Using the real-life scenario of a B2C business sending a small book in a box 30 times bigger than needed, we recently questioned the viability of a company that operates with so much waste. Not only wasted resources but also in the cost of international freight at nearly 20 times higher than it should have been.
A Local B2B Example
These scenarios are not exclusive to overseas B2C companies and frequently occur closer to home. Just recently we came across the example below.
This car bonnet panel has been individually packed, in a box 10 times the volume required, with a cost of delivery more than 400% of what it should be.
A couple of additional issues with this delivery were the lack of any internal restraints or supports and non-domestic transport-related product damage. Meaning the bonnet was likely packed with this damage (see inset image). This damage would translate into a call from the panel shop (end customer) demanding a discount on the panel price or a return and re-delivery of undamaged stock.
Consider a Different Perspective
The outcome of the above scenario is often interpreted as being excess freight costs. The freight cost reduction initiatives that result are then made the responsibility of the Purchasing Department who then in turn facilitate a tender process.
This process might achieve a positive outcome, for example, a 10% reduction in freight rates. However, as our example shows, the real issues driving the high freight cost have still not been addressed and expenses are still far more than they should be.
Freight costs are driven by many factors, least of these the rates. Your commercial agreement is important, but it in isolation it is unlikely to transform your supply chain and it will seldom achieve an optimised outcome for your service levels or freight costs
As this example shows, the real issues driving excess freight costs are most likely further up the supply chain. The further up the supply chain the challenges are the bigger the cost and service impact for your customers. The good news is that fixing these upstream issues will have the biggest positive impact on your business’s success as well. This is known as the Bull Whip effect.
5 Tips to Reduce Freight Costs
With the right focus, these tips may not only lower freight costs but can improve the customer experience as well as elevate the productivity, efficiency and effectiveness of your supply chain:
- Minimise the volume of air in your freight
- Know your cubic to deadweight ratio, product profiles and align freight charging structures to these unique characteristics
- Get the packaging right (the box and/or the truck) for the product and the freight process
- Consolidate consignments going to the same customer on the same day, both operationally (where possible) and at a transactional level within your systems
- Leverage this knowledge and the optimised characteristics of your freight with the transport industry. This enables you to achieve the ideal commercial outcome but not at the cost of your providers’ ability to service you.
It Won’t Be Easy, But It Will Be Worth It
Getting these fundamentals right is not only the key to lowering costs but is the prize that keeps on giving, month after month year after year, as you watch your market share and profitability grow on the back of an efficient and effective supply chain.
Optimising supply chains is hard work, it is complex and technical, so it is no wonder that so many companies run sub optimal operations. It requires time, a shift in thinking, an embedded culture of change and some investment. For those businesses that aspire to stay ‘in the game’ by the middle of this decade, however, getting the basics right remains crucial.