September 1, 2008
Today most small- to midsize HVAC and sheet metal companies have limited access to carrier price information when trying to determine the least costly carrier for each shipment.
Creating a formal transportation management system in years past was too costly for smaller companies to justify based on the expected return on investment.
Now however, most system packages can be purchased and customized based on need and pay for itself in less than a year.
If many sheet metal companies selected their three to five most used carriers and compared their base and discount rates for each, the price could vary by up to 40 percent.
How do you determine which of the carriers you're using offers the best possible value and service for what you need? It’s almost impossible without a transportation management system. There are many variables from base rate, class of freight, shipping lanes, discounts and size of shipments.
Many shippers will call three to five carriers to get quotes to make sure they are getting the best deal on each shipment. This takes time and money. Years ago, many companies walked away from transportation management systems because of the high cost. But like other software products, the costs have come down. The following will briefly illustrate how today’s packages can reduce your freight costs.
Studies support the savings reflected in each module.
Carrier contract management moduleYou can download carrier-pricing programs for each carrier, allowing you to select the least expensive for each shipment automatically. Under this arrangement, you are guaranteed accuracy on the carrier cost for each shipment. This approach eliminates the need to call numerous carriers to determine which costs the least.
Freight-bill audit, payment and duplicate-invoice protection can be an accounts-payable nightmare. The variable elements requiring audit, such as base rate, carrier discount, weight and freight class go away using a carrier contract management system. The system does it all for you - including the freight payment if needed.
A side benefit of contract management is it provides immediate freight cost visibility, allowing you to add freight charges to the customer invoice on the day of shipment rather than waiting for the freight bill.
Studies show using a TMS for contract carrier management can save you up to 10 percent to 15 percent of your annual freight cost. Under these arrangements, your bill of lading is automated with carrier selection included. This virtually eliminates shipping departments from having to use noncompliant, high-cost carriers.
Optimal load and routeWithout this module, your transportation plan is a manual approach relying on the individual’s knowledge and experience to combine orders and determine what is cheaper. Automated optimization can free valuable resources from the process of manually building and adjusting loads. Time savings and cost reductions can be as much as 10 percent of your freight expenses. This will vary by company, based on size of orders.
Least-cost mode carrier selectionKnowing you have a system that can be set up based on service or transit times and cost gives you the edge. Under this arrangement you are assured the best value based on both service and cost. The system will allow you to review each shipping lane ranking carrier selection process based on established preferences for each lane. Savings in this module is up to 5 percent of total freight cost. You now can compare parcel to less-than-truckload and less-than-truckload guarantee to air freight.
A combination of each module along with formal freight negotiations will produce savings in excess of 15 percent of your total annual costs. It is recommended prior to the purchase of any transportation package you have your freight cost studied to determine potential savings to justify and determine the need for one. Normally, most third party logistics companies provide such services at a nominal cost and sometimes free if a purchase is made.
Small to mid-size companies traditionally do not have professional logistics departments. The need to attain logistics capabilities makes outsourcing a must to achieve a competitive position. The need to improve information visibility and optimized transportation cost effectiveness is a must to maintain and improve profit margins.
The process is rather simple: Have an outside firm benchmark your current freight cost. The cost for this service is minimal knowing the potential savings to be realized. If benchmarking reflects potential cost savings that can cost justify a transportation-management system, your next step is to negotiate a new carrier-pricing program to be used with the program.
After negotiations, implement the various modules required to provide cost control and monthly management reports.
Lastly, determine and develop the management reports needed to help you measure and control your cost.
It’s that simple. In four steps and two short months freight cost will not be viewed as a cost center but one that produces profit for your company.
Don Varshine, executive vice president of business development at Integrated Global Logistics, can be reached at (724) 625-5657 or by e-mail at email@example.com.