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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

Published: September 28, 2021