In an environment of increasing freight costs, greater pressures on supply chains, and ever-expanding competition, shippers need to focus on where they can cut costs and increase operational efficiency. One such area that offers the greatest opportunity is shipping network optimization.
The question is, how can a company optimize its shipping network?
When creating a strategy to optimize your shipping network, you must keep in mind that each new warehouse should accomplish 3 goals:
- Decrease your cost per package
- Lower the amount of time your customers wait for their packages
- Optimal redistribution of packages to new and existing warehouses
These factors should result in a determination of how many new warehouses you should add, and where.
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Optimal shipping networks are not “one size fits all.”
Depending on industry, an optimal shipping network might include the ability to reach all states in two days, while for other industries they might be a pure margins game. Certain carriers have strategic zip codes and cities that fit perfectly into their network, while most companies are headquartered in only a few, or even a single, location.
Optimizing your shipping network doesn’t only include adding new warehouses, but removing some as well. Shipping networks built 5-15 years ago are often out of date, carriers are increasingly able to deliver more packages from more zip codes in 2-3 days. Given the changing landscape, it’s important to calculate costs and transit times based on today’s rates, not a decades-old footprint.
Shipping network strategy should be developed by following three steps:
Here are 4 ways that your business can help optimize your shipping network:
Shipping Network Strategy
New warehouses should reduce both cost per package and the time customers spend waiting for packages to arrive. A shipping network strategy must consider shipping profiles for different times of the year. For example, peak seasons such as Christmas/New Year’s might require a unique strategy to manage the chaos that might ensue, mitigating the risk of being overwhelmed.
As eCommerce continues to take on a larger and larger portion of your business, planning and building the optimal shipping network will continue to play a huge role in creating competitive advantage.
Shipping Network Optimization
Shipping network optimization is often industry-dependent; For example, an optimal shipping network in one industry might the ability to reach all states in two days ground, while for other industries they might be a pure margins game. Certain carriers have strategic zip codes and cities that fit perfectly into their network, while most companies are headquartered in a few or just one location. In order to be fully optimized, you need to overlap the two networks to find the right fit.
Industry success is predicated on partnering with those who understand customer shipping costs and transit times. This can be accomplished by leveraging industry-benchmark modeling, coupled with your internal data. The ultimate formula should be able to help you calculate:
- Total Savings
- Optimal Package Warehouse Redistribution
- Clear Idea of Where to Add New Warehouses
Competitive pricing and the growing diversification of retail product lines has put supply chains under pressure to reduce cost and move inventory at a much faster rate. The network you built 5-15 years ago might now be an overkill. Carriers are increasingly able to deliver more packages from more zip codes in 2-3 days. Businesses need to calculate costs and transit times based on daily rates in order to eliminate unnecessary and costly warehouses within their networks.
While these steps might seem like an unrealistic task, a comprehensive freight audit is the best solution for a business to achieve a fully optimized shipping network.