Need to reduce logistic costs? 4 areas to watch
Set freight targets and compare your results to the objectives.
Food and beverage industry processors need to find opportunities to reduce logistics costs. Products need to get from where they are produced to the shelf, and it costs more all the time. Retailers might entertain creative solutions, such as fewer deliveries of more products, to share some benefits.
Moving products around is necessary. You must get it right, but you also have to find the most cost-effective way to do it. As energy and labour costs spiral upward, there’s a direct impact on trucking and every other option you have to move products.
Coordination of freight and moving products is a big cost. Ensuring the product gets where it is supposed to be in the right condition is also a challenge. Challenge the people managing freight to find the best value within your business.
When it comes to price, you can explore different options:
When you have volume: Full loads are the best. This might require some conversation with customers to reduce the frequency of deliveries to get more on a truck.
When you have less than full loads: Known also as LTL, you can pay per pallet or per hundred weight. We see both in food and beverage. The hundred-weight option is preferable if your product is heavy because the more weight, the lower your rate. It’s more difficult to forecast this. It is also a challenge because the rate can change as weight goes up and down. Per pallet is easier to forecast if you are shipping full pallets but can be very expensive if you are only shipping part pallets.
Cases on a pallet also can impact your freight cost per case if you pay per pallet or load. Perhaps you have already got this to the maximum, which is great. If not, one more layer can reduce your freight cost per case.
Consider backhauls: Backhaul can be an option with some retailers. Retailers have trucks going from their warehouses to their stores every day. Once they deliver the load to the store, they must return to the warehouse. If they are close to a supplier, everyone wins if they can fill that truck with the product and deliver it back to the warehouse.
Freight is complicated. Set targets and compare your actual results to the objectives. If possible, measuring freight per case to each customer is also beneficial.
Here are four other logistics hot spots to keep an eye on to help save you money:
1. Third-party accountability
If you are using a third-party carrier, they represent your business to your customers. You should measure the job they are doing for you. Certainly, cost is part of the equation, but you also must measure service. It starts with the pickup of the product, the transit time and on-time deliveries. The quality of the load when it arrives is also an important consideration. Push your carrier to provide this information to you. You are paying for a service, so you must know how it is delivered.
2. Rising — and falling — fuel costs
Several years ago, a fuel surcharge was implemented to allow carriers to recover the increasing fuel costs. Watch this carefully to ensure it goes down when it should. It goes up when it should, but you just must ensure the reverse happens promptly.
3. Perishable perils
Merchants want suppliers to deliver all the time, especially in perishable departments. Their rationale is that it’s fresher. This is true for a few items but not all of them.
Merchants do not understand the impact on the cost of goods delivered three times per week with a part load compared to two times per week with a full load. You might have to take them through the math and agree on a slightly lower cost of goods (share the win) or illustrate how it would offset a cost increase and allow you to maintain your price in these times of food inflation.
4. Impact of non-compliance
Compliance fines impact your logistics costs. Make sure you review these with your employees and your carriers. Understand the rules of the game. If you are not treated fairly, push back and discuss the facts with your customer.
Logistics is a great example: "you can’t manage it if you don’t measure it.” You should measure the total logistics costs per case. Once you know this, you can see what’s happening and try to break down components to look for opportunities.
In a period of food inflation and more heightened awareness of costs, you might get a different response from your customers to questions you have asked before.
Article by: Peter Chapman