Cost control is vital to any profitable, international supply chain. Every part of the supply chain generates expenses, from extracting raw materials to manufacturing parts or assembling into finished products. Another major cost center for supply chain managers is logistics, including storage, international freight and distribution.
We’ll explore how you can get greater insight into your freight and logistics costs and how to introduce better controls to bring your expenses down.
Get Data on How Much You’re Being Charged by Logistics Service Providers
You can only start to get logistics costs under control when you know how much you’re being charged. This means getting all of your logistics service providers (LSPs) onto a common reporting structure so you can analyze costs throughout your supply chain. Whether your logistics providers use a centralized platform or your existing supply chain tool integrates with their systems, it’s vital to collect all that cost information into one place.
Create Reports and Dashboards that Clearly Highlight Logistics Costs
Getting hold of logistics cost data is one thing, but making use of it requires good analysis and metrics. Here’s how to turn your logistics information into actionable cost controls:
- Make sure you have consistent reporting from all logistics providers and apply filters and data cleansing to information so you’re comparing apples with apples.
- Go down to the right level of detail with each logistics provider. Do you need costs to transport every individual item, by the container load, or something else? Implement sensible granularity into your price requests.
- Measure the right things, as cost isn’t the only factor. For example, you might use air freight, which is more expensive, but gets your products to market that much faster, so you can’t use cost in isolation.
- Establish the total cost of transporting an item, from original materials extraction through to getting it into the hands of a customer.
- Create at-a-glance dashboards with live, updating cost data so you can measure costs at all times. Apply thresholds and alarms for when costs are getting out of control.
- Create customized, detailed reports so you can drill into the details of logistics costs and identify areas for improvement.
Get Industry Standard Benchmarks for Logistics Providers to Ensure You’re Not Overcharged
It’s important to compare logistics rates and make sure they’re within reasonable bounds. There are a few ways to do this:
- Compare rates between different logistics companies that you’ve contracted with to understand the range of fees that you’re paying.
- Talk to supply chain management colleagues in similar niches and industries to see what they’re being charged.
- Get analysis and market reports on logistics rates, perhaps through a consulting service.
- Look at the rates you’re being charged versus what you should be charged and complete an audit to understand differences.
This will help you to find any pricing anomalies and will be a good basis for negotiating prices in future.
Renegotiate Logistics Contracts and Service Level Agreements
Once you have a detailed understanding of your current rates, industry benchmarks and a good understanding of your needs, it’s time to go back to freight and logistics providers to get better contracts in place. You’ll want to focus on the following:
- If there are discrepancies between previously agreed prices, rate cards and what you should be charged, ensure these are all agreed, and that correct charging and methodology is written into your new logistics contract.
- Put robust service level agreements (SLAs) in place with appropriate penalty clauses for areas like late shipping, damaged goods, etc. Insist that logistics providers report against these agreed targets and carry out spot audits to ensure they’re providing accurate information.
- Store all contracts and agreements in a central repository, so that all supply chain managers and logistics providers can access them and ensure targets are being met.
- Build cost and SLA metrics into your reporting and dashboards, together with new thresholds you’ve agreed.
- Create a proper “by exception” escalation process if SLAs are not being met or costs are going out of control.
Advice on Reducing Logistics and Freight Prices Further
The areas we’ve discussed above are just a baseline for getting better pricing in place, mainly through negotiation and contracts. As any supply manager knows, there are several other changes you can make to introduce more cost controls.
Understand Assessorial Logistics and Freight Costs
Assessorial (or accessorial) costs are charges levied by logistics providers for equipment, fuel and other miscellaneous charges. Make sure that you negotiate all of these costs and that they’re built into your contracted prices. Ask logistics providers to report detailed information on how they’re assessing and changing for assessorial fees.
Create the Right Blend of Logistics Service Providers Based on Necessity and Speed
There are multiple options for transporting goods—ocean, rail, road and air being the main choices. Make sure you have appropriate contracted LSPs in place for each, so you can quickly choose the right type of provider that balances cost, business needs, speed to market and other factors to maximize competitiveness and profitability.
Also consider that many LSPs provide value added services such as fulfillment and postponement. Buying these along with transportation services can often result in a pricing break. Prioritize what “value” this holds for you and balance the benefits of outsourcing vs. in-house when approaching negotiations. Try and bundle negotiations for greater savings.
Build Freight Accrual Costs into Your Price Reporting
Freight accruals are charges that an LSP is planning to charge you based on services they’ve provided. Make sure that freight accruals are part of your reporting so you have a complete picture of incoming fees.
Use IoT Monitoring Tools to Track Location and Condition of Products
You can identify bottlenecks and delays in transportation by getting updated, real-time location data on where goods are. IoT devices provide GPS tracking, helping to eliminate delays and associated fees. If you have environmentally sensitive products like food or chemicals, IoT monitoring can give early indication if issues, which would incur costs through wastage and needing to re-transport goods.
Optimize Routes and Distribution through AI and Machine Learning
AI and machine learning can work with mapping software to create optimal routes for distributing goods through the supply chain, and also to create custom exception alerts. This can save LSPs time, thereby reducing what they charge you.
Periodically Audit Logistics Service Providers to Ensure They’re Charging Fairly
Build audits into your contracts with LSPs. This should allow you to understand if what they’re charging you lines up with the reality on the ground.
Any progress you make on understanding and managing logistics costs in the supply chain will help you to control fees and eliminate unnecessary charges. Start by getting good information gathering and reporting in place, and once you understand the baseline, use that data to negotiate better contracts and introduce other effective controls.
Blume Logistics creates a robust network for logistics tendering, tracking, event capture, POD verification and settlement initiation. By connecting a global ecosystem of multi-modal carriers to manage every move, Blume Logistics unites carriers—from ocean to rail to long haul—with first- and last-mile drayage for real-time event and cost tracking.