Freight tactics, what’s your strategy?
Behind every successful execution there exists a well-planned strategy. Transportation of goods is no different and despite the significant investment, most organizations focus efforts on daily tactical operations, or have decided to outsource the function altogether. In doing so they are missing the opportunity to create and maintain a competitive advantage.
It may appear impossible to move freight efficiently and cost effectively with erratic fuel prices, capacity restrictions, and a barrage of other potential challenges. However, developing and employing a solid freight management strategy can provide the guidance necessary to account for varying risk and fluctuating market conditions, resulting in working capital that is well invested.
Building a strategy requires the consideration of several elements; here are the five most crucial:
1.Pickup or delivery.
I once worked with a client who demanded that all suppliers deliver their goods to his facility. This blanket policy dramatically reduced the degree of effort and liability associated with managing freight, however also led to premium freight charges in many instances. An effective freight strategy includes the development of rules and principles around when to employ supplier delivery, and when internal freight management is optimal.
2.Means and mode.
Determining the most effective means of freight movement is also a consideration, particularly as some modes are more cost effective than others, dependent on geographic region, type of freight and market capacity. A general rule of thumb for nonperishable freight is to pursue intermodal for moves that are greater than 600 miles in distance. It is important however to perform due diligence before applying this rule as competitive pressures can often alter typical rate structures, which in turn may influence your decision. After seeking intermodal quotes for moves between Tennessee and Vancouver for a client, I identified a carrier that would actually provide the service via truck at rates in direct competition with rail, as a result of available capacity.
There are numerous means by which to extract additional value from the movement of goods. Developing and applying a list of tactics against each lane can often result in additional cost reduction. Here are five questions to ask when determining if cost reduction opportunities may exist:
1. Can the goods be consolidated with other shipments or deliveries?
2. Is the shipment time sensitive, or are delays acceptable?
3. Is there additional volume that can be leveraged to reduce rates?
4. Could I enter an exclusive agreement with a carrier in exchange for competitive rates?
5. Are there backhaul opportunities I should investigate?
In working with a producer of goods for nurseries, we were able to utilize a freight consolidation process to reduce dozens of less than truckload shipments into very few full truckload shipments. The results were an astonishing 20% reduction in freight costs; a reduction in border clearance costs; reduced efforts in coordinating outbound deliveries; and an increased ability to meet customer delivery commitments.
4.Mitigate and manage.
A transportation strategy requires the identification and mitigation of risk to both the company and the customer. Examples of potential risk mitigation opportunities include:
1. Determining a financial threshold for the application of insurance.
2. Identifying proven carriers for time sensitive deliveries
3. Optimizing pallet and load planning in order to minimize damage
4. Accounting for seasonal weather patterns in lead-times.
5. Maintaining qualified carrier alternates for critical delivery lanes.
The farther the distance travelled, the greater the chance of damage and loss (although still possible in local deliveries). Be prepared by including a risk mitigation element in your transportation strategy.
5.Responsible and accountable.
Most carriers will apply their terms and conditions to goods movement, however these contractual agreements are always open for negotiation, and failing to do so is simply negligent. We recommend that our clients develop a boilerplate containing terms that are of greatest importance to their business, and negotiate or apply such terms to those lanes of greatest importance to the operation of their facility. Clearly identifying and negotiating carrier responsibilities relative to produce freezing, load shifting, spillage, theft, and spoilage are the only means to provide legal protection in the event of an occurrence.
The daily activity of freight management may seem tactical, but to achieve optimum value and protection a freight management strategy is necessary. How many of these elements does your company employ?