Due to various factors like ongoing supply chain disruptions and a widening labor gap, distributors and logistics professionals face rising transportation costs.
Industry experts estimate that large organizations spend an average of $184 million annually on distribution. Transportation isn’t likely to become significantly cheaper in the near future, so distributors need strategies to help them cut costs where possible.
These are the techniques distributors can use to reduce their transportation costs right now.
Leverage Digital Tools and Supply Chain Modeling
Distributors have access to many Industry 4.0 tools that can help them make more effective decisions.
In many cases, distribution network optimization can provide significant transportation cost savings. Businesses that redesign inefficient networks could reduce costs by as much as 25%, according to research from Bain & Co.
Digital tools and modeling can also help mitigate the data and planning siloing effect that can sometimes affect larger businesses.
Companies with distinct business units may find that each will argue for a distribution strategy that prioritizes the bottom line rather than the benefit of the entire company. Individual departments may also lack access to sufficient data to make informed decisions about distribution network optimization.
Distribution network modeling tools, simulation software and analytics platforms can help managers develop a bird’s-eye approach to distribution management. Better data can also make it easier for them to visualize the network and identify potential problems.
For example, many businesses are improving their supply chain visibility with IoT devices. These items can provide real-time visibility of goods as they move through the supply chain, allowing managers to pinpoint bottlenecks and other issues with the distribution network.
No matter what cost-reduction strategies a business ultimately adopts, digital modeling tools will help the company take full advantage of the supply chain data it collects.
Increase Delivery Lead Times
Consumers and business clients typically want short lead times—the fastest possible turnaround between an order and a delivery. However, longer lead times can help a business save money on transportation and distribution.
Increasing delivery lead times allows companies to plan each shipment more effectively. For example, there may be more opportunities to consolidate smaller orders. A business will also be able to involve logistics earlier for each shipment, potentially avoiding confusion, last-minute changes or other errors.
Longer lead times and adjusted client expectations provide more control over shipping. Costs can vary significantly from day to day, with off-peak days being cheaper to ship on than peak times. Therefore, delaying shipments by just one or two days can dramatically impact distribution expenses.
Develop Strong Carrier Partnerships
Many businesses adopt a rate shopping strategy to reduce transportation or freight costs. However, companies that ship with the cheapest available option every time might be missing out on long-term savings.
More strategic, long-term business partnerships can often provide cost reductions that aren’t possible when a business is constantly renegotiating transportation contracts and pivoting to work with the cheapest available carrier.
For example, a several-year-long contract locks a business into working with a single carrier, but may provide access to a lower and more consistent shipping rate that won’t have to be renegotiated at regular intervals.
There are other benefits to developing strong relationships with carriers. One that counts on a business may be more likely to consider their success as tied to it. As a result, it may be more willing to offer special rates, prioritize freight, provide business advice and share market research.
The savings from working consistently with the same carrier may not be as significant as that secured from a larger distribution network overhaul. However, these relationships can help stabilize distribution operations and guarantee long-term success.
Consolidate Where Possible
Companies should minimize pallet space, consolidate shipments and encourage customers to buy larger orders. Decreasing the frequency of shipments while increasing the number of products per shipment can reduce transportation costs.
Optimizing how products are arranged to minimize their cubic volume and stacking products to reduce pallet space allows for the shipment of more products with the same amount of space. Even subtle changes to how items are arranged on pallets or in packages can significantly affect shipping costs, especially over long periods.
Freight and retail consolidation services offered by large shippers and retailers mean companies only pay for their share of LTL shipments, allowing them to ship the same products without having to pay for an entire truckload.
Many businesses that offer these services may also provide advice on organizing products to maximize the utilization of available space. The carrier and other business partners may also be able to provide cost-saving guidance.
The Right Strategy Can Reduce Transportation Costs
Transportation costs are elevated and likely to remain high as the logistics industry copes with ongoing supply chain disruptions and labor shortages. The right strategy can help distributors offset these high transportation costs.
Digital tools, additional planning, carrier relationships and more effective product packing techniques can all help reduce transportation costs.
