Lower Transportation Costs With Load Planning
High transportation rates are not always the root cause of inflated transportation costs. A large food processor was surprised when they had completed benchmarking their operations and discovered that they were spending more on freight than the average industry competitor. What seemingly contradicted this finding was that their transportation rates were found to be especially low, among the best in the industry. Management was shocked to see that this was not translating to the bottom line. In addition, the shipping department had implemented procedures to consolidate outbound customer orders wherever possible, which should have also translated to lower freight costs.
As with any complicated process, closer examination by management often uncovers some surprising revelations. This case was not much different. Much of the savings the company thought they were achieving through the combination of outbound orders were being passed along to a transportation broker. The company was combining several loads a day manually, yet they still were sending these full truckloads through a transportation broker. This broker would charge them LTL rates for these shipments, even though most of the consolidation was completed by the company. Almost immediately, new policies and practices were instituted to insure that the savings generated from the load consolidations were now realized by the company; but, this only partially explained the high comparative costs.
In benchmarking the policies, practices and costs of their operation, management began to realize that many competitors were performing much more sophisticated load planning processes. Manually combining orders into full loads was not efficient, especially with the high number of orders shipped per day. Currently, the load planner was only spending an hour a day examining outbound shipping paperwork for any obvious consolidations. To really lower transportation costs and gain a significant competitive advantage, load planning had to be completed at a more detailed level. This would require more time and effort from the load planner, much more than current effort used to combine a few obvious loads. However, to do this effectively, the proper support tools were needed.
Before any support tools were acquired, the new load planning process had to be designed and specified. From the requirements generated from the design, a new PC-based load planning package was acquired to support the operation. The package provided the load planner with the capability to view all open orders, even those that were not expected to ship for several days. Loads could be created days in advance, with the flexibility to adjust them up until the day of shipment. This allowed for a much more extensive level of consolidation, and helped to establish an even more cost-effective pool distribution network.
The pool distribution network was established in five major market areas. Outbound orders to the regions surrounding the major markets were combined, and sent in full truckloads direct to that market on a daily basis. Once the loads arrived at the market, they were broken down and shipped via LTL carriers to their end destination. This method of shipping helped to further reduce transportation costs. The long travel distance was covered at much cheaper full truckload rates, with the shorter remaining distance from the major market to the end customer covered at the more expensive LTL rates. Furthermore, by shipping to these markets daily in full truckload quantities, service times did not decrease from the standard LTL shipments.
The resulting load planning process will reduce transportation rate costs over 15 percent, or roughly $800,000. As with many companies, it was assumed that low transportation rates translated into lower transportation costs. Negotiating the lower rates was only the first step in reducing transportation costs. The important step is making sure the outbound loads ship at these low rates. When a significant percentage of the outbound weight is being shipped at the higher, small shipment rates, the unused low rates don’t make the same contribution to the bottom line.