Optimize Your Supply Chain Balance Sheet
Every supply chain contains both hidden costs and potential savings. Smart shippers and their logistics partners utilize their data to discover cost-saving opportunities that improve profitability.
In logistics, as in every business, the formula for success can be simply stated: Minimize your costs and maximize the benefits you achieve from the expenses you incur along the way.
But with the frequent twists and turns—some anticipated, some not—encountered in the supply chain journey, that simple formula is far easier stated than accomplished.
In many accounting departments, too much happens on the path of products moving from here to there that is out of sight, out of mind and, as a result, out of control. But significant cost efficiencies are there for the taking if companies examine their own data to unearth the potential savings buried there.
“Intelligence is the holy grail,” notes Joe Juliano, president and CEO of MercuryGate, a transportation management system provider.
Put another way: Knowledge is power. “Using data and information in a way that organizations can make decisions—that’s the key,” says Reid Klosowsky, of Freight Think, a transportation advisory group that he and fellow supply chain veteran Bill Maroney formed in partnership with NT Logistics.
“You need to know your cost, by customer and by location, to be able to do a deep dashboard dive into understanding your total costs,” adds Lynn Gravley, president and CEO of NT Logistics.
Dave Cole, COO of Willy’s Fresh Salsa, based in northwest Ohio, illustrates the point with an issue resulting from the pandemic. “A lot of distribution centers were short on personnel, so we ran into detention fees,” he recalls.
Those fees are charged if trucks arrive beyond a 60- to 90-minute grace period of the scheduled time for pickup. These added costs surfaced in a review of the data.
“We’re always looking at detention fees to see if we can control them,” Cole says. “It has an impact on our ability to reduce our prices to our customers.”
By utilizing the tools needed to stay on top of the costs associated with supply chain fees, as well as freight payment/audit, visibility and just-in-time shipping, shippers and the logistics providers who serve them can manage expenses that have a material effect on their supply chain balance sheets.
Power at Every level
In the real world of limited resources, are such powerful data-tracking tools the sole province of industry giants who also possess the human resources—in accounting and other departments—to translate the information into more cost-effective methods of operation?
“If you asked me that question a few years ago, my answer would have been yes, but now the game has changed,” says Tom Nightingale, CEO of AFS Logistics, which provides global logistics management services and information technology solutions.
“There are so many robust transportation management software solutions and viable freight audit and payment platforms that enable a small and mid-sized company to have the level of sophistication, at a reasonable price, that was reserved for the biggest companies a few years ago,” Nightingale says. “And they can compete very effectively.”
“There is more ability now than there was 30-plus years ago for smaller and mid-sized companies to have the availability of information,” concurs Stuart Nakayama, president of Lynden Logistics, a full-service transportation and logistics provider that is part of the family of Lynden companies.
Companies of all sizes would be well advised to seek out data-mining solutions that will help guide their shipping and audit operations. “There are resources available that they can access to be able to make some of those decisions,” Nakayama says.
The power of the knowledge waiting to be uncovered in the data cannot be overestimated. “Shippers can look for anomalies and behavior, and they can look for existing patterns,” says Maroney.
The tools that enable accounting departments to see and analyze costs at every point in the supply chain constantly expand and improve.
Connecting Through API
“The technology that has been the greatest help for shippers to manage their freight has to be digitization and API connectivity with carriers,” says Brian Thompson, chief commercial officer of SMC³, which provides LTL transportation pricing data and technology solutions.
Simply expressed, API, which stands for application programming interface, enables different applications to communicate with each other. Thompson says that API offers three essential benefits:
1. Quality and cost control. “Shippers can now pull shipment-level quotes directly from the carrier systems,” Thompson says. “This ensures the quote will match the invoice as long as the shipment size and characteristics are entered correctly and completely.”
2. Visibility. “Constant connectivity allows the shipper to quickly ascertain when a shipment has been delayed or gone awry so that adjustments can be made to reduce the impact of the service challenge,” he explains.
3. Retrieval of documents for audit. These documents include the bill of lading, invoice, delivery receipts, and weight and inspection certificates.
Companies no longer need to “manage by anecdote,” Klosowsky says, including anecdotes that may or may not have broad, relevant application. Instead, data-driven, on-the-ground insights often illuminate expenses and possible ways to save that otherwise may be overlooked.
If the devil is in the details, the angels—that is, the cost-saving opportunities—can be found there as well.
“Many times, it’s just behavior modification,” says Gravley, adding that changing order patterns to better reflect data-driven insights could save as much as 10 to 20% in freight transfers.
As an example, Maroney cites “cube efficiency”—making sure there’s not too much air in a box or trailer.
Absent cube-efficiency data, shippers may take an unscientific—and sometimes counterproductive—approach to solving the problem by, for example, loading fewer boxes on containers and dispatching more trucks than should be required, he says.
