In the quest to squeeze costs out of every node in the supply chain, shippers tend to look for the lowest possible less-than-truckload rates. There are a number of other supply chain best practices that can be supported by taking a strategic approach with your LTL carrier. Here are the top 10:
1. Carry less inventory while improving order fill rates.
To achieve sustainable inventory reductions without a drop in service, you need to improve the variables that drive inventory. One of these is transportation time. If your LTL carrier can provide a faster long-haul transit time at standard LTL rates, reliably and consistently, you’ll be able to carry less safety stock, knowing you can fill rush replenishment orders. You’ll maintain or even improve your order fill rate while cutting warehousing costs.
Faster LTL transit is essential for implementing “make to order” and “make to ship.” You’ll also put your capital to better use: Two days less in transit equals two days’ less inventory in your pipeline.
2. Collect faster, reduce DSO.
Different LTL carriers have different transit times between the same city pairs. Go with the fastest carrier at a competitive rate, and you will reduce your Days Sales Outstanding. The sooner your shipment gets there, the sooner you can collect.
If you find the right expedited LTL carrier that is dependable, there is another way to improve cash flow. Some shippers have begun negotiating additional product discounts if the product delivers within a certain amount of days from the point of order. An example: A customer orders 100 widgets and the shipper offers a 2 percent discount if the customer pays within five days. The key is to have the merchandise delivered within five days of the order.
3. Offload labor-intensive follow-up to the carrier.
Logistics departments are running lean, with each staffer carrying an extra workload. See how much of the paperwork and follow-up burden your carrier is willing to take over. Some carriers will surprise you at the tasks they will take on: automatic proof of delivery the day after delivery; purchase order confirmation; and proactive notification of expiration dates, customized reporting and coordination with difficult consignees.
4. Combine long-haul shipments.
If you ship long haul more than once a week to the same customer, an LTL carrier with very fast transit times will enable you to combine shipments. If the carrier is fast enough on a consistent basis, you could ship once any day of the week, even Friday, to meet Monday or Tuesday deadlines across the country. Or ship on Monday for delivery on Friday of the same week. Go from two weekly shipments to one and the weekly shipping cost for that customer is dramatically reduced.
5. Reduce claims.
Claims are expensive even with insurance reimbursement. For openers, you have filing costs. To maintain good customer relationships, you may be forced to rush out a replacement by air. Despite your best efforts, an irate customer faced with empty shelves might switch to another vendor.
The more the freight is transferred and handled, the greater the chance something will go wrong. Look for a carrier with a direct loading network that can create the volume required to load in excess of 2,200 miles before stopping at its first and only destination point. This way, your freight stays in the truck, where less can go wrong. It goes without saying that you should select a carrier with a low claims ratio.
6. Expand sales territories at lower cost.
Your vice president of sales would like to expand into new territories, but the cost of servicing customers more than 1,300 miles away is considered prohibitive. Instead of incurring the opportunity cost, bridge the gap with an LTL carrier that has faster transit times, lower rates and strategic capacity (space-when you-need-it flexibility). Large asset-based carriers may not be as flexible as a midsize LTL specialist. Working strategically with your LTL carrier could save you the cost of opening a new distribution center.
7. Reduce your emergency risk profile and avoid unnecessary air freight costs.
With certain customers you may want to have an ongoing “day of delivery” guarantee in place to avoid the risk of a penalty or a broken promise. At other times, you may have a crisis situation, when you have to get a shipment there at a certain time or else. Make sure your LTL carrier has different levels of money-back-guaranteed services, so that you can align your cost with the level of risk.
For long-haul shipments, there are LTL carriers with transit times comparable to air. You may be able to get the speed of air without the cost. Remember, not all air freight is guaranteed, despite the high cost. An LTL carrier’s guaranteed service may give you the assurance you need. You might even be able to shift some freight that was moving by air to LTL.
8. Improve vendor compliance.
The compliance requirements of big-box retailers are complex, time-consuming and tricky to manage in-house. Look for an LTL carrier that has a compliance services group with the expertise to take over the process. It also helps if it is a preferred or approved carrier for major mass retailers. Besides being free of the administrative burden, you will save money on chargeback costs and improve your compliance scores. Another benefit of a well-managed vendor compliance department is that the carrier may be able to offer innovative solutions for other specialized shipping needs, such as difficult deliveries or bulk mail center distribution.
9. Get business intelligence and support.
If your LTL carrier has the technological capability and the service flexibility, it can be an invaluable source of business intelligence. They can inject more transparency into your supply chain pipeline and generate daily or monthly reports. They may have logistics experts who can provide network analysis and supply chain optimization ideas at no charge. The financial health of the carrier is critical here. If a carrier’s in trouble, it will not only cut corners in service, but also may not be able to afford to upgrade IT systems or hire top people.
10. Beware of the lowest rate.
The cheapest rate may save a few pennies in the short run but cost you more later. Service levels may drop as a result of the cheapest carrier’s need to cut costs within its system to provide that rate. You won’t get value-added services that provide major supply chain savings. Do your due diligence to be sure rates are in line, but be aware if those rates are significantly below market.
Greg Steele is senior vice president of sales at Daylight Transport, a midsize LTL carrier in Long Beach, Calif. He can be contacted at firstname.lastname@example.org.