Supply Chain Commentary: 4 Ways to Cut Transportation Spending
Transportation represents a significant expense within many company’s supply chains and is vital to ensuring that goods and services are delivered on time.
Due to the line item cost, transportation can be under constant pressure for cost reduction. And given how critical it is to the success of a company, those running the department must be judicious in how, when, and what areas of the budget should be reduced.
While this may seem like a tall order, there are a few easy ways to work with your company’s procurement department to find places to cut spending without impacting the benefits of strategic logistics:
- Make sure spend is on catalog. Your procurement team has almost certainly negotiated rates of standard items with preferred vendors; this could include which vendors can conduct oil changes and what the negotiated rates are. If they have done this, you need to make sure that your entire organization is purchasing from these preferred vendors. Spending this way will lead to process efficiency and will make sure that your company is paying the best negotiated rate.
- Make it policy to pay your invoices on time. Instill a corporate policy that all invoices should be paid on time to avoid late penalties, fees, and interest. Moreover, many vendors will give you an early pay discount. Finally, by paying the vendors on time, they will be more likely to work with you on better deals in the future since they know you value the partnership.
- Confirm a majority of spend is under management and in compliance. While an enterprise has many diverse departments, it is possible to get almost all spend under management. By implementing a series of policies and compliance audits, this can be done. While there will still be some cases where spend will occur outside of this policy, having a majority of spend under management can help ensure that you are getting the best deals, the spend is legitimate, and you know exactly where money is going.
- Have your procurement team work with finance to find areas where spend is slowly but steadily growing and proactively negotiate better deals with vendors. If you are currently and accurately monitoring spend, your organization should be able to have a leg up in negotiating with vendors. By working with finance, you can see what line items are having an impact on the overall bottom line of the company. When combined with information about how much you are spending with various vendors, you should be able to negotiate better rates.
Consider this scenario which could realistically occur: Your company spends $50,000 on corrugated boxes each year, which is spread across five suppliers equally. As it is now, Supplier A gets $10,000 a year though it is the supplier your executive team prefers for a number of reasons. Now, take this insight into a meeting with Supplier A – promise them a significantly larger percentage of the business if they provide a per-box discount.
Both parties win; you have saved money overall, can track usage of non-compliance spending easily, and streamline your billing process. In addition, Supplier A wins by getting a significantly bigger share of your business.
As enterprises look at the shrinking margins that are characterizing the 21st century, it is time they get creative about how they shore up the bottom line. While there are numerous options for a successful strategy, looking at procurement for help is a critical first step that can produce major results.