8 steps to minimise cost in Transport

Are you getting the most out of your transport spend?  Read our transport expert's 8 steps to minimise cost and maximise service.

Even when you think you’ve got it right, often complacency sets in, costs creep up, poor performance is tolerated and change becomes all too hard. On the other hand, when it's wrong, two things happen: costs blow out and the noise factor kicks in - customers complain, staff lose confidence and you end up spending all your time putting out fires… all the while reliant on the promise of the transport provider that they will eventually ‘fix it’.
  
The performance of the transport function should be a vital physical enabler for your business, not a costly source of frustration. By working through these 8 steps, you'll understand that not only your carrier’s actions, but your assumptions, decisions, actions and those of your customers, directly impact your transport performance and drive cost outcomes. This knowledge allows you to get it right! The outcome? Improved performance, enhanced customer experience and optimised cost structure.

1. Freight Spend, Segmentation and Analysis

This is a ‘deep dive’ into the carrier invoices over a sample  period (eg. 1-3 months) at an individual consignment level.  By examining the total transport spend, you can develop a clear understanding of how much you are spending with whom and for what; also you will gain visibility into your consignment profiles, freight spend, distribution, key cost drivers and how your rating structure is actually being applied.

2. Freight and Distribution Profile

This involves a review of the physical and handling attributes of your goods, your order dynamic, structure of your consignments and the distribution models deployed.  This underpins the type of transport provider and clarifies handling options and constraints, providing a base for informed decisions on carrier and service level engagement. 

3. Understanding your Requirement

Gaining clarity of exactly what is required in relation to customer expectations, market dynamics, competitor offering and pricing structures determines the most appropriate selection criteria in relation to your transport requirement. Internal stakeholders' decisions and behaviours can also have a dramatic effect on cost, risk and performance levels and, combined with the freight and distribution profiles, should be included in this assessment.

4. Rate and Services

Rates and services are negotiated and agreed with the carrier for the movement of your goods - you may have a contract or simply a signed rates sheet. Obviously the standard rates are important, however the structure and application can have a large impact on cost.  Be aware of the ancillary charges (for instance, minimum charge, cubic conversion factors, futile, handling and waiting charges) and how the carrier will deal with losses or damages. 

5. Test the Market

Testing the market allows you to gauge your current cost and services to the transport provider market. Be aware that before you go to market, you must be serious in terms of willingness to change carriers if you are presented with a compelling offer. While you may well decide to retain the current relationship, the intent is important and should not be just a benchmarking exercise. Depending on your circumstance, your approach can be direct or more formal RFP process. The key areas of consideration when comparing transport offerings should encompass:

  • Service capability – Can they do the job? Are they reliable? Can they provide the level and breadth of services that you require? Do you want one carrier or multiple (i.e. air, road, sea)?
  • Rates, cost structure and application - Is the rate structure and charges aligned with your requirement? Is it competitive and what impact does it have when applied to a sample of actual sending’s?
  • Culture – Service based businesses are fast moving and dynamic so it is important that the parties have a good working relationship. Understand the attitude, responsiveness and commitment of the carrier’s team ensure that it is not only evident at the sales level but within their management, operations and customer service.
  • Technology – The ability for their technology to meet your needs, those of your industry and your customers is an integral part of the transport optimisation process. Make sure they can deliver on the promise, will absorb the cost and you can see it working in a live environment.

6. Right Decisions Carrier and Service Selection

Selecting the incorrect service or carrier is common both at an individual level and also at an institutionalised operating level.  Left unchecked, it leads to potentially huge yet unnecessary costs, compromised performance and dissatisfied customers. So, when engaging a new carrier, ensure from the outset that the operating environment is correctly set up. Once established, when selecting carriers and services in the normal course of day to day business, ensure it reflects your freight profile, customer commitment and agreed rating decisions.

7. Freight Presentation and Handover

Freight presentation refers to the way your consignment/goods are presented to the carrier for transport and at what point handover occurs (where and when they assume responsibility for the goods). This area is often taken for granted yet can have considerable impact on your transport cost, integrity of your product during carriage, and the liabilities. By working with your carriers, you can leverage their operational capabilities, streamline the process and gain valuable improvements and efficiencies.

8. Visibility and Ongoing Management

This is the last yet crucial point in the optimisation process.  Accurate and meaningful metrics focused on service outcomes (such as SLAs, DIFOT – delivery in full on time), cost drivers (KPIs) and performance improvement initiatives allow the separation of fact from fiction, enabling proactive targeted management rather than reactive knee jerk responses.  Responsive, structured and regular account management enables fast resolution of issues, provides key escalation points, which not only supports cost optimisation but allows buy-in beyond the financial from both parties.

If you are interested in speaking to an expert transport consultant, please contact us.

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