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| The MoreSteam.com Logistics module provides proven best practices to reduce the cost of inbound and outbound freight. Those activities recognize five freight-cost drivers:
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| FIVE FREIGHT DRIVERS |
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Cube Utilization - The extent to which all possible space on the trailer or container is utilized has a significant impact on cost. Air is a very expensive commodity to ship. |
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Distance - With rare exception, the farther you ship it, the more it costs. |
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Mode - Cost varies significantly with the method, or mode of shipment: Railcar, Piggyback (trailer on a railcar), Full Truck Load, Less-Than-Truckload (LTL), and Parcel Service, to name a few, all have different delivery speeds and cost structures. For example, a shift from full truckload to LTL shipments over time can raise freight costs substantially. |
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Rate - Within each mode, the rate to each destination that is negotiated has the most direct impact on freight cost. Rates ARE negotiable. |
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Damage - A frequently overlooked component of shipping costs is damage. In particular, concealed damage is difficult to track back to the root cause. Often times this shows up indirectly in the form of warranty and allowances. Indirect costs that result from damage may justify packaging improvements that add direct cost but reduce the total cost. |
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| The foundation of all shipping cost reduction activities is to generate good information to track performance metrics for all five freight cost drivers and clearly identify problem areas. Information on cube utilization, distance, mode, rate, and damages should be generated by Customer, by Location, and by Product Line. If this information cannot be collected internally, a good freight bill audit firm can collect most of this data and enter it into a database as freight bills are approved for payment.
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| MoreSteam.com Note: The editors are familiar with a company that started collecting and analyzing freight data - discovering that many of its largest customers were actually unprofitable accounts, largely due to the high shipping cost of a particular product line. Better management of the product line mix and improved attention to cube utilization contributed to a 35% reduction in freight cost as a percent of sales. |
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| Following are several specific best practices to reduce shipping costs:
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Audit freight bills before authorizing payment. This means more than just matching a bill of lading with the freight bill. The rate must also be checked against the contract for that destination. Many firms do not effectively conduct audits. |
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Develop a cube calculator (based on actual cubic space of each product, not points) so that sales reps. and order entry personnel can ensure that trailers are fully filled. If you can't accomplish this through the order entry system, develop a spreadsheet program. |
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Establish a routing guide that tells the shipping locations exactly which carriers to use on every route. Show second and third choices in case the preferred carrier doesn't have equipment available. |
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Arrange continuous moves wherever possible to keep the carrier's trucks moving. The efficiency of continuous movement will allow you to negotiate better rates. |
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Consolidate volume to provide greater leverage in shipping rate negotiations through a volume discount. |
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Improve damage dispute resolution by taking a picture of every load. Attach a copy to the Bill of Lading and retain a copy with the pick ticket. This will clarify any discussions about how the trailer was loaded. |
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Error-proof shipping accuracy by RF barcode scanning shipments prior to loading. This process also improves inventory accuracy, and provides a quick and precise method for cycle counting. |
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If you cannot implement and RF system for barcode scanning, pre-stage and audit all outgoing loads to ensure accuracy. |
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Offer incentives for full truckload shipments to change the mode from LTL to full truckload. Take care to ensure that the standard for a truckload discount doesn't erode over time (e.g. full discount for ¾ truckload). |
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Enforce the shipping/pricing policy. If customers are required to pay drop-off charges for less-than-truckload quantities, make sure they are captured and charged back. |
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Establish firm guidelines that no carrier can ever be used without a signed contract - which should be negotiated at a management level sufficient to provide proper oversight. |
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Audit damage claims from the field to ensure that there is no fraud. This is a frequent avenue for customers to obtain allowances that are actually margin enhancements. The editors are aware of many instances when auditors were sent to review damaged goods only to find that the goods were in perfect condition in unopened, undamaged cartons. |
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Charge freight premiums, or "adders" on shipments beyond the economic shipping range, subject to market conditions. The editors are familiar with one company that found that all of its customers in the Pacific Northwest were actually unprofitable accounts due to the freight cost of shipping from the Great Lakes region. |
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