I’m reading the article “Corporations Review Transport Operations as Pressure Grows to Reduce Expenses” by Daniel P. Bearth. The article discussed the pressure that executives are facing today to reduce transportation costs. There are a few fundamental ways that companies in any industry can do to reduce their transportation costs.
1. Truck Load Optimization. It sounds like a non-brainer to optimize the empty truck space to reduce the average cost per unit. TL optimization not only reduces the overall transportation costs per unit but also removes the trucks required over the road, which contribute to CO2 omission reduction. So, when the transportation cost savings weight more than inventory holding cost, ordering at a full truck load will be the proper action to take.
2. Milk-run. When LTL order is necessary to reduce inventory holding cost or due to warehouse space limitation, milk-run will be the best option to reduce transportation cost. Milk-run is to consolidate multiple LTL orders in one truck and stop to deliver for multiple customers. It’s the best solution to resolve the LTL challenge. It also provides customer satisfaction at the same time because it gives customers flexibility to order small batches. The challenge of executing milk-run is to plan the delivery route. Unless it’s a repetitive route at the same schedule, it can involve a lot of manual planning and coordination between logistics personnel, carriers and the customers in order to optimize the truck space. But the savings from LTL consolidation can be significant.
3. Fleet utilization. Improving fleet utilization is another way to save transportation costs. Fleet, no matter private or public, is more cost efficient to serve within a distance of average 150 miles. For distances greater than 150 miles, line haul will have a lower cost per mile. So, by utilizing fleets for transportation movements within that distance will lower the fleet fix cost significantly. On the other hand, the fleet planning is necessary to make sure a correct fleet capacity. Unused fleet capacity or idle trucks are wastes to transportation.
4. Stock transfer reduction. The cheapest way for transportation is not to move it. When companies have a lot of internal stock transfer movements within their supply chain network, it’s time to review their regional supply and demand planning. For traditional FDC/RDC distribution network, the regional deployment should be postponed to the last minute to meet just in time requirement. During this economic downturn, there are many excess inventories existing in the supply chain network. Transportation can be avoided by an effort of selling the inventory locally, instead of moving them to a different location for storage.
5. Backhaul for reverse logistics. The last but not the least, the transportation costs saving opportunity can be identified through evaluating reverse logistics network. Companies should collaborate and partner with their carriers, suppliers or customers for any backhaul opportunities. The carrier’s cost can be reduced because of equipment utilization from this close looped network. This cost savings benefits should be shared among supply chain partners.
As a conclusion, above are five ways to reduce transportation costs – nothing out of the box but basic logistics management theories. But as always, getting back to fundamentals is often the best solution to tackle supply chain challenges.
You’re right, Planning and consolidation are keywords here. And this is nothing out of the box or particularly new. It’s just that in the day-to-day operations where customer demands have to be met instantly the above rules are often forgotten or neglected.
At times, it is not necessary to reduce transportation costs. In fact, with very low transportation costs, the overall supply chain costs may be very high. Rather than look into it as reducing the total supply chain costs.
One should consider the Milk Run method for inbound (not reverse logistics)goods from suppliers. Coordinating outbound deliveries with supplier pick-ups can yield significant savings by possibly eliminating courier/carrier costs.
That is a great point. I think that would require a great deal of organization and cooperation from the vendors and carriers.
In your experience, have you had success in lowering logistics cost through this method?
I work in the supply chain and have several customers that would be interested in any data.
Additionally, you can lower the cost you are paying for the product because you are paying for the transportation, instead of LTL added to the invoice, and then negotiate a lower rate for outbound…
Interesting point…Thanks.
I did milk-run for LTL outbound orders and the theory would be the same for inbound. It’s actually not too difficult, just need some planning and cordination. It saves quite a lot of transporation costs whenever there is chance to combine LTL orders into one load.