How can you possibly cut freight costs in today's rising rate environment? Your first step, of course, should be making certain you have the best possible rates on the best possible carriers for your freight profile.
An objective third-party perspective can certainly validate whether your current rate structure is the best possible, but what if you feel you have done everything to lower the rates you're paying for the service you require? Even the best rates can be inefficient if your company lacks an understanding of the dynamics of optimal order quantities! Company A has worked with a freight professional and is certain that they have the best rates for their particular freight profile.
They have already cut costs 30% by relying on the expertise of their partner and by implementing a web-based TMS so they are comfortable that they are doing all they can to keep freight costs down.
But what if a closer look at their purchasing and customer service functions could possibly yield an additional 15% to 25% savings in freight costs? Is that possible? Of course it is - if you are aware of optimal order quantities in relation to LTL deficit weight rating and the rate imbalance in freight lanes.
Huh? Company A is a manufacturer in Ohio who purchases a particular compound out of eastern Pennsylvania.
They are good planners and purchasing has a consistent system of ordering 200 cases of material from their supplier every week.
The inbound shipment weighs 4,000 lbs and moves via a high quality LTL carrier.
Their cost on each shipment is approximately $260.
00 and their business is remarkably steady, so their annual freight cost on bringing in this compound is $13,520.
00.
Their freight rate is as low as it can be and the service is excellent.
So how can they save money in this process? Everyone knows that the lowest possible cost per unit is moving product in full load quantities.
Sure, it would be easy to say that Company A should only order in full truckload quantities and bring in perhaps only 5 truckloads per year at a cost of about $2,500 annually.
Great freight savings, but Company A can't afford to order in full truckload quantities and has no place to store that much product so that really isn't practical.
But do they understand that they could move 25% more weight for FREE by simply understanding LTL deficit weight rating thereby lowering their annual freight costs for this product by 20%? LTL rating is based on weight breaks of 500, 1,000, 2,000, 5,000, and 10,000 lbs and is subject to the lowest base rate possible.
So if the charge at 1,000 lbs on a particular shipment (many more variables here!) is $35.
00cwt and the charge at 2,000 lbs is $31.
00cwt, a shipment that weighs 1,772 lbs would actually be rated as if it weighed 2,000 lbs since that rating is lower.
You get to ship over 200 lbs of product for free if your company understands this concept! Company A may have issues with changing their procurement process to start ordering 250 cases of their compound at a time in slightly different intervals, but would a 20% savings in freight costs be worth it? Most would argue that it would be and could easily make the change.
Now take that $2,704 annual savings (in this example) and multiply that by everything else you can optimize.
Worth it? That's your inbound operation, but what if you can also save money on shipments to your customer using this same methodology? Or save your customer money by educating them in this process and becoming a true partner of theirs? Would you win more business? Would you be a more trusted partner? Sure, some will argue they have no control over optimizing order quantities - their supplier cannot commit to shipping what you order, your customer is extremely reactive and orders infrequently, or cash and/or inventory is so tight that you cannot adjust by even a little bit.
While all that is possible, it's also indicative of deeper issues that might need to be seriously examined so there is definitely a benefit to understanding these freight cost dynamics.
With the competitive environment we are in, isn't it worth it to explore every option available to you?
An objective third-party perspective can certainly validate whether your current rate structure is the best possible, but what if you feel you have done everything to lower the rates you're paying for the service you require? Even the best rates can be inefficient if your company lacks an understanding of the dynamics of optimal order quantities! Company A has worked with a freight professional and is certain that they have the best rates for their particular freight profile.
They have already cut costs 30% by relying on the expertise of their partner and by implementing a web-based TMS so they are comfortable that they are doing all they can to keep freight costs down.
But what if a closer look at their purchasing and customer service functions could possibly yield an additional 15% to 25% savings in freight costs? Is that possible? Of course it is - if you are aware of optimal order quantities in relation to LTL deficit weight rating and the rate imbalance in freight lanes.
Huh? Company A is a manufacturer in Ohio who purchases a particular compound out of eastern Pennsylvania.
They are good planners and purchasing has a consistent system of ordering 200 cases of material from their supplier every week.
The inbound shipment weighs 4,000 lbs and moves via a high quality LTL carrier.
Their cost on each shipment is approximately $260.
00 and their business is remarkably steady, so their annual freight cost on bringing in this compound is $13,520.
00.
Their freight rate is as low as it can be and the service is excellent.
So how can they save money in this process? Everyone knows that the lowest possible cost per unit is moving product in full load quantities.
Sure, it would be easy to say that Company A should only order in full truckload quantities and bring in perhaps only 5 truckloads per year at a cost of about $2,500 annually.
Great freight savings, but Company A can't afford to order in full truckload quantities and has no place to store that much product so that really isn't practical.
But do they understand that they could move 25% more weight for FREE by simply understanding LTL deficit weight rating thereby lowering their annual freight costs for this product by 20%? LTL rating is based on weight breaks of 500, 1,000, 2,000, 5,000, and 10,000 lbs and is subject to the lowest base rate possible.
So if the charge at 1,000 lbs on a particular shipment (many more variables here!) is $35.
00cwt and the charge at 2,000 lbs is $31.
00cwt, a shipment that weighs 1,772 lbs would actually be rated as if it weighed 2,000 lbs since that rating is lower.
You get to ship over 200 lbs of product for free if your company understands this concept! Company A may have issues with changing their procurement process to start ordering 250 cases of their compound at a time in slightly different intervals, but would a 20% savings in freight costs be worth it? Most would argue that it would be and could easily make the change.
Now take that $2,704 annual savings (in this example) and multiply that by everything else you can optimize.
Worth it? That's your inbound operation, but what if you can also save money on shipments to your customer using this same methodology? Or save your customer money by educating them in this process and becoming a true partner of theirs? Would you win more business? Would you be a more trusted partner? Sure, some will argue they have no control over optimizing order quantities - their supplier cannot commit to shipping what you order, your customer is extremely reactive and orders infrequently, or cash and/or inventory is so tight that you cannot adjust by even a little bit.
While all that is possible, it's also indicative of deeper issues that might need to be seriously examined so there is definitely a benefit to understanding these freight cost dynamics.
With the competitive environment we are in, isn't it worth it to explore every option available to you?
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