October 28, 2014
Numerous factors affect this answer. From cost and service, to carrier relationships and capacity constraints, the factors themselves are a moving target as the market fluctuates with varying and more-sophisticated consumer demand.
Small and midsize shippers are particularly hard pressed to answer definitively, as resource and financial limitations can derail progress toward transportation optimization.
Therefore, the practical goal of reducing costs and improving service often ends up just out of reach.
Which raises more questions:
Two areas that shippers try to leverage are mode selection and freight consolidation. Within each, shippers rely on tried-and-true methods to reduce costs. Some methods work, some need work.
Let’s look at the current landscape, starting with mode selection.
For a common starting point, mode selection is defined as “the operational process of selecting the lowest cost transportation mode to service shipments on a daily basis while considering service.”
Among the primary modes in the small and midsize shipping world (parcel, less-than-truckload (LTL), one-way truckload (TL), private fleet truckload and intermodal/container), LTL is a lower-cost option, but presents some of the biggest issues and risks. Transits depend on the network of terminals that a given carrier operates. With more touch points, the LTL mode limits service times and can have consequences related to claims.
Although LTL carriers offer numerous advantages (cost savings over hiring an entire truck and trailer for an exclusive shipment, better rates than parcel carriers), it’s wise to examine which mode is best for your particular shipment.
Freight consolidation is the operational process for reducing transportation costs by combining smaller shipments into larger ones to benefit from shifting to a lower cost transportation mode.
Usually, transportation costs decrease as shipment sizes increase to the point of efficiently utilizing transportation modes that can cost effectively service larger shipments.
To illustrate this, the cost per pound for parcel is usually the highest, followed in order by LTL, truckload, and intermodal/container.
Shippers employ three techniques to leverage freight consolidation:
Time Consolidation—Holding freight for a set time to accumulate the largest shipment possible for mode selection while also considering service.
LTL to Multistop Truckload—Combining multiple direct LTL shipments into a multistop truckload if there is potential to reduce costs while meeting service requirements.
- LTL to Pool Distribution Network—Converting multiple direct LTL shipments into a blended mode that utilizes both LTL and truckload services, along with a consolidation location to reduce costs. For an inbound pool distribution network, multiple LTL shipments are redirected and shipped via LTL to a location for consolidation into truckload shipments, which are delivered to a common destination.
The big-picture view of mode selection and freight consolidation shows a range of traditional approaches shippers employ to generate savings.
Some shippers leverage internal resources to manually create shipping plans. The savings generated, though, are often offset by inefficient processes and the lack of technology.
To capitalize on their own resources, some shippers invest in TMS optimization technology. The rub, though, is that many shippers lack volumes to justify the expense in the technology and training required to maintain it.
Also, because transportation is typically not their core competency, shippers risk investing in the wrong technology. As a result, they underutilize it and add unanticipated costs to already burdened budgets.
Outsourcing transportation management to third-party logistics (3PL) providers remains a viable option for shippers with sufficient freight volumes and optimization potential to offset the expense. This route increases the likelihood of higher-quality solutions, but the investment might exceed any savings realized.
Clearly, these approaches have benefits. But the drawbacks expose a three-way battle: service vs. cost vs. efficiency.
For many shippers, there is another alternative that alleviates this battle and improves the value they’re seeking from a transportation-management strategy.
Taking a New Road
Freight can be viewed as a simple game: Pick up the freight, haul it, deliver it.
Fortunately, the flexible rules of this “game” allow shippers to develop more than one strategy.
To maximize a mode selection and freight consolidation strategy, hiring a 3PL provider as a supply chain advisor and unbiased partner to create shipping plans is a creative alternative.
These advisors use the latest technology and deploy top transportation-optimization professionals to create customized shipping plans.
And because they gain in-depth knowledge of shippers’ transportation networks through the load planning and optimization process, advisors can also identify other improvement opportunities.
Partnering with an advisor on a consultative basis doesn’t require investing in the overhead associated with expensive technology and talent needed to utilize these tools.
This relationship produces benefits beyond the numbers, as shippers can redistribute resources in areas such as purchasing.
Time Is on Your Side
As a shipper, you know the one thing that would make your life easier—time.
Seems as if you’re always up against the clock, and getting shipments off your dock and delivered to customers is of utmost importance.
And that’s the proper focus.
But time doesn’t stand still, and finding those elusive hours to execute the transportation strategy—Are your dollars well spent, or is your transportation budget being eroded by poor mode selection and freight consolidation? Does your manual process for creating shipping plans really save money, or is it time to consider optimization technology?—is nearly impossible.
That’s where partnering with the right advisor can pay off. With the expertise to navigate today’s unpredictable marketplace, advisors can develop the right strategy to maximize your transportation dollar, lowering costs, and improving service.
Changing the “been there, done that” formula to an approach in which a supply chain advisor guides you to a tailored solution that yields the benefits of tactical freight optimization is critical to not only maximizing your investment but also improving your overall supply chain performance.
About the Author
Mark Wagner is Vice President of Consulting and Supply Chain Engineering at GENCO and can be reached at [email protected].