Transportation spend management is the process of evaluating the shipping costs a company is incurring to ship goods. This can include the cost of shipping orders to customers or moving raw materials from suppliers or even the transfer of work in progress materials between facilities. Understanding these costs is an important part of an overall supply chain management program and the first step in identifying opportunities to reduce costs and make the logistics process more efficient.
The largest component of cost is usually shipping customer orders. These are the outbound shipments of finished goods going directly to customers. How these orders are shipped is often dictated by when the customer needs the product. It is important to understand how the customer's delivery demands are affecting the cost to make the delivery. "Expediting" a shipment will often double or triple the cost, so managing those types of situations is important.
The opportunities for reducing freight expense typically revolve around a few key areas.
Carrier Rates: Are the rates you have in place competitive? You need to be certain the carrier rates you have in place are at or below the market rates. This can be verified through periodic Request for Proposal exercises. Also, it is important to make sure the right carrier is being selected every time.
Route Optimization and Load Planning: Are orders being routing as efficiently as possible? Making sure the correct mode of shipping is selected, and orders are combined into the most cost effective load plan are very important. An example of this would be to find opportunities to combine multiple LTL (less than truckload) shipments on to one multiple stop truckload shipment.
Logistics Software: Eliminating manual processes from the logistics workflows is away to add efficiency. Often improvements are helped by employing supply chain software technology.