Klosowsky cites the MercuryGate toolkit as one solution. “They built out a control tower, and they have capability to load SKU level data on shipments,” he says.
“Software called Mojo allows users to do optimization,” he adds. “It uses an algorithm that looks for all the different combinations to provide the lowest-cost result.”
Mojo, which sometimes is compared to Oracle Transportation Management and other transportation optimization software, is designed to analyze shipments, rates, and constraints to produce load plans that can dramatically reduce costs.
Sustainability also comes into play. “When you fill your containers and trucks more efficiently, you shorten the length of haul and cut down on redundant moves and other inefficiencies,” Maroney says. “You save money, improve profitability, and pollute less. It all goes together.”
With software solutions so rapidly evolving, shippers may question whether they have sufficient resources to continually review and update their technology to stay at the cutting edge.
Not a problem. “This is where a configurable, cloud-based transportation management system (TMS) stands out,” says Juliano. “The TMS is always up to date, enabling shippers to leverage new features whenever they are ready to use them.”
Prepare to Pivot
While there is expense involved in accessing transportation management consulting services and software to better configure your company’s supply chain, the results will pay off in both good times and bad. The pandemic caused historic interruptions but other events, such as major market swings and international conflicts, also have taught the logistics sector and other businesses that forecasting for change is essential to long-term success.
“If you ship internationally, you can take these past issues and make decisions on risk,” says Nakayama. “You incorporate risk calculations into how you run your balance sheet. If you don’t plan for that additional potential from the outset, then you risk having some big sways.”
Those sways can devastate a balance sheet, a critical lesson for all companies.
“It depends upon your company’s goals and directions and the pace you’re trying to move at,” Nakayama says. In this regard, he says, smaller companies may have an advantage.
“For instance,” he explains, “if you are a large whale in the ocean, it will take a bit of time to maneuver and turn 45 degrees to continue where you want to go. But if you’re a smaller fish, even a minnow, you’ve got the ability to pivot quickly.
“No one is to say that the minnow is not able to optimize better or worse than the larger fish,” Nakayama adds.
Negotiate and Verify
Also critical to optimizing cost efficiency in the supply chain is setting the right prices before the journey begins.
“Shippers of all sizes, but particularly small to mid-sized shippers, tend to feel like they can handle their freight negotiations on their own,” says Nightingale. “They are increasingly up against sophisticated pricing functions within the carriers.”
As a result, he says, shippers may miss “subtle but no less impactful” charges that are embedded in the charges they accept.
“Pricing functions within carriers have gotten so sophisticated now that they are able to effectively target those items that can make them the most money and, at the same time, be most likely overlooked by shippers,” Nightingale says.
Once rates are negotiated, it is likewise important to audit your invoices—and, if indicated, to seek assistance in that process as well.
“The typical accounting department may not be qualified or doesn’t understand what a freight classification is in, say, an LTL shipment,” says Juliano, who emphasizes the need to “ensure that the rate that was negotiated was actually billed and subsequently paid.”
Smart shippers turn to knowledgeable sources to provide that nuanced analysis, guidance and advice.
“You have to look at it not just customer by customer, but order by order,” Cole says. “Fees are so dynamic that you have to have someone who lives and breathes this every day.”
The lesson is: Learn the answers to pass the test. “Most costly mistakes in LTL that shippers make could be avoided with additional education,” says Thompson.
The shippers who optimize their supply chain journeys from start to finish—including carrier processes, rules, and pricing methods—will conclude their journeys with optimized balance sheets.
6 Tips To Strengthen Your Supply Chain and Boost Your Balance Sheet
Small- and mid-sized companies sometimes fail to regularly analyze the expenses they incur during the supply chain journey. As a result, these smaller companies often overlook savings opportunities that could reduce their shipping costs by 10 to 20%. Experts suggest these six tips for ongoing review:
1. Examine cube utilization. Is every container maximized? The more specific, the better. Analyze each trailer and every box to ensure they are filled to capacity.
2. Know your costs. Again, the deeper the dive, the better: Analyze your spend by every customer, every trip, every location.
3. Collaborate. Honesty and transparency in your business relationships are vital not only to maintain your customer base, but also to unlock cost cuts. Which party along your supply chain can leverage its own relationships to reduce expenses?
4. Harness technology. As challenging as it is to keep pace with constantly evolving—and improving—software, artificial intelligence (AI) and robotic offerings in the supply chain, the potential savings are well worth your time and attention to keep up. If you lack the internal capacity to do so, hire a consultant.
5. Audit your bills. Freight audit and payment data is a treasure trove of information. Invoices serve to track your supply chain journey, but they can be overwhelming. The money associated with those seemingly arcane details, however, is too significant to ignore. Are there unnecessary services there? Do the charges and the services match? Check it out.
6. Look ahead. Change is a constant. Don’t just expect it; plan for it. Forecasting for supply chain disruptions should be built into your balance sheet.