From 17% to Less: A Small Firm's Logistics Cost Checklist

Measuring Your Actual Logistics Share

The DPIIT-NCAER assessment, as reported by Outlook Business, found that firms with turnover below Rs 5 crore spent nearly 17% of output value on logistics, compared with about 7.6% for large firms. We do not know all the reasons, and the coverage did not list them. Plausible factors include smaller shipment sizes, less bargaining power and more reliance on road transport. That is our inference. This guide is our own framework, general information and not advice for any particular business. The example numbers are invented.

1. Measure your own number: Add up freight, packaging, warehousing, handling, insurance, transport taxes you cannot recover, losses in transit, and the cost of inventory held because delivery is slow. Divide by sales. Most small firms have never done this. If your figure is near 17%, you are typical for a firm of your size, and there is room to improve. If it is near 7%, you are already efficient.

Invented example: A trader with Rs 3 crore of sales finds freight and handling of Rs 36 lakh, packaging of Rs 6 lakh and losses and extra stock of Rs 6 lakh. That totals Rs 48 lakh, or 16% of sales. Cutting freight by 10% would save Rs 3.6 lakh a year.

Consolidation, Negotiation & Mode Selection

2. Consolidate shipments: Many small firms send many small consignments. Combining orders into fewer, larger shipments lowers cost per kilogram. Set shipping days instead of shipping each order on demand, and tell customers the schedule.

3. Negotiate and compare: Get at least three quotes from carriers for your main routes, and compare on a like-for-like basis: weight slabs, volumetric rules, fuel surcharges, cash-on-delivery fees and returns charges. Delhivery's results, discussed in this package, show a competitive express market. Competition benefits shippers who ask.

4. Choose the right mode: For long hauls of heavy goods, consider rail or a rail-linked service, but price the full journey, as our worked example showed, including handling at both ends. For small, urgent consignments, road or air express may be cheaper overall when you count inventory costs.

“Most small firms have never added up their logistics cost. It is usually the first saving.”

Warehousing, Return Prevention & Existing Data

5. Look at warehousing: With vacancy of 17.2% in Grade A warehouses, according to Colliers, occupiers have more bargaining power than before. Small firms rarely lease Grade A buildings, but shared and flexible warehousing may be available on better terms. Compare total cost, including handling, security and distance to customers.

6. Reduce what comes back: Returns and damages are expensive. Better packaging, accurate product descriptions and photographs, and clear delivery instructions reduce them. Track returns by reason.

7. Use data you already have: Invoices, e-way bills and carrier statements show where money goes. A spreadsheet by lane, carrier and month can identify the worst routes.

Shock Mitigation, Compliance & Cluster Cooperation

8. Plan for disruption: Colliers attributed a leasing slowdown to supply-chain disruption from the West Asia conflict. Whatever the cause, disruptions happen. Keep a second carrier for critical lanes, hold buffer stock for key items, and agree what happens when a shipment is delayed.

9. Mind compliance: Check GST, e-way bill and transporter documentation requirements for your goods. Errors can lead to detention of goods and penalties. Consult a tax adviser for specifics.

10. Review quarterly: Costs, rates and routes change. Re-run your measurement every quarter and compare.

For clusters and associations: Small firms in the same area or trade can pool shipments, share warehousing and negotiate together. Industry bodies can help organise this.

One-Page Summary & Immediate Action Steps

A one-page summary: • Know your logistics cost as a share of sales. • Consolidate shipments. • Compare three quotes like for like. • Price the door-to-door journey. • Review warehousing options. • Cut returns and damage. • Keep a backup carrier. • Check compliance. • Review every quarter.

What this guide cannot do: It cannot promise savings. It reduces the chance of paying more than necessary.

Where to start this month: Do not try all ten steps at once. Pick the one that touches the largest cost line. For most small firms that is outbound freight, so begin by listing every shipment of the last quarter with its weight, destination and charge. Sort by charge. The top ten lanes usually account for most of the spend, and quotes for those lanes are the most valuable to collect. Within a month you will know whether consolidation, a change of carrier or a change of warehouse is likely to pay off most.