The Strategic Approach to Optimizing Inbound Shipments
Q: Knowing there are significant benefits to be captured using a transportation management system (TMS) and optimizer for inbound shipping, what are some of the typical roadblocks that shippers encounter when implementing an inbound optimization strategy?
A: A very common obstacle to optimizing inbound shipping is arriving at the proper rate structure. The whole point is to find more efficient and effective routes to deliver lower costs and improve visibility into movements across the supply chain, and that almost always means modifying routes, pick-ups, etc. If an organization is only prepared to consider point-to-point (fixed) rates when making these modifications, it is going to blunt the positive effects of optimization.
The optimizer needs to consider real-life factors, not just what seems to make sense on paper. If the company determines certain inbound routes should be modified beyond simple point-to-point shipments, the cost of the newly structured moves must not be calculated using point-to-point rates. Sure, carriers may oblige once or twice making these modified trips with the addition of stop charges, but ultimately, they’ll call to negotiate rate-per-mile charges.
When this kind of thinking is not considered at implementation, it almost always leads to overestimating savings. Optimization must account for out-of-route miles and be configured properly to accommodate this kind of variable.
Q: How can an optimization strategy handle such variables?
A: Most optimizers are equipped to properly accommodate these variables. Frequently, users neglect to consider how these changes will impact their results, and don’t configure their software tool to handle them.
Best practices dictate that shippers contact all their carriers and ask for accurate rates per mile for multiple lanes before performing an optimization. Then the system can be configured to say, “If a multi-point shipment is required, and the out-of-route miles exceed x percent, then the load should be calculated as a rate-per-mile shipment. Whereas if it is less than the established threshold, then it should be calculated as a point-to-point shipment with a stop charge attached.”
Understanding the best way to rate each shipment is critical so carriers can accept loads without having to renegotiate rates when routes change during an optimization.
Q: What other key factors should shippers consider besides rates?
A: Understanding carrier needs regarding revenue per-day and/or per-stop to maximize equipment utilization is another critical concern. The better these needs are properly aligned with the overall network strategy, the better the results will be.