If you were to follow the old approach to logistics pricing, then you can easily focus on each line item on your budget as its own separate variable.

For example, some companies look at their “trucking” costs and ask themselves how they can reduce these costs.

But what about the hidden consequences of cutting their costs? What if by cutting truck driver benefits, they unwittingly encourage a higher ratio of turnover amongst their drivers, requiring new money spent to hire and train new drivers? Viewing logistics costs as part of an entire system is the new approach to logistics pricing – and it’s an approach that works.

Total Cost of Ownership: The Prism that Sheds More Light

Because none of your logistics costs occur in a vacuum, you need to look at logistics pricing in a new prism: total cost of ownership.

Understanding that each variable in your logistics puzzle is not an entity in and of itself but rather a part of the whole, you have to calculate both direct and indirect costs if you want to lower the amount of money you’re paying on logistics without sacrificing quality or delivery times.

This isn’t just a new way of looking at things; it’s a necessary way of looking at things. Your indirect costs can often dwarf the direct costs you’re measuring.

Expand your ability to see costs for what they are and you’ll gain a more accurate perspective of logistics pricing. That’s when you can start sculpting the system to meet your vision.

Reducing Logistics Costs vs. Reducing Line Item Expenses

What’s the difference between the two? Simple: it’s easier to reduce a line item expense than it is to be sure you’re reducing overall logistics costs. But reducing overall costs is what will really help your business.

Remember: you’re the one who created the line items on your expense spreadsheet in the first place. That’s the way you’ve been measuring costs. But if you start to consider the overall costs of all logistics expenses, you can measure them in a way that makes a real difference to your business – and to your customers.