What is the most expensive part of the supply chain?

In a complex world where goods and services move across continents and multiple markets, supply chains emerge as the economic arteries that determine the fate of companies and economies. However, the fundamental question that always arises is: What is the most expensive part of the supply chain? The answer is not simple; it ranges from transportation, logistics, warehousing, and last-mile delivery. With all these challenges, innovative solutions such as digital transformation, artificial intelligence, and the Internet of Things are emerging to redraw the efficiency equation. This article explores the details of the costs, identifies the major bleeding points, and offers practical strategies to overcome them. Ultimately, we arrive at a comprehensive vision that turns challenges into opportunities for growth, especially in light of the global discussions at IDCE 2025.

The Importance of Understanding Supply Chain Costs

Before we delve into the intricacies, it’s essential to understand that supply chains aren’t just mechanical processes for moving goods from one point to another. Rather, they are an interconnected system that includes human, technical, and logistical elements, each of which contributes to determining the final cost.

Hence, determining what is the most expensive part of the supply chain becomes a pivotal step for every logistics manager or business leader who wants to balance profitability and sustainability.

• The basic concept of supply chain costs: 

Costs include all expenses associated with producing a product, transporting it, storing it, distributing it, and delivering it to the end customer.

•  Direct and indirect costs: 

Some costs are obvious, such as shipping and transportation, while others are hidden, such as lost time or inefficiencies in operations.

• Impact on profitability:

 High supply chain costs can eat into a company’s profits, making it less competitive.

• The need for continuous analysis: 

Without careful monitoring, small, accumulated costs can become a huge burden for companies.

Costs, then, are not just numbers on financial reports; they are an indicator of the efficiency of the system as a whole. The more companies can clearly identify these costs, the more they can control them and turn them into a competitive advantage.

What is the most expensive part of the supply chain?

When investigating this question, we find that the answer varies depending on the sector. In manufacturing, for example, raw materials may be the most expensive, while in retail, transportation and distribution take center stage. However, most global studies indicate that logistics, particularly the last mile, is the most expensive.

• Transportation and logistics costs:

 They constitute between 30–50% of total costs in supply chains.

• Warehousing and inventory storage: 

Although essential to ensuring the availability of goods, they consume significant space, energy, and capital.

• Last-mile delivery:

 Considered the most expensive part of logistics, accounting for 53% of shipping costs.

• Reverse logistics:

 Handling returns or damaged products increases costs, especially in e-commerce.

What is clear is that the most expensive part 

of the supply chain is not fixed, but often embodies transportation and final distribution. This is where the search for innovative solutions to reduce these costs begins.

Last Mile Delivery: The Biggest Challenge

The last mile is defined as the final stage of a product’s journey from the distribution center to the customer’s doorstep. Despite its apparent simplicity, it is actually the most complex.

• High Labor Costs:

Last mile delivery relies heavily on human resources, especially drivers and field staff. Each delivery requires time and individual effort, and often cannot be fully automated yet. In large cities, an online store may need thousands of drivers daily to meet demand. Furthermore, laws in many countries impose minimum wages and social security benefits, further increasing costs.

•  Congested Infrastructure:

Trucks, bicycles, and cars carrying packages face heavy traffic, especially in major cities like Cairo, Riyadh, or New York. Every additional minute in traffic means higher fuel consumption, longer working hours for drivers, and increased likelihood of delays. These costs add up to a significant burden on businesses.

•  High Customer Expectations:

Customers today want more than just a product; They want a seamless delivery experience, sometimes free, and always fast. Companies like Amazon Prime and AliExpress have raised expectations, with customers viewing one- or two-day delivery as a right rather than a benefit. This pressure forces companies to operate larger fleets, increase distribution points, and incur additional costs to meet these expectations.

•  The Main Problem with the Last Mile:

The last mile is characterized by extreme fluctuations in demand. On days of major sales, such as Black Friday or Ramadan, demand suddenly jumps dozens of times, making it difficult to distribute resources evenly. If a company allocates large resources all the time, it will lose on normal days. If it reduces its resources, it will suffer from bottlenecks during peak times. This imbalance leads to significant waste: trucks moving empty in some areas, and overloaded in others.

For this reason, experts describe the last mile as “the most expensive part of the supply chain.” But digital solutions such as drone delivery or autonomous vehicles could completely reshape the landscape.

Other Cost Factors in the Supply Chain

Besides the last mile, there are other equally significant budget-related factors.

• Storage costs:

 warehouse rent, refrigeration systems, and maintenance.

• Reverse logistics: 

Product returns cost companies up to 20% of the value of the goods.

• Labor and compliance: 

Wage increases and compliance with environmental and customs laws.

• Loss of operational efficiency:

 Any small mismanagement can double the final cost.

Thus, it can be argued that carefully managing these elements is just as important as addressing the last mile itself, as they together constitute a complex web of challenges.

Process Improvement Methodologies

It’s not enough to diagnose the problem; improvement tools must be in place. This is where methodologies like Six Sigma and Kaizen emerge as effective tools.

• Six Sigma:

 Focuses on minimizing errors and defects.

• Kaizen:

 A philosophy of continuous improvement, where a team always strives for improvement in small steps.

• DMAIC:

 A framework within Six Sigma that includes Define, Measure, Analyze, Improve, and Monitor.

• DPMO:

 An indicator that measures the number of defects per million opportunities, helping to evaluate process efficiency.

These methodologies are not just academic theories; they are practical tools that have proven effective at major companies like Toyota and Samsung, making them an inevitable choice for any supply chain seeking efficiency.

Innovation and the Future of Supply Chains

Innovation is the key to addressing cost challenges.

• Digital Transformation: 

Adopting AI to forecast demand and allocate resources.

• Internet of Things:

 Real-time shipment monitoring to reduce waste.

• Green Logistics:

 Using environmentally friendly transportation methods to reduce long-term costs.

• Global Collaboration:

 Conferences like IDCE 2025 provide a platform for leaders to share insights.

All these innovations confirm that answering the question, “What is the most expensive part of the supply chain?” is not the end, but rather the beginning of a journey to find creative solutions that reduce costs and increase efficiency.

Conclusion

After this journey through the details of supply chain costs, we realize that the question, “What is the most expensive part of the supply chain?” reveals more than just a financial number. It opens a window into a complex web of operations where the last mile and final distribution top the list of challenges. But the picture is not complete without mentioning innovation as a key solution: from digital transformation, to the Internet of Things, to sustainability and green logistics. This is where global collaboration comes into play, with IDCE 2025 providing an ideal platform for sharing solutions and shaping the future. This way, high costs can be transformed from an obstacle to an opportunity for sustainable growth and redefine the meaning of efficiency in supply chains.