Look Upstream to Mitigate Transportation Spend

We’ve turned the page on another year that featured an intense capacity crunch and unavoidable focus on transportation costs. Yet out of those challenges came opportunities for continuous improvement into the new year. One common theme became apparent – the need to expand cost-saving opportunities further upstream in the supply chain, where inefficiencies often show their ugly face in the form of transportation costs.

A sharp rise in freight rates late-2017 into 2018, and the impact on budget performance, motivated transportation leaders to find other ways to keep costs in check. Capacity was extremely tight during this period, and three areas kept surfacing as avenues to mitigate additional cost: trailer utilization, lead time, and detention costs. Regardless of the environment, any organization can benefit from examining and improving efficiency in these areas of its supply chain.

Trailer utilization

Many companies measure their freight performance on a cost-per-unit. This could be by piece, pound, cube, or some other unit. So logically, the more product you can ship on a truck for the same cost, the better result you will have on that cost-per-unit metric. And with truck capacity tight and rates at a premium, what better place to look than capacity within your own network? Improvements in this area can help offset the higher costs of moving these trucks.
Consider the three move types most impacted:

  • Intra-company freight (stock transfers of WIP or finished goods inventory)
  • Supplier inbound freight
  • Customer outbound freight

Intra-company freight, a move type that is 100-percent within the control of a shipper, is the logical place to start when looking to attain the highest impact in the shortest amount of time. Inefficient stock transfer load utilization is an area where shippers accrue costs that are not directly tied to the sale of inventory. We observed transportation departments starting to engage with production and demand planning to improve performance in this process. Sometimes this collaboration reveals that functions have competing metrics that need to be addressed by the broader supply chain organization.

Evaluating inbound freight ship dates and quantities from suppliers and outbound order patterns from customers can also uncover cost-saving opportunities.  But both require involvement from stakeholders outside of the shipper’s organization. Although the savings opportunity can be greater, so too can the time required to implement adjustments and reap the benefits.

Lead-time

At a basic level, the more lead-time you have to plan for anything, the more cost efficient you can be. This is true for the most part within transportation as well. More focus upstream on order-entry processes helps to ensure that transportation has sufficient time to secure capacity with a reliable carrier at the lowest rate possible. Between 48 and 96 hours of lead-time is a general rule of thumb. Of course, this guideline has many operational exceptions depending on type of business, consistency of the lane, consistency of the lead-time, and procurement status of the lane.

It has always been more expensive to ship things last-minute.  But in 2018, we saw a notable increase in the cost difference between a “short” lead-time load and a “normal” lead-time load. We saw greater focus on measuring the cost of lead-time, a metric that was used by organizations to address inefficient order management practices within customer service and demand planning departments. Capacity crunch or not, improving lead-time efficiency and the processes that influence it will have a positive impact at any organization.

Detention costs

No stakeholder wants to pay for wait time.  But the capacity crunch made it clear that drivers have become more willing to turn away loads due to excessive wait times. This wait time intolerance inflated contract and spot rates for these locations that were already subject to detention fees. Shippers recognized that in order to be or remain viewed as a shipper of choice and mitigate inflated rates, they must focus on improving any issues causing excessive wait times at their shipping/receiving locations.

Detention can also have a negative impact on other logistics functions and metrics, such as utilization. Here’s a real-world example: a warehouse has a goal to reduce detention costs. In an attempt to meet these goals, stock transfers are shipped in under-utilized loads to ensure there is no detention, resulting in a higher cost-per-pound to move those loads. So, while one stakeholder group gets a pat on the back for avoiding detention fees, another group gets an earful for higher shipping rates. As a supply chain team, it is important to understand various stakeholder group goals and metrics to determine if any conflict exists. To avoid finger-pointing and inefficiencies, teams must be aligned on how to best meet the greater goals of the organization’s supply chain.

Matthew Anderson is Director, Logistics as a Service at BluJay Solutions