The Analyst Corner: Fulfillment/Logistics

Freight capacity and transportation budget pressures continue to hound transportation managers. But savvy companies have discovered how to fight back


If your company experienced double-digit freight rate increases last year, your carriers were sending you a loud message that either your freight was not a good fit for their network or that you were a problem-child customer for them to serve.

In speaking with the major carriers, they have been raising their rates by 2 to 19 percent. But they haven't been applying rate increases like evenly spread peanut butter. Rather, they have been jacking up the rates of their least efficient customers by 10 to 19 percent and rewarding easy-to-serve customers with 2 to 4 percent increases. In fact, in 2005 some of the more efficient companies have been able to negotiate rate decreases of 2 to 5 percent.

Whether it is a large enterprise like Unilever Foods or a midsize company like Orange Glo, a family run seller of household cleaning products, those organizations that make themselves more efficient for carriers to serve will receive preferential rates — and preferential capacity availability. In fact, companies adopting carrier collaboration programs often report 40 to 50 percent reductions in tender turndowns.

Key elements of these programs include:

  • Sharing rolling two- to four-week capacity forecasts with carriers;
  • Tendering earlier (two to four days in advance of a pickup) and electronically;
  • Reducing driver turnaround time at pickup and delivery locations (including at supplier or customer locations);
  • Increasing hours of operations or drop yard use to provide more schedule flexibility to carriers; and
  • Paying carriers faster and more dependably.

Turn on the Technology

Nearly 30 percent of companies Aberdeen surveyed say they are looking to add to or upgrade their transportation technology. Simple rules-based or manual order consolidation was appropriate for many companies when shipping options were few and capacity was abundant. But that is no longer the case. Today's dynamics of rates, surcharges, service options and capacity constraints mean that organizations using static routing guides or simple weight-break rules are leaving increasing amounts of money on the table.

"Once we started using a transportation management system that could factor in changing fuel surcharges and precise rates, we noticed our mix of load assignments to carriers on certain lanes had changed dramatically," said the logistics and distribution manager for LifeWay Christian Resources, a $428 million nonprofit publisher. "Certain orders that would have always shipped by hundredweight according to the old weight-break rules were now going out more cost-effectively by less-than-truckload." LifeWay was able to achieve a 14 percent reduction in freight costs in 2004 by deploying Irista's IristaTransport system, which supports audit-quality rates.

Become the Center of the Universe

Market demand for faster, lower-cost supply chains is creating the need for greater sharing of transportation-related information internally and with trading partners. In fact, better information sharing was rated by transportation managers as the top action they could take to improve their transportation performance and the value they deliver to their companies. However, at 76 percent of companies, stakeholders across the firm must still pick up the phone and call the transportation department for shipment status, freight costs, dock appointments and service options.

Best practice companies are adopting browser-based transportation system interfaces to facilitate information access for internal stakeholders and even key customers. Moving this information online helps the organization better source goods, plan inventory flow, smooth warehouse workload, enable manufacturing to take more high-margin rush orders and deliver higher service levels to customers. At these companies, the transportation department, in effect, is becoming the information and activity synchronization hub for the company and its trading partners.

Say Goodbye to the Doghouse

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