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Why every logistics error costs so much

By Business value, Value

ARTICLE |

Errors occur, even with the best. But what does an error really cost, and why does it slip unnoticed?

A few years ago, the Svensk Handel association stated that every logistics error in within Sweden costs about 185 EURO (item cost excluded). Errors related to cross-border logistics quickly become much more costly.



💬 Is you estimated cost for a logistics error more or less than 185 EURO?


From our experience we find that the industry standard cost mentioned above is quite accurate – for the logistics department’s direct costs. The problem is this: these costs are almost always only the tip of the iceberg.

No logistics department is an island
The more serious deviation, error and/or claim, the more people tend to be involved. As an example even the management team is often called for in the event of more serious problems. Therefore, a cost analysis needs to include more cost centers than only the warehouse.

Even a small hiccup quickly requires the involvement of many departments:

• Customer service spending time on the customer or client

• Quality department analysis the error

• Warehouse operator handling the new order

• New packaging material

• Additional transport for the replacing goods

• Correction of inventory differences



💬 Make sure your standard cost for a logistics error includes both direct costs and hidden costs


What poor quality costs in terms of time, trust, discounts, and delays
Flawless logistics is beneficial to the whole organization. It creates space for fresh ideas and peace of mind. Just the same, errors can quickly become a burden to the whole company:

• The management team risks getting stuck in daily operations, with less time for long-term, strategic work

• The sales department risk getting stuck dealing with yesterday’s business and the request for discounts or even worse the risk of losing a customer

• Marketing department risks getting stuck dealing with poor reviews and lack of referrals

• Logistics department risks getting stuck in daily operations, with less time for continuous improvements and value-added future-looking projects

• Production department – risks getting stuck in replanning extra urgent customer orders and then replan the already planned production order getting two dissatisfied costumers

• Purchase department – risks getting stuck in handling poor stock control with extra express deliveries, loss of large quantity discounts, etc…

• Finance department risks spending time on extra transactions, outside of the normal flow

• The transport office risks getting stuck in a blame game with the carrier and take costs for extra transports

• Carrier risk getting stuck in blame game with the company



💬 Which of the above costs are included in your standard cost for a logistics error?


Staffan Persson, Logistics expert and co-founder of SiB Solutions

Where do most errors occur?

By Operational value, Value

INSIGHT |

Here is where most logistics intense companies are struggling with problems, deviations and claims. Scroll down for the full picture.

Top critical areas

1. Picking

38% of errors in logistics can be related to the picking process. The picking process is where most errors occurs.

2. Transport

The second most errors occur in the transport process. This is a critical area where goods most often are exchanged and change ownership.

3. Unknown

Almost one of every sixth error are classified as “reason unknown”. Chances are big that they will happen again, keep costing the business time and money.

4. Loading

Loading is another cititcal process where goods change ownership. About 12% of all errors can be related to goods leaving the warehouse.

5. Packing

What went really into the box and in what condition? Was it the best packing material for the goods? About 8% of all errors are connected with packing.

5. Goods receiving

Sometimes flaws in logistics origins from the goods receiving, approximately 8%. These deviations quickly multiply and can be very harmful to efficiency and quality.

Source: survey by SiB Solutions and PwC/Strategy&

Staffan Persson, Logistics expert and co-founder of SiB Solutions

What’s the cost of losing control within your Supply Chain?

By Business value, Value

Article | When a pallet or a product is lost or damaged, when a delivery is incomplete, what do you do? How many resources and hours do you spend finding the answer and the resolution? How much does it cost? If you find the answer and move to a resolution, how often do you simply just send a new delivery, not knowing if it was your wrongdoing, or anything else outside your control creating the problem? Wouldn’t you like to know?

Let me give you some examples that will be accounted for below…

  1. You send everything you produce and/or sell through a 3rd party logistic center. All is entered and registered at the logistic centre and you get a report on the delivery, and merchandise is missing.
  1. A customer calls and complain about not receiving the right amount of ordered products. The parcel, according to the customer, was lacking a number of pieces.
  1. A customer send you a picture of a damaged delivery. It’s a picture of a damaged pallet standing on the customers receiving area.
  1. You receive an error report from a robot in the production area but don’t have a clue what’s the cause. The error report just states that the robot for some reason stops operating.

etc. etc.

All these examples are taken from real situations occurring at our customers sites. Identifying problems like these by using resources performing detective work within several different systems, combined with walking around the warehouse or production site monitoring processes manually, are very costly and time consuming.

SiB Solutions can help you. We track – with video analytics – what, how and when the problem occurred by our intelligent video analytics. We will help you monitor the processes and give you visible facts that uncover any doubts of where in the delivery chain or production process you need to take action. We will help you reveal if the items were packed, sent or handled in a way that caused any problem.

  1. By entering the ID of the shipment/order/item you will directly get a recording showing the actual pallet/cage entering being picked and entering the truck. You easily identify if you sent it or not, and if you did the cost will not be on your account.
  1. By entering the order ID you get instant access to the packing station handling the order and
    1. see that it lacks a product. You can rectify the fault and give a fast and professional answer to your customer, or
    2. you find out everything was sent, and the responsibility and cost is transferred away from you (lost at distributor or fraud attempt?)
  1. By retrieving the shipment-ID you instantly get access to the loading process and can identify the pallet in question and have proof it was transferred to the distributor or not, and in what state.
  1. You enter the timestamp into the system that is monitoring the process. You instantly access the point of disruption and have the possibility to visually monitor the incident and identify if something in the production chain caused the problem.

SiB Solutions do not only help being reactive but will also, with our development within AI, create possibilities to take proactive measures and prevent the problem from arising in the first place. It gives you the advantage of taking action before it happens – eliminating all costs and resource needs for recovering from these issues. Imagine the ROI calculations and savings on that…

By: Urban Kindström

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