Companies across all industries are dealing with rising transportation costs and a key question many CEOs, CFOs, and supply chain executives are asking is, “What can we do to better manage and control our freight spend in today’s market?” To get an expert’s response to that question, I interviewed Michael Falls, Senior Manager of Operations at enVista, in a recent episode of Talking Logistics.
Rising Freight Spend
It is rare today to read the Wall Street Journal or listen to an earnings call without hearing about the impact of rising transportation costs. With rising fuel costs, tight capacity, and driver shortages, rates are escalating faster than many companies expected or budgeted for. Because of this, I asked Michael what key questions his customers were asking him.
“The most common request we get is to help companies figure out why their costs are rising so rapidly,” says Michael. “The second question we get is what strategies can we implement to lower our transportation costs. We do strategic carrier sourcing and contract negotiation, but it isn’t always time to renegotiate your contracts. So, what can you do outside that cycle?”
Data-driven Optimization
Michael answered his own question by pointing out that most companies have some combination of transportation management systems (TMS), warehouse management systems (WMS), order management systems (OMS) or an ERP that contain tremendous amounts of data that they can use to better understand service levels, freight spend, profitability, and many other metrics. “Big data drives everything,” Michael says.
One area that can quickly yield benefits is in parcel shipping. Michael says, “There are three variables that drive parcel shipment costs: service level, such as next-day versus ground; the distance the package has to travel, known as zone pricing; and billable weight, which now includes package dimensions. The most controllable of these is service level. For example, a company may be using two- or three-day express shipping to ship parcels over a short distance where they probably would have arrived in the same time using ground.
“Another example is next-day guaranteed delivery times. A shipping clerk may be using early AM shipping options, not realizing it can be five to six times more expensive, when the customer isn’t going to be home until 5:00 pm anyway.” Michael gave a number of other examples of potential areas for savings using data you probably already have on hand.
The Impact of Omnichannel
With the rapid rise in omnichannel shopping and the need to fulfill those orders quickly, retailers must balance inventory positioning, the labor cost to fulfill the orders, and transportation costs. I asked Michael about the impact omnichannel fulfillment is having on transportation strategies
“A lot of our customers are only scratching the surface of transportation strategies,” notes Michael. “They may be shipping e-commerce orders from an east coast and/or west coast facility without considering possibilities such as ship-from-store or drop-shipping directly from the vendor. The distance traveled is one of the key factors in the cost of parcel shipping, so the shipping location plays a huge role in how expensive a shipment is. If you are shipping across the country, not only will you have more expensive rates, you’re likely going to have to pay for a higher service level to make sure the package arrives when promised.”
Another factor impacting parcel shipment cost is the weight and cube of the package. Yet it is common to receive packages containing a lot of wasted space. Michael points out a number of ways shippers can analyze their operations to reduce costs, including better matching boxes to order size, reducing the weight of packaging, and making sure your manifesting software considers dimensional factors.
Getting started
Michael provided a number of great suggestions, along with related KPIs, for how companies can start to analyze their freight spend. He says, “Start with the low hanging fruit like assessorials. For example, some of our customers are getting hit with as much as $100,000 for address corrections.”
Michael provided a lot of additional examples, helpful metrics, and suggestions for getting started, but as usual, I don’t have the time or space to summarize all of them here. Therefore, I encourage you to watch my full interview with Michael for all the details, including his thoughts about “unified commerce.”
