The aim of every Logistics and Supply Chain Management professional is to keep the cost of logistics to a minimum and product performance higher for the profit of the organization higher. Logistics cost usually involves the cost that is occurring other than the production cost. This includes the cost of service, transportation, inventory and warehouse. Companies see these cost which adds price to the product after production thus decreasing the performance.
The first step in assessing the performance of logistics is by calculating the difference between total cost and the sum of production cost material cost labor cost utility costs etc. This will be usually the profit associated with the manufacturing of a product. Logistics cost is the decrease in this value due to the cost involved during the transportation stages from company to customer through supply chain and logistics management.
In some cases the service cost increase due to the inability to deliver the product in bulk thus not meeting the orders. Ordering delays, delivery time delays and back order management also usually affect the logistics cost. Products which are damaged or malfunctions upon delivery also increases the logistics cost which includes the returning item cost.