Managing Expedited Freight Costs
Too much expedited freight can turn profitable sales into losses. While most shippers expect to use some expedited service to meet customer requirements, the ultimate goal is to reduce that need. Thomas Phelps, president, Alloquor Consulting, Los Angeles, Calif., offers these tips for managing expedited freight costs.
1. Determine why you need to expedite. Take a good look internally. Is the use of some expedited freight due to poor planning? If it is, work on improving the root cause of the problem.
2. Challenge the status quo. Sales and logistics management need to work together. If sales insists that the customer expects immediate delivery, how about asking the customer to work with you on reducing expedited shipments? Maybe the customer could provide the order earlier, or would agree to non-expedited deliveries when acceptable.
3. Make sure you have good data. Good analysis starts with good data. If the data is not easily attainable, or is full of inaccuracies, then analyzing shipments to determine ways to reduce costs becomes an impossible task. Document a list of changes regarding transportation data, and meet with IT to make sure they understand the problem and take appropriate measures.
4. Reduce fulfillment time. How quickly can your warehouse get a fresh order out the door? Can the process be improved? If you cut order-to-ship cycle time, you can reduce expedited freight costs.
5. Establish metrics. As the saying goes, "what gets measured gets managed." So start measuring to start managing more effectively. If you've already established some metrics, make sure they're the right ones. If they're not, make changes.
6. Hire good people. Yes, this is obvious. But it's surprising how often this common-sense adage is not followed. Hire experienced and knowledgeable people, even if you have to spend more to get them. Good employees will nearly always save you more money than their additional salary.
7. Share the metrics. Make sure senior management understands how much money is spent on expedited transportation. Approach them with solutions. For example, "if we improve forecasting, we can cut transportation expenses in half."
8. Polish the crystal ball. If you had 100-percent accuracy in your sales forecasting, your expedited transportation costs might drop to zero. Although you may not have a crystal ball that will predict sales demand with 100-percent accuracy, you can strive to get as close as possible and reduce the need for expedited freight.
9. Get help. Some managers can't pull themselves far enough out of day-to-day activities to really focus on strategic issues, such as finding the true root causes of the need for expedited transportation. Some managers have done the work, but their suggestions have fallen on deaf ears. Consider hiring a consultant to conduct an independent analysis and provide some broader perspective on solutions that will work.
10. Get the proper systems support. Proper systems support will facilitate efficient processes and manage workflow. If your current system isn't up to the task, start documenting the gaps. Present your findings to your IT staff and see if they can provide the functions you need.