Transportation Management and Reducing Costs in the Supply Chain

Excerpted from the White Paper, Leveraging the Supply Chain for Increased Shareholder Value

Recently, the costs to transport raw materials, work-in-progress inventory, and finished goods to market have increased substantially as a percentage of cost of goods sold (COGS). While the economic recession eased rates and fuel prices in the short term, rates are rising again.

Transportation decision-makers are faced with many challenges to keep costs down, including customer requirements, mode selection, carrier/fleet capacities, shipment visibility, performance management and much more.

Fortunately, transportation planners can apply best practices and technology to develop a well-controlled freight management program.

While there are a number of ways to reduce transportation operating costs, shippers can take advantage of some of the following options:

1. Develop Core Carrier Programs: Shippers that leverage their relationships well with their carriers typically experience lower rates and better service. Core carrier programs focus shipping volumes on approved carriers that meet an established set of requirements. Performance metrics are monitored and reviewed with those carriers periodically, and a collaborative relationship is developed to improve service and reduce costs.
   
   
2. Consider a Transportation Management System: Transportation management systems (TMSs) are available with a wide array of functionality and means of deployment. From routing software to full scope TMSs, there are applications available to meet every shipper’s requirements. TMSs are also available in the traditional self-hosted form, as well as the Software as a Service (SaaS) approach in which the application is hosted by the vendor, enabling quicker and less expensive implementations for some shippers.
   
   
3. Gain Control of Inbound Freight: Many companies rely on their suppliers to manage the shipment of goods inbound for stock or direct to customers. Often, there is an opportunity to take control of inbound freight and improve service while reducing costs. The additional freight spend can lead to improved discounts and rebates for parcel and LTL for all shipments. Additional volumes may create opportunities to consolidate smaller shipments into lower cost freight modes. Of course, freight terms should only be transitioned where freight can be managed in-house more economically, and/or when suppliers can reduce the cost of goods sold properly.
   
   
4. Consider Outsourcing Various Transportation Management Functions: Transportation Management Services Providers (TMSP) offer shippers the opportunity to outsource any or all transportation functions. Many shippers leverage TMSP services such as dedicated fleets, shipment planning and execution, brokerage, freight invoice auditing and payment, freight forwarding and more. Some shippers outsource their entire transportation management function. Shippers should explore which TMSP services may be advantageous.
   
   
5. Look for Shipment Planning and Execution Opportunities: Choosing the right shipping mode to meet service requirements is critical to controlling freight costs. Each mode has a sweet spot for freight characteristics such as weight, cube, etc.; however, at the margins of those ranges, there are grey areas as to which mode is more advantageous. For example, larger parcel shipments may qualify for hundredweight / multi-weight service or LTL. Larger LTL shipments may be less expensive via truckload service.
   
   Additionally, service levels should be carefully considered. For example, is next-day service required or can a package be shipped via ground? Examine opportunities to consolidate freight, such as creating multi-stop truckloads rather than shipping LTL. Pool distribution, deconsolidation, zone skipping, intermodal and many other strategies offer shippers a variety of solutions to consider.
   
   

6. Download the White Paper: Leveraging the Supply Chain for Increased Shareholder Value

   Rationalize Fleets: Private and dedicated fleets offer guaranteed capacity and operational control. They also offer sound alternatives to common or contact carriage in scenarios such as short haul moves, highly sensitive customer deliveries, last mile, hazmat, specialized equipment and more. Evaluate fleets periodically to determine if their role, composition (assets and drivers), practices and technology meet requirements. Additionally, maintenance plans and fuel management are important to controlling costs.
   
   
7. Improve Controls: Establishing well-thought-out performance objectives and metrics is critical to successfully managing transportation performance, as it is with any other business process. Conduct periodic reviews internally as well as with transportation management services providers and/or carriers. Also, apply cost controls where appropriate. Some examples include approval process for expedited shipments, carrier accessorial charge authorizations, and standardized accessorial fees and fuel surcharge programs.

In summary, taking control of freight spend through some of the steps outlined above can substantially reduce cost of goods sold and improve profits. Applying these strategies will not only reduce operating costs, but will also improve service and operational control, as well as increase shareholder value.

For more, download the White Paper: Leveraging the Supply Chain for
Increased Shareholder Value