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Save on Transportation and Distribution Costs in Multimodal Environments

by aristides smith 11/04/2016

Organization, visibility, and control are key when it comes to keeping your transportation and distribution costs low. By knowing what to look for and planning ahead, you’ll find it is possible to keep your expenses down.

Issues: land, sea, and air

All transportation modes include variables beyond taking the shortest route to deliver goods. Transporting large, heavy items by sea is cost-effective, but it can be risky and slow. Air transportation is expensive. Land transportation has its own set of risks and costs, and all expenses increase when more distance is involved.

Many outlying requests and conditions can impact delivery, such as container preferences, delivery and pickup time constraints, material and production delays, and weather. Supply chain tracking is complex and requires technology to effectively manage all the moving parts. Because of this, researchers continue to look for ways to simplify the process. Fortunately, with technology and analysis, containing costs may be easier than you think.

Supply chain analysis

Starbucks logistics teams import coffee from several continents so you can order pumpkin spice lattes from your favorite neighborhood stores in the fall. The coffee company’s leaders invested in providing quality, safe, and consistent service while controlling costs by reorganizing their supply chain business.

When supply chain costs were rising but sales weren’t, Starbucks decision-makers looked to control supply chain costs through deep analysis and change. They even started a program to invest in top talent from universities across the country to keep their supply chain at the forefront of efficiency, quality, and cost containment. This approach serves as a fantastic example of how you — with an efficient and well-managed supply chain — can influence business success overall and positively impact your bottom line.

Questions to ask

Okay, so where do you start? Begin by identifying problems and challenges in your supply chain. Look for areas where you know costs seem high, and ask some questions. What additional price do you pay when things go wrong? How much are you paying in penalties for late deliveries? Are you paying extra for outsourcing when things could be brought in-house?

Where goods are coming from and how they get there may seem like an obvious part of supply chain management, but how often do you take a deep analytical look at this information? Take, for example, your distribution center locations. If you were to start your business today, where would you put your warehouses? Are your distribution centers and central distribution centers in the right places? Consider your regional approach to production and how it could impact transportation costs, distribution, and operations costs. Starbucks decision-makers added a plant and reduced costs in all of these areas by moving from a seven-day operation schedule to a five-day schedule at their plants.

The importance of benchmarking

Goals are an important part of any strategy. Reducing costs in your supply chain is the big goal, but to get there, consider setting your own key performance indicators or benchmarks that will help you flesh out what your performance should be.

Start here with additional analysis. Perhaps this means you break items down to sell and ship by their parts rather than by the total purchase price of the finished goods. Include benchmarking of what you think costs should be based on the lowest prices paid.

In terms of service providers, desired costs, and delivery times, use your best service providers in the supply chain to set your benchmarks. If you use third-party logistics services, tie productivity to your rates. Starbucks leaders used scorecards with service and productivity scores that included data by store, delivery, and stock keeping unit (SKU). Develop a rating system that makes sense for your business, and keep it simple and easy to analyze.

By taking the time to delve deeper into your supply chain system and setting benchmarks, you can find ways to improve delivery, cut down on delays, and optimize your systems to save on costs. If you lack the visibility, bandwidth, or tools, the professionals at Next Generation Logistics can help.

Ready to organize your logistics and save on supply chain expenses? Learn more about Next Generation Logistics FreightMaster TMS® software, Dynamics TMS® software, and additional supply chain services by contacting us at +1 847-963-0007, online, or via email.