How Do You Demonstrate ROI from Logistics Technology Investments?

We know that last mile logistics represents the single costliest part of the entire supply chain, but when you double click on that number and zoom in to the level of cost-per-route and cost-per-delivery, a lot of delivery organizations can’t get straight answers. It’s obvious that they’re spending a huge amount on fuel, driver pay, assets, warehousing, back-office labor, and a whole host of other line items, but the specifics are opaque by default. This state of affairs can put your operation in a catch-22 of sorts. It means that you need to find a way to get visibility into your costs in pursuit of optimizing them—but that very lack of visibility can make it harder to justify technology spending. You may be confident that a particular solution will save you money, but if you can’t justify it in terms of specifics you may have trouble getting buy-in and ultimately onboarding the software in question. 

We’re here to help. In this post, we’ll provide a framework for demonstrating logistics technology ROI, as well as a deep dive into the numerous ways that technology can address logistics costs. 

If there’s anything in here you’d like to learn more about, or you could use help presenting your case to other stakeholders, reach out to our team today and we’d be happy to help. 

Major Cost Centers in Logistics Management—And How Technology Addresses Them

There are plenty of good reasons that the last mile is the most expensive part of the supply chain. At a high level, it’s fundamentally less efficient to move orders to their final destinations than it is to move them between different points in your network—if a customer is expecting an order in the middle of nowhere (relative to your actual service area), there’s no other choice but to suck it up and drive there and back. 

This means that any additional inefficiencies are magnified significantly. If you can’t find the fastest route between stops, you’re adding time and mileage onto something that’s already expensive. 

Here are some of the biggest cost centers to look at:

• Fuel usage
• Driver hours/pay
• Warehouse space (rent, heating, etc.)
• Back-office labor (dispatchers, route planners, customer support)
• Assets (including maintenance and periodic replacement)
• 3PLs and contractors
• Technology spend

There’s also the question of realizing revenue (something that is not a given when you don’t have strong digital delivery documentation) and customer acquisition and retention, but for the time being we’ll focus on the areas that are direct cost drivers.

One thing you might notice is the interconnections between some of these areas. Fuel usage and driver hours will scale more or less linearly—by reducing one of them, you’ll reduce the other simultaneously. You’ll also reduce wear and tear on your assets in the same way. 

Focusing on reducing the number of miles driven per stop can also help you get the most out of your delivery capacity, which in turn enables you to use fewer contractors to handle your total delivery volume. 

The trick to keeping all of these costs going in the same direction is to find ways to optimize the use of your fleet without things like back-office labor, warehousing, and technology spend spiraling out of control. Sure, if you doubled the headcount of your route planning team, you could potentially find ways to increase route efficiency, but you wouldn’t be guaranteed to offset the added hours. 

This is where the right logistics management technology comes in. When you have a solution that can automate the route optimization process (just as one example) by rapidly turning your delivery requirements and parameters into efficient and intelligent schedules, sequences, and routes, you can save time for drivers and route planners simultaneously. 

If you can do this in the same solution where you’re engaging with customers, managing drivers, and documenting and tracking deliveries, you can even keep your technology spend low at the same time by consolidating your IT. 

Proving Value for Your Technology Investment

Okay, we’ve gone over a couple of the ways that your logistics technology investment can decrease costs and decrease productivity, but how do you actually prove it?

This is where visibility and connectivity become non-negotiable. Here, what we mean by visibility is specifically the ability to get a complete picture of a particular delivery, delivery run, delivery plan, or anything else related to your logistics process quickly and easily. In other words, you should be able to answer any question you have about, say, your delivery costs in a matter of minutes with just a few clicks. 

When you have that level of visibility under your belt, you can start to pull up specific metrics that will make your ROI obvious:

• Reduction in miles driven per stop—multiply this by your fuel cost per mile
• Increase in stops per route—multiply the amount of time saved per stop by your drivers’ hourly rate.
• Decrease in unplanned returns—cost out the fuel and driver pay that would go into redelivery attempts and hypothetical damage if your unplanned return numbers stayed at the same leve. 
• Downturn in contractor and 3PL usage—if you compare month over month, you should find that with sophisticated route optimization capabilities you’re able to do more with your own fleet. 

All of this is relative to the amount of business you're doing. Ideally, you’ll find that you’re able to complete more deliveries with the same fleet—without having to leverage contractors or 3PLs to the same extent. Obviously, an enterprise transportation network might leverage 3PLs as a matter of course, but you should be able to keep usage (and associated costs) in check. 

You won’t necessarily have time to see asset turnover time lengthening, but wear and tear ought to go down as well when you’re truly optimizing your last mile.

When you start looking at back-office labor, there are a handful of major cost reduction areas you might look at, but one thing in particular to look at is customer support team hours: simply put, a solution with customer experience and engagement tools should make it possible to scale up your customer support capabilities without adding headcount. 

The Intangibles: Making the Case for Customer Delivery Experience

One thing that we haven’t spoken about much is the cost of customer acquisition and retention. These depend on a lot more moving parts than something like fuel costs, which makes the ROI in that department slightly less obvious in some cases—but it’s still a crucial area where the right technology can power growth. 

When your delivery drivers have routes that they can actually achieve, and customers have visibility into delivery statuses and ETAs that are actually accurate, you can improve customer satisfaction and boost your NPS score across the board. Translating this into business outcomes is something that will stretch beyond the bounds of your logistics operations, but it’s a key driver of value from logistics technology and worth focusing on. 

Conclusion: How Much Can You Reduce Your Logistics Costs?

If you’re looking at your current logistics ops and wondering how to reduce costs, the right technology can go a long way towards addressing the cost factors above. If you’re building a case for investing in logistics software, focusing on the potential decrease in miles, hours, and wear and tear per stop can go a long way. 

In the era of AI, many of these impacts can be amplified even further. AI can help streamline customer engagement, improve driver productivity, and boost ETA accuracy significantly, which can put you in a position to get more out of logistics technology than ever. All of that has the potential to add up to significant ROI on your logistics technology investment.