For manufacturers and shippers, freight spend represents one of the largest costs to the respective company. To combat freight spend, supply chain entities have devoted huge investments and deployed developmental teams to find ways to improve efficiency, manage all parts of the manufacturing and shipping process, and eliminate all sources of delays. However, freight rates are continuing to increase, yet the end users continue to demand lower shipping rates. As a result, more supply chain entities are turning to transportation consolidation programs otherwise known as truckload consolidation, explains Joseph O’Reily of Inbound Logistics, to meet these demands.
Before you can understand how a transportation consolidation program functions and benefits companies by reducing freight spend, you need to understand a few things about transportation costs and concerns. Some common concerns for shippers include the following:
Each of these factors represents real problems for transportation providers and shippers, but despite this, they still need to meet the needs of their customers. In other words, transportation providers and shippers have to do more with less while reducing costs. This is almost impossible, but an effective transportation consolidation program is the key to making the impossible, possible.
A transportation consolidation program seeks to eliminate wasted space and inefficiencies in transporting goods from point A to point B and beyond. Essentially, a transportation consolidation program seeks to eliminate partially-filled full truckloads by taking advantage of all existing vehicles. Less-than-truckload shipments, if small enough, are transferred to full truckloads.
For example, less-than-truckload shipments result in higher fuel costs to a shipper due to inefficient fuel usage while driving and frequent stops. Although some shipments cannot realistically be transported in full truckloads, such as in residential neighborhoods, any shipments that can be moved to full truckload will save gas, time, and energy. A transportation consolidation program is basically only using less-than-truckload shipments when absolutely necessary or when full truckload shipments are completely unavailable.
Transportation consolidation programs reduce freight spend in many ways. However, reducing freight spend is not exactly as simple as it seems. Reducing freight spend involves careful consideration of where shipments are going, where shipments have been, when shipments will be going, when shipments will be leaving, the weight of shipments, how much of a shipment will be leaving, what current fuel costs are, what drivers are available, what trucks are available, what smaller less-than-truckload vehicles are available, and nearly every other factor in a transportation network. Although smaller shippers can aggregate this data and analyze it fully on their own, they may be unable to implement changes with other companies to make use of the data.
For example, shipper A figures out their current processes are resulting in higher freight spend across the entire company. The means of improving freight spend would need to consolidate less-than-truckload shipments going more than 500 miles away from the distribution center to full truckload shipment. Unfortunately, shipper A cannot achieve this feat without incurring a higher cost of hiring 10 new drivers. Meanwhile, the cost of hiring more drivers could actually drive freight costs up by 10 percent.
In this example, shipper A needs help from someone else. This is where third-party logistics providers (3PLs) and consolidation programs come into play. A 3PL enables multiple shippers or shippers with multiple locations to compile data, analyze processes, consolidate actions and shipments into full truckloads where possible, and work with other shippers. In other words, the original shipper is able to take advantage of unused space in the network of other supply chain entities without incurring high costs for investing more in their in-house fleets.
Obviously, some parts of transportation consolidation programs have yet to be figured out, but all consolidation programs boil down to several fundamentals. These fundamentals include the following:
When you consider everything that goes into determining freight spend for an organization, you are basically thinking about everything you as a shipper does. This is not an easy task, and supply chain entities must understand the need to reduce costs in order to stay competitive and satisfy their customers. Unfortunately, supply chain entities who do not actively use transportation consolidation programs are more likely to incur higher freight costs, which will drive freight spend up and could bankrupt a company.
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