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KPI of the Day – Logistics: $ Fuel cost

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fuel cost

Definition

Measures the costs incurred with fuel consumption per trip.

Purpose

To assess the financial implication of the fuel consumed per trip, which is an important part of distribution or transportation cost. Profitability is greater if this indicator is low.

Recommendations

In the case of air transports, fuel cost can also be considered as a percentage of total flight costs. Fuel consumption varies depending on the airplane – engine combination, airplane operating policy and maintenance.

Fuel expenditure is one of the most important cost categories in the logistics and distribution area, alongside expenses such as: labor, repair and maintenance costs, registration and license fees, vehicle ownership costs, insurance and administrative costs. Additionally, $ Fuel cost is approximated to generally make up between 20% and 40% of operating costs in the case of freight transporters.

For these reasons, keeping $ Fuel costs low, decreasing # Fuel consumption per distance ran and increasing % Transport capacity utilization is one of the primary concerns in logistics and distribution. One particular strategy that distribution companies use to achieve their goals is adding more distribution centers to their distribution network.

This is done in order to reduce the distance between the distribution facility and the customers, thus saving up on fuel consumption. This method, however, only works if a cost-benefit analysis is conducted, which takes into consideration other costs such as the hiring of additional warehouse workers or incremental occupancy costs for leasing and utilities.

Other companies examine their trade routes and identify the ones for which they can aggregate more shipments into one single container or truckload. Thus, more goods will be moved through one full shipment instead of several less than full ones, leading to lower fuel consumption and implicitly lower costs overall.

Accurate data gathering for this KPI depends on a monitoring system of the distribution/transportation trips, correlated to financial data regarding fuel consumption costs.

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