Procurement managers who analyze different ways of trucking goods can usually achieve sizeable reductions in shipping costs — in effect, creating a revenue stream through savings.
In a previous article I reviewed three simple recommendations to lower costs from a white paper authored by C.H. Robinson, an Eden Prairie, Minn., company that specializes in transport issues. The paper, “Supply Chains: Where to Find the Biggest, Fastest Transportation Savings,” asserts that savings from these and other methods can be in the single- or double-digit range.
However, C.H. Robinson also proposes other, more challenging recommendations, which produce big cost reductions. Almost all involve TMS (transport management system) software, data entry and, in some cases, collaboration between a customer and a trucking company.
Companies shipping a variety of products in different classes have the most to gain — up to 100 percent savings on some individual shipments — by optimizing the way orders aretransported. The techniques involve consolidation, multi-stop truckloads (TL), pool points, and cross-docking.
A TMS using a routing guide and other data can select the most cost-efficient modes for freight and lane, C.H. Robinson says, and even determine break points between modes. Initial programming of data takes less than a week, and the process is ongoing, meaning shippers must continually assess loads and options.
Robinson estimates budget savings of 5 to 10 percent from mode optimization and 1 to 10 percent for simple consolidation.
In multi-stop TLs based on static or dynamic optimization (i.e., order by order), companies that transport significant amounts of less-than-TL (LTL) shipments achieve savings of 5 to 90 percent per shipment when products are loaded in multi-stop TLs.
Pool points and cross docking mean products are conveyed to a central location and divided into separate orders for multiple shipments. Companies that benefit from these approaches routinely ship large amounts of lightweight loads (2,000-5,000 lbs) within small geographical areas. Pooling and cross-docking allows companies to avoid expensive long-haul LTL networks in favor of less-expensive regional LTL transit. Savings depend on order size.
C.H. Robinson’s most elaborate recommendation is network modeling. This requires a company to develop a model based on its transport needs and product mix, compare its manufacturing, inventory and transportation costs, and enlist input from cross-functional teams to validate the data.
Designed for large companies with multiple distribution points or businesses which through acquisition have overlapping distribution points, data for network modeling can take six months to develop and system costs can mount to $100,000 or more. Furthermore, the operation must be monitored and updated on an ongoing basis.
The payoff, however, is significant. Network modeling not only makes transportation and distribution more efficient, it optimizes the amount of products in stock and eliminates unnecessary inventory. Savings are in the 20 to 30 percent range, which can be a major boost for companies that pay millions in transport costs every year.
The conclusion one takes from the Robinson report is simple: Potential efficiency improvements and savings are available to every operation. Taking the time to learn a new way of doing something can significantly enhance productivity and profitability.