Uncertainties in transportation capacity, underlying costs and demand mean that the cost to merchants can be difficult to understand and plan for. Although freight costs will inevitably surge from time-to-time, one of the best strategies – crystal ball gazing aside – is to reduce overall freight costs and then build in contingency to accommodate occasional spikes. Here are some tips to increase certainty and plan for the unexpected.
Contract for a given volume
If your business is just growing, this option can be daunting, as it involves a commitment to a given shipping volume on a regular basis. That said, this is one of the simplest ways to create certainty and reduce cost. Certainty for carriers allows them to reduce cost. And if capacity takes a hit, carriers will priorities the business of regular customers.
Many companies do not appreciate the value of an established carrier relationship, regularly shopping around for a better rate. Of course, while it makes sense to keep up with market rates, maintaining a relationship with a carrier is important, especially when demand outstrips capacity.
Consolidate transportation where possible
Pooling demand for shipping services can reduce some fees and can open up lower-cost shipping options that would not ordinarily be available for smaller shipments.
Be flexible enough to ship off-peak or backhaul
If you practice just-in-time inventory, this option might not be for you. That said, if your business is able to ship on typically off-peak days the savings can be significant. Further savings are often possible by shipping non-urgent consignments on standby or as backhaul at nighttime. Working with a carrier based at a location you are shipping to may open up further backhaul opportunities.
Increase lead times
Shipping price uncertainty will penalize disorganized merchants disproportionately; so one option is to increase lead times as much as possible. Again, this strategy may not always be compatible with just-in-time inventory, but if it is an option, providing more notice to carriers is likely to reduce cost and minimize the risk of non-delivery.
If possible, reduce dead space in transportation when packing pallets. Changing the way you stack a product, or even product packaging, can result in significant efficiency gains. Reducing protection can reduce your pallet footprint – while Styrofoam and air bags may make sense for higher-value products, significant protection might not be necessary for lower-value shipments.
Fewer, larger shipments
Regularly shipping small quantities of inventory is usually more expensive than shipping more product less often. Carriers can fill a truck or container more efficiently and can pass some of those savings onto the customer. This relies on convincing your customers to accept larger deliveries than they need at any one time, which may mean sharing the savings with your customer.
Make better decisions using data
Inventory management software and supply chain management software allow for greater analysis of transportation data than ever before. This data can be used to identify potential inefficiencies and to test ways of reorganizing the supply chain.
Topics: efficient inventory management, increase lead times, lean inventory, ship off-peak, transportation costs