Actions to control transportation costs
By James A. Cooke -- Logistics Management, 1/1/2005
BOSTON — A new study by the market research firm AberdeenGroup urges shippers to adopt several measures to retain hard-won freight-cost reductions in the face of capacity constraints and rising rates. The report, "New Strategies for Transportation Management," was co-sponsored by Logistics Management and several supply chain software vendors.
Report author Beth Enslow, vice president of enterprise research, canvassed 286 manufacturers, distributors, and retailers in the third quarter of 2004. Nearly all of the respondents were from North America, with about 35 percent from large enterprises reporting annual revenues above $1 billion. Another 40 percent work for companies with annual revenues ranging between $50 million and $1 billion. The remaining 25 percent of respondents hailed from small businesses with annual revenues of $50 million or less.
The report notes that companies have cut transportation costs by aggregating orders into larger shipments and automating activities to minimize headcount. In fact, 70 percent of the companies surveyed have cut freight costs as a percentage of sales.
But current business conditions will require shippers to change their transportation practices in many areas if they are to maintain any cost advantages.
Enslow contends that leading companies have already begun to make the necessary changes in their relationships with carriers—by using incentive-based contracts, for example. And more changes are on the way: Nearly 30 percent of the survey respondents plan to adopt transportation software applications in the next 18 months in order to drive further cost improvements.
Aberdeen Group's report offers shippers four specific recommendations for actions they can take inorder to maximize transportation management performance. The first is to prioritize transportation-improvement initiatives from the viewpoint of the customer. The second is to extend transportation management processes to deliver value to other parts of the shipper's organization, such as customer service, replenishment, and procurement.
A third strategy is to identify the root causes of service failures and cost overruns by using scorecards and analytics to examine carriers' performance and trading partners' processes.
And finally, shippers should become more "carrier friendly"—that is, become a preferred customer—in order to buffer themselves from capacity shortages and rate hikes.
View All On-Demand WebcastsCheaper Leaner Greener
11/01/2009Logistics Preview for January 2005
01/12/2005
