Packaging, shipping and handling costs represent a large portion of variable business costs and are often overlooked by inexperienced planners. As a result in many businesses this presents a fabulous opportunity to make changes that will have an immediate and noticeable effect.
When asked what it costs to provide a product most people add up the pieces and give you the total. If we make toasters, we say the cost of the toaster is one cover, 2 elements, a spring mechanism, power cord, thermostat and 14 screws: $10.
A slightly more experienced manager will tell you the cost of that same product is labor plus materials. Your toaster now costs $10 for all the materials, and 20 minutes to assemble at $15 per hour. $10 + $5 = $15. That’s a 50% increase. If you manufacture 1 million toasters every year, that's a jump from $10 million to $15 million dollars in your calculated costs.
What so many business managers fail to include in their costs is that the toaster goes in a box with an instruction manual, and has to be sent from your factory to the store across the country. That toaster may cost $15 to build, but the cost of getting a toaster on the shelf in a store is $15 plus a box, plus an instruction manual, plus a crate, plus someone to put a load of toasters in that crate, plus the cost of shipping itself. On many products the box required to ship a product safely costs more than the product inside. For many mass produced products packaging normally costs more than the product itself.
So how is it that shipping and handling cost so much, and yet get overlooked by so many business managers? We just don’t think about it. It's a line on a balance sheet somewhere that most of us never get to see. It's accepted as a normal cost of business and it doesn't sound very exciting to go and fix.
But let me tell you what is exciting. Walking into your boss's office and telling him or her you've found a way to save the company thousands of dollars by bumping up your shipment sizes, changing to a less expensive cardboard box, or predicting shipment needs in advance and shipping in 2 weeks by sea instead of 2 days by air. All of these are relatively easy changes to make if the right questions are asked. Unfortunately most managers don’t even know what the cost of shipping and handling is.
So don't overlook your packaging, shipping and handling costs. They all play a part in the cost of doing business. If you don’t know what your business shipping and handling costs are, go find out. Then walk over to the loading bay and ask someone to show you what they have to do to get something ready to ship. You might be amazed at the inefficiencies you find, and more than likely the packers and shippers themselves already have a long list of solutions for savings locked away simple because no one has ever bothered to ask them.
Shipping and handling cost savings are a potential goldmine for managers looking to make their mark. They are expensive. They happen all the time. There are often overlooked. They are an opportunity. My management tip for you is to go seize that opportunity and make a difference.
Related Articles
Keep 'em Coming Back for More
By: Daryl Cowie | 03/04/2008 | Management
Let's look at three management tips on increasing the number of times your customers come back looking for more: Product Consumption Strategies, Follow-up Communication, and Lower Prices.
Wanted: Disruptive Leaders
By: Daryl Cowie | 03/04/2008 | Management
Challenging direction, disrupting the status quo, and a willingness to modify your own thinking are the marks of effective leaders. Disruptive managers with the vision, passion, and courage to tackle the most difficult problems are what insightful leaders are looking for.
Seeing the Total Cost Picture - Part 1 of 2
By: Daryl Cowie | 07/04/2008 | Management
It's important to understand costs the same way your executive team understands costs so you can discuss and address them in ways that will be meaningful to them and to your business. Take a look at some management tips on understanding business cost.
Seeing the Total Cost Picture - Part 2 of 2
By: Daryl Cowie | 07/04/2008 | Management
For new managers and middle managers one of the best management tips you will ever learn is to start with the variable costs. Variable costs are everywhere, they are often the biggest business expense, and it is possible for managers at every level to influence spending in this area.
Tackling the Cash Flow Problem - Part 1 of 3
By: Daryl Cowie | 08/04/2008 | Management
The biggest challenge in controlling variable costs is that you often need to make the decision to spend before the actual sale is made, and you often need to pay your bills before you can collect payment. To top it all off, if you guess wrong on your planned income you still need to pay your vendors and your staff.
Tackling the Cash Flow Problem - Part 2 of 3
By: Daryl Cowie | 08/04/2008 | Management
Suppose now that our business gets an order for $100,000, ten times our usual monthly amount. This is a great problem to have, but it can also be very dangerous for a company if they don't manage it right.
Tackling the Cash Flow Problem - Part 3 of 3
By: Daryl Cowie | 08/04/2008 | Management
Let's look at the 4 big management tips to keep your cash flow situation running smoothly...
How Top Managers Use Indirect Cost Control Strategies
By: Daryl Cowie | 25/04/2008 | Management
When you set out looking for ways to cut the cost of providing your products and services, take the time to look past the parts and pieces of what you provide to the equipment and resources used to create them. These components all contribute indirectly to your per piece costs, and represent opportunities to save money on the things you do repeatedly.
Got a Question? Ask.
Ask the community a question about this article:
Frequently Asked Questions
Where does the name 3M come from?
By: dripbydrip | 04-05-2008
The company that makes those post it stickers is 3M. What does the name 3M stand for?
Where would you buy coffee if Starbucks closed?
By: Alice Gold | 01-05-2008
Where do you get your morning caffeine fix?Where would you go if Starbucks closed?
My menstrual cycle became irregular suddenly from ...
