If bigger is better, then todays transportation budgets may be among the best in history. Unfortunately, so are todays over-the-road transportation costs, many of which have hit record highs over the past few years. The bad news is most of the major causes increased fuel prices, an ongoing truck driver shortage and congestion in major markets are circumstances beyond the average shippers control. Luckily, there are still numerous places within most companies supply chains where there is considerable room for financial improvement and many time-tested techniques can help.
Freight Management Services
Few supply chain tools are packed with as much cost-cutting potential as this collection of systems-based tools. A robust freight management service can perform everything from freight optimization, mode selection and carrier selection to freight consolidation, claims processing, freight payment and audit, shipment tracking and carrier service evaluation. The potential savings are significant.
For example, by using freight optimization looking for ways to turn numerous small shipments on low-volume carriers into a handful of larger ones on high-volume carriers companies can achieve savings of anywhere from 10% to 30%.
And by using shipment tracking, companies can not only inspire better service from these carriers (because freight thats being watched typically sits on the dock for shorter periods of time), they also can reduce some of their reliance on the costly safety stock they feel compelled to carry when theyre less sure about where their products are.
Freight Re-classification
When it comes to transportation efficiency, it pays to think inside the box. More specifically, it pays to pay attention to whats inside boxes, cartons or shrink-wrapped pallets and to how those contents are being classified by the NMFC. The rate differences between classifications can be substantial 100% between Class 50 and Class 100 alone. And sometimes the differences between what puts companies in a higher or lower freight category are less dramatic than you might think.
At a minimum, companies should re-check their rate classifications when their products or packaging change because the change might make them eligible for a lower-priced class. In addition, they should frequently examine how closely the description of their packages contents matches whats actually inside because they may be relying on outdated descriptions that have bumped them up into a higher-priced class.
Companies should also consider negotiating a class change with some of their carriers. For example, some carriers are willing to put shippers freight into a lower-priced category if shippers will accept more liability for damages.
DC Bypass
Theres a common recipe for redundant transportation: Start with an inbound shipment arriving from a production line in China (or any other Asian country); mix it with a West Coast port; add a transit to an inland distribution center located someplace like Dallas or Chicago; then top it off with a transit back to the West Coast in order for the product to be delivered to a retail outlet or customer located there. Companies that dont have West Coast distribution centers may feel forced to do this because their supply chains are designed specifically for
DC bypass is one alternative that can help. Freight using DC bypass travels from a port of entry to a deconsolidation center, where its transloaded and shipped directly to sales outlets or large stores distribution centers, thus helping companies avoid the cost of re-shipping product and receiving it twice. Depending on where companies DCs are located, it also helps
companies shave several days off their inventory carrying costs. And if product is transloaded onto an inland container, it can also further reduce costs because its possible to get the contents of approximately three ocean containers into two inland trailers.
Transportation-focused Site Selection
As production has gone more global, many communities have begun offering highly attractive real estate and tax incentives to attract distribution center business all in an effort to replace lost production jobs. While this sounds like a prime opportunity to trim distribution costs, it often has the opposite effect because companies are being tempted to choose more remote locations than they should.
No matter how attractive these relocation incentives are, nothing changes the fact that transportation costs typically outweigh real estate costs several times over. If a DC doesnt give a company the transportation access it needs, a company shouldnt go there unless it enjoys paying more for overall logistics.
Its also important to note that two of the most important logistics cost-cutting tools arent really related to logistics at all. Companies can learn a lot simply by keeping their eyes open and maintaining a close watch on everything from prevailing rates to current events and best practices. In the process, theyll often discover hidden costs they originally might have overlooked, economical possibilities for moving and managing their freight that previously went unnoticed and new systems or services that have the potential to lower their expenses while improving their service. Even in the best of times, there will always be ways to save for those willing to look.
Rick Underwood is Vice President of Contract Logistics Services in the Americas for APL Logistics, an international provider of supply chain services that operates more than 24 million square feet of warehousing space. He can be reached at rick_underwood@apllogistics.com.
