FREIGHT EXPENSE: Spend More to Save More – Expedited or Premium Transportation
by Mike Starling
FACT: There is a direct relationship between reducing safety stocks and reducing variability in the supply chain.
PROBLEM: Inbound Carrier standard transit time, preventing further reduction of safety stock(s). The buyer is unable to reduce inventory safety stock(s) due to standard transit time for inbound shipments. The use of Expedited or Premium Transportation is not considered a feasible alternative due to transportation budget constraints and/or a management KPI focused on freight expense reduction. Without evaluating possible inbound standard transit-time alternatives, it is impossible to calculate the potential cost of a reduction of safety stock(s) and compare those potential costs and benefits to those of a freight expense reduction.
SOLUTION: Consider changing carrier service level or even mode, in order to facilitate a reduction in inventory safety stock levels.
EXAMPLE:
1. Current inbound carrier standard transit time is two days. Expedited service from the same carrier is next-day delivery. The increase in freight expense is 10 percent more than standard freight cost. This provides the potential for one-day safety stock reduction for product purchased from this vendor.
2. The current inbound vendor ships from Florida via LTL to a DC in Los Angeles, CA. Standard inbound transit time is six days via LTL. The buyer implements a regional cross-dock LTL to TL location in Atlanta, GA. All vendors who ship LTL in the Southeast Region now ship to Atlanta cross-dock to meet a specified weekly cutoff date and time. The buyer’s private TL fleet from its Atlanta DC now adds an Atlanta DC-to-Los-Angeles-DC TL shuttle service, using team drivers who provide a standard three-day transit time between the DCs. The vendor in Miami now ships LTL to Atlanta (a freight savings for the vendor) with a one-day transit time. The shipment is cross-docked in Atlanta the same day it is received, and now makes the three-day TL transit run to the Los Angeles DC (an added freight expense savings vs. the vendor’s LTL freight expense). Now standard transit time is reduced from six to seven days for LTL to four to five days via cross-dock. This allows for a one- or two-day reduction in multiple SE regional vendor safety stock requirements at the Los Angeles DC.
3. The current inbound shipment arrives via a full-container load from the West Coast port to an inland DC in Chicago. Standard transit time is five days. If we trans load from the container to a full truckload at the port, and use TL team delivery from the West Coast to Chicago, we can reduce inbound standard transit time from five days to four, providing an opportunity for a one-day reduction in current safety stock(s).
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