By: manyam | 28-04-2008
My menstrual cycle became irregular suddenly from the past 3 months, say from Jan 08. I have approached my GP and he advised me for blood test., and the test result is normal. Not sure what is detected in the blood test. we are planning for pregnancy and my cycles became irregular. Please help me with your suggestions. Thank you, manyam manyamchitti@rediff.com
Unemployed, Considering Moving
By: ykiki | 28-04-2008
I'm unemployed, and can't seem to find a job where I live. Should I move to a more prosperous place, like Las Vegas? I don't want to go to the expense of moving just to find myself unemployed elsewhere.
What is the best business to get into or open ...
By: Antonius | 26-04-2008
What is the best business to get into or open right now during stagflation?
RIM
By: Dhambelton34 | 24-04-2008
Is it always necessary to keep a hard copy of paperwork that is sent out of the organization? If not, what is one alternative to saving a hard copy.
Q&A Powered by:
Latest Management Articles
The Basics Of Logistics Training
By: Sam Miller | 17/05/2008
The discussion in logistics training always starts with how training should be done. Few people know that how employees are trained is a determinant to the success of the company. There are several approaches to this, but majority of these have almost the same format or style.
The first thing that...
The Necessity Of Improving Productivity For Organizational Success
By: Sam Miller | 17/05/2008
Success is attainable only when there is teamwork and relevant production. It is a fact that companies now dwell on measures that will result to improving the productivity of their workers to achieve success in their business operations. This only shows how companies value the output of...
The Importance And Impact Of Logistics Training
By: Sam Miller | 17/05/2008
It has been recently an issue whether logistics training is a business necessity or not. In many planning stages of an organization, it is not uncommon to witness the absence of a logistics expert. This results not only in poor company planning but disorganized processes as well. Simply defined, logistics...
The Necessity Of Performance Indicators For Training
By: Sam Miller | 17/05/2008
Companies that are data driven base their department structure through metrics, and this starts with key performance indicators for training, also known as KPIs. One cannot simply assume that a part of the curriculum is ineffective. Also, one cannot simply say that a trainee should not be deployed to operations,...
Team Building For Your Business
By: Naz Daud | 17/05/2008
For most successful businesses, team building is crucial because it enables the managers and owners to build relationships with their employees. Team building improves a business' profitability in many different ways. It helps the organization's staff members to get to know each other and interact better. They learn to value...
Increasing Need To Improve Productivity
By: Sam Miller | 17/05/2008
With so many alternatives available in the corporate world today, every business owner is geared towards seeking ways on how to upgrade their employees' output to battle competition. Being competitive is a must for every company, especially these days when consumers are getting wiser. This paved way to...
Financial Goals As Part Of Your Business Vision
By: M. Watson | 16/05/2008
One way to ensure that your business cannot succeed is the failure to see its financial future. You need to have an accurate picture of your own personal financial needs before you begin to write your business plan, irrespective of the type of business you are planning. There are many...
Vital Six Sigma Software
By: Tony Jacowski | 16/05/2008
When Six Sigma is implemented into a project, there is a need for collecting and analyzing huge amount of statistical data, which may be raw in nature. Such data, which is associated with various aspects of business processes, is vital to the decision making process.
More from Daryl Cowie
How Top Managers Use Indirect Cost Control Strategies
By: Daryl Cowie | 25/04/2008 | Management
When you set out looking for ways to cut the cost of providing your products and services, take the time to look past the parts and pieces of what you provide to the equipment and resources used to create them. These components all contribute indirectly to your per piece costs, and represent opportunities to save money on the things you do repeatedly.
Tackling the Cash Flow Problem - Part 3 of 3
By: Daryl Cowie | 08/04/2008 | Management
Let's look at the 4 big management tips to keep your cash flow situation running smoothly...
Tackling the Cash Flow Problem - Part 2 of 3
By: Daryl Cowie | 08/04/2008 | Management
Suppose now that our business gets an order for $100,000, ten times our usual monthly amount. This is a great problem to have, but it can also be very dangerous for a company if they don't manage it right.
Tackling the Cash Flow Problem - Part 1 of 3
By: Daryl Cowie | 08/04/2008 | Management
The biggest challenge in controlling variable costs is that you often need to make the decision to spend before the actual sale is made, and you often need to pay your bills before you can collect payment. To top it all off, if you guess wrong on your planned income you still need to pay your vendors and your staff.
Seeing the Total Cost Picture - Part 2 of 2
By: Daryl Cowie | 07/04/2008 | Management
For new managers and middle managers one of the best management tips you will ever learn is to start with the variable costs. Variable costs are everywhere, they are often the biggest business expense, and it is possible for managers at every level to influence spending in this area.
Seeing the Total Cost Picture - Part 1 of 2
By: Daryl Cowie | 07/04/2008 | Management
It's important to understand costs the same way your executive team understands costs so you can discuss and address them in ways that will be meaningful to them and to your business. Take a look at some management tips on understanding business cost.
Wanted: Disruptive Leaders
By: Daryl Cowie | 03/04/2008 | Management
Challenging direction, disrupting the status quo, and a willingness to modify your own thinking are the marks of effective leaders. Disruptive managers with the vision, passion, and courage to tackle the most difficult problems are what insightful leaders are looking for.
Keep 'em Coming Back for More
By: Daryl Cowie | 03/04/2008 | Management
Let's look at three management tips on increasing the number of times your customers come back looking for more: Product Consumption Strategies, Follow-up Communication, and Lower Prices.
Business 
