Editor’s Note: Today’s post is part of a new series we’re launching called “Practitioner Perspectives” — commentaries written by supply chain and logistics practitioners from manufacturing and retail companies who want to share their insights and advice on industry trends and topics. If you’re a supply chain and logistics practitioner interested in contributing a blog post, please contact us for details.
Most supply chain professionals are familiar with a common challenge: reducing cost while still providing goods at a specific location at a specific point in time. At my company, if the item we sell isn’t in front of a customer when they want to purchase it, then we don’t make money. It’s a simple fact. Another simple fact is that most supply chain professionals are not the ones deciding how to move those goods through the supply chain; I certainly don’t have that ability. I manage the providers we use to ship and what rates I’m comfortable paying those providers, while also thinking of different ways to get goods to our customers as cheaply as possible. What I don’t have control over, most of the time, is how many goods I’m going to move, and how fast they need to get to the final destination. Not surprising to most of you in the supply chain, those key variables are what cost me the most money.
In years past, we’ve had no problem selling our items to very willing customers. Sales were good, margin was hefty, and we were growing. As we grew, bonuses were paid regularly, scale increased which dropped supply chain costs, and everyone was riding high on the inflow of profit. Most importantly, few (if any outside the supply chain) cared about how much it cost to get our goods to customers. Why would they? We couldn’t keep enough of our hot sellers in stock! An adage we’ve come to know well is that good sales cover a multitude of spending sins. Recently, we’ve had some trouble meeting our absurd growth. Where before we were regularly growing 30-40% each year, we’ve now cooled to 20-25% growth — a number that is still enviable by most businesses, but enough to send shockwaves through a growing company like mine.
The challenge we’ve had to come to terms with is a simple but not easy-to-answer question: How much is that really worth? Is it worth overnighting that item from China just to make it to the middle of the desert in Arizona for a photo shoot? Is it really worth de-prioritizing other customers’ orders so that an associate can ship something to an Instagram influencer?
The $4,000 Transportation Question
Which brings me to the title of this post, the $4,000 transportation question. My transportation team was asked to ship a large number of bulky visual displays via air freight so that they could be shipped to stores that were already finding ways to display product without those specific items. We calculated the difference between the expedited method of air freight and the usual ocean method of shipping those items, which came out to a difference of $5,000, a hefty sum for items we’re not going to actually sell to a customer. So, we asked the question, how much is that speed really worth?
Unsurprisingly, the team requesting the items only really needed a small portion of the items they’d ordered immediately and shipping that product via air freight only cost the company about $1,000. In essence, we saved the company $4,000 by asking a simple question.
If you’re reading this, you’re probably like me. You’re in a position to manage supply chain spend, but the levers that control that spend are outside of your control. Like me, you must find ways to lower that spend however you can. You can switch providers, negotiate with the ones you already use, maybe find different ways of doing things, but no matter what you do you’ll still be unable to really control what’s going to cost the most: size and speed. That’s where we must help provide better insight to our internal partners, help educate them on what affects the company’s bottom line and help create a culture of cost savings. A step that will vault the company to higher levels of success in the future, and make my job easier in the short term.
Julio Bolger is the Transportation Manager for a mid-sized retailer responsible for all product moving internationally and domestically .
