Are you worried about the rising prices for raw materials, freight rates and general operating costs?

COVID has had a devastating impact on households and businesses. Everyone these days is trying to optimize their costs and boost their revenues.

Today we will be focusing on logistics costs for startups and small businesses. If you are in dealing in any product, you need to figure out:

  • How to ship your product to your customer anywhere in the UAE
  • Get the cheapest and fastest logistics solution

Few questions to ask yourself:

  • Should I outsource my logistics or get an inhouse logistics team?
  • What is a reasonable delivery time accepted by my customers?
  • Do I want to ship to 1 city or the entire country or internationally?
  • Do I have any products that require special handling or are heavy or large dimensions?
  • Are my customers ok with paying delivery charges?
  • What is my estimated budget for delivery of packages?

Today we will weigh the pros and cons of inhouse logistics vs outsourced logistics:

In house logistics

Advantages

  • You can deliver at a specific time and day that the customer needs the product.
  • You have full control over the customer experience.
  • Your products are handled carefully without any chance of damage.
  • There is no issue to ship the item if it is heavy or large size. In fact the shipping cost is fixed, which could be a huge saving if you deal in large items like fitness equipment.

Disadvantages

  • Fixed costs – driver salary and vehicle maintenance whether you use the vehicle or not.
  • Staff can be unavailable due to annual leave or sickness

 

Outsourced logistics

Outsourced logistics is basically when you find a logistics company to pick up the product from your shop or warehouse and deliver to the customer.

Advantages

  • You get more time to focus on your core business.
  • You don’t have to spend time on vehicle maintenance, dealing with driver’s issues, etc.
  • Take advantage of their economies of scale. A logistics company can deliver a package for much cheaper than you can as they have huge volumes
  • Live tracking service – we have all seen this with Zomato food delivery and love it! Several companies offer this feature.
  • Scalability – You may have 1-10 drivers but the logistics company has 50 or more so they can easily help you handle large volumes of orders.
  • Geographic advantage- if you get orders from different areas of the country, a logistics company can get the delivery done easily at a reasonable price. Inhouse logistics won’t be able to deliver to all parts of the country at the same cost as a 3rd party logistics company.
  • Lower costs – if you don’t have any deliveries today, you don’t pay anything! If you have inhouse logistics you still pay salaries and other expenses.

 

Disadvantages

  • You may not know how the logistics company deals with and interacts with the customer.
  • They could charge a lot if your product requires special handling/heavy/too big or requires a chiller van.
  • Your product may require special handling which they won’t be trained to do. For example: many logistics companies staff may not be trained in food safety and safe transportation of food products.
  • Charges are high if the product is too big or too heavy over and above their “standard dimensions and weight”
  • They collect cash on your behalf but take long to transfer it to you leading to some cash flow issues.

So how to you decide which option to go for - Inhouse logistics or Outsourced Logistics?

  • Check the daily order volume (number of orders per day)
  • Are your products small in size and order weighs at most 5-10 kgs?
  • Does your product require any special handling?

Based on the answers above you could reach to a decision. I would recommend you to try to outsource some amount of your logistics work so you have a variable cost element which helps bring down your overall logistics cost.

Please do comment below your feedback and what else you would like us to write about! Do come back next week to read the next article!

 

About CognitionUAE.com Blog:

  • We write about everything related to a startup and small business. We also write about our 1000+ product range.
  • We aim to write articles that provide good knowledge that helps readers make better business decisions.
  • Few topics include: cutting costs, boosting revenues, managing the business, hiring effectively and much more. Everybody has their own set of challenges and there is no one size fit all solution! It’s not about the answers, it’s about asking the right questions. We help you ask the right questions through these blogs.