Poor visibility in freight allocation is a leading reason shippers experience difficulty in managing freight, and this problem is evidence of a disconnect between the person managing freight and company stakeholders. As explained by Dan Goodwill via Canadian Shipper, the problem goes much further than that, including lacking compliance management, subpar, if any, use of transportation management systems (TMS, and failure to utilize granular shipment activity data. Goodwill notes shipment data granularity and analysis are linked with better freight allocation, which means making use of the full spectrum of available shipping options, including full truckloads.
The Problem: Shippers Lack an Understanding of Existing Freight Allocation (Freight Planning) Activities
To understand the problems behind poor freight allocation, it is important to consider its literal and perceived definitions. Its denotation is the actual freight planning process, as well as planning individual pallets to make best use of available space. Space used should always include vertical space, increasing pallet height, which opens up additional capacity in all shipments, as exhibited in a previous blog post. Yet, the problem remains: shippers need to be able to fill an entire truckload.
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Yesteryear, freight allocation was simpler. Shippers could hold freight at a given location until enough freight was ready for shipment. In the modern era, considering Amazon Prime’s Same-Day and Next-Day delivery options, such freight planning would be counterproductive. Consumers will shop elsewhere, explains Stacey Rudolph of Business2Community, and the same fact holds true for consumers presented with unexpected shipping costs. Specifically, up to 56 percent of consumers will abandon online order purchases if presented with a shipping charge. Unfortunately, shippers see this problem as a reason to build shipping costs directly into price points. Higher prices will also result in consumers jumping ship too.
The only solution lies in taking advantage of the most cost-effective shipping solutions available by gaining an understanding of freight allocation, including both planning and spend.
The Solution: Shippers Should Implement Processes and Systems to Ensure the Use of Cost-Effective Shipping Options
Actual freight spend includes all necessary components for pickup, cross-docking, transportation, linehaul, consumer pickup, if available, and last-mile delivery. The only portion of the shipping journey that requires smaller LTL shipping is last-mile delivery, not shipments traversing the country or continent.
Shippers should implement processes and systems that generate granular data and actionable insights from analytics. Fortunately, this solution exists within a modern TMS, the Cerasis Rater. Seeing your most profitable and costly shipping destinations and origins enables true freight allocations. In other words, you can make the best decision for the consumer, carrier, driver, and the company itself.
The Reward: Proper Freight Allocation Comes With Significant Benefit to Shippers, Carriers, and Drivers Alike
Vigilant shippers have an opportunity to use knowledge about destinations and origins to reduce freight spend and improve customer service. Customers see returns in the form of lower price points and potentially free or lower-cost shipping. Shippers realize benefits of freight allocation, asserts USA Trucking Services via SlideShare, including:
- Decreased risk of damage or product loss or delays.
- Lower cost of shipping.
- Faster delivery times.
- Continuous improvement of shipping processes and freight allocation.
The Big Picture
Inbound and outbound freight costs can make up between 10 and 11 percent of revenue for companies with less than $250 million in sales. Meanwhile, Big Box competitors and retail giants see freight spend within 3 percent of total revenue. The difference derives from the ability of companies to leverage technology and information to drive freight spend down, but how? To answer that questions, shippers must look within their operations to identify the biggest-cost shipments and destinations and re-evaluate current freight allocation procedures.
The Big Box retailers have an advantage in using full truckload almost exclusively for shipments, including all omnichannel shipping options. This requires smaller companies, those in the 10- to 11-percent rate to vary shipping options more to make better use of full truckloads.
Obviously, shippers cannot predict the exact amount of product needed in every location, but if shippers could use technology, like a TMS, in conjunction with existing warehouse management technology, like an integrated warehouse management system (WMS), to understand the market better, they could push the boundaries of prediction. Essentially, shippers could learn how to make better predictions, move product throughout their supply chains and realize savings through freight consolidation, even when orders have not yet been completed, which reduces total cost of ownership in transportation.
Up next, we delve deeper into the role of a TMS in managing full truckload shipments from initial order tender through payment, and if necessary, returns management.