An Action Plan to Optimize the Money Spent on Freight Transportation

In my last blog, I identified one of the recurring problems we encounter in working with shippers on a day to day basis, namely a lack of complete and accurate information on their freight transportation activities and expenses. I would argue that “you cannot manage what you cannot measure.” Good quality freight data is an essential component in the management of freight transportation.

Detailed, quality freight spend data can allow shippers to identify consolidation opportunities, to address chronic operational inefficiencies that result in excess or accessorial costs, to highlight “maverick” spend (e.g. higher cost carriers being used that are not listed in routing guide), to rectify the use of non-core carriers or more expensive modes and/or to create opportunities to construct more efficient routes and round trips. Shippers with poor quality and/or inaccurate freight cost data place themselves in a vulnerable position. Here are some steps that shippers can take to address this shortcoming and improve their profitability.

1. Build a Quality Freight Spend Data Base

The first step on the road to properly managing a company’s freight spend is to construct a complete, accurate data base. These are the key elements.

• Shipment pickup date

• Shipper name

• Origin postal code/zip code

• Origin city

• Origin province/state

• Shipment actual weight and billed weight

• Product descriptions (i.e. package or envelope)

• Total pieces

• Actual weight

• Billed weight

• Shipment delivery date

• Consignee name

• Destination city

• Destination province/state

• Destination postal code/zip code

• Mode

• Carrier

• Heated or Refrigerated Service

• Dry Van or Heavy Haul service

• Service Level provided (i.e. 9am, noon, next day etc.)

• Courier Rate Zones for pickup and delivery, if available

• Linehaul rate paid excluding fuel surcharge

• Fuel surcharge

• Other accessorial charges

Resist the temptation to combine modes (i.e. dedicated and private fleet) or rates (i.e. linehaul and fuel surcharges). Reducing the granularity of your data will limit your ability to identify cost saving opportunities. As part of this process, take stock of your company’s technology capabilities. If you have a multi-million dollar spend, build a business case to acquire a Transportation Management TMS) System.

2. Create a Freight Spend Budget

Enlist the support of your Finance and Transportation leadership teams. Incorporate the annual Business Plan into the Transportation Plan. Make sure the budget reflects any strategic initiatives. Build a budget that can be sorted by customer, by mode and by geographic area. Make sure that the data base captures last year’s data, the current year’s actual data and freight spend budget data. Build the budget from the ground up and top down and make sure that it reflects any business changes, carrier rate changes and/or modal shifts.

3. Manage your Freight Spend on a Scheduled Basis

Establish a schedule to distribute reports that display deviations to budget and to last year. The more frequent the reports, the quicker the potential response time. Set up a schedule of meetings with key stakeholders and engage them in a discussion of variances. Prepare minutes of meetings with action plans assigned to specific managers with designated, realistic timelines.

4. Follow-up on Action Plans

Follow up on the Action Plans to ensure that problems are resolved in a timely manner. Connect with operations personnel to drive changes in shipping errors. Speak with other departments to address changes in sales, inventory, and production policies that impact on freight costs. Keep a record of the issues that are addressed to make sure they don’t reoccur and track carrier rate increases, so they can be explained to higher management. This is a never-ending process. Creating and managing a tight process will have a direct result on your company’s bottom line.

If you need help in creating a freight transportation budget or in managing freight expenses, please contact me at dan@dantranscon.com. We have been in business for over 14 years and we would be happy to help you. To stay up to date on Best Practices in Freight Management, follow me on Twitter @DanGoodwill, join the Freight Management Best Practices group on LinkedIn and subscribe to Dan’s Transportation Newspaper (http://paper.li/DanGoodwill/1342211466).