The world of logistics and managed transportation is continuously evolving. Transportation professionals are tasked with reducing costs while increasing customer satisfaction levels. However, market forces such as higher fuel costs and decreased capacity work to undermine these goals. Transportation management optimization can help, provided shippers know a few things about its value and where to start.
Transportation Management Optimization #1: Shipment Pooling
When shippers have a significant number of LTL-sized orders that are destined for the same geographic area, they can be combined to create a full truckload shipment out to a pool distribution facility that serves the geographic area. From this pool point, orders are shipped via LTL to end customers.
Using a pooling strategy does not increase handling costs as it substitutes pool point costs for an LTL carrier’s terminal distribution costs. Transit time should not be impacted in this model. Shifting modes from LTL freight to truckload freight on the initial outbound leg of the shipment consolidates all of the orders into one master bill of lading, reducing costs.
If a shipper uses straight pooling with the flexibility to extend the transit time, then going intermodal may be another option. Shipping by rail compared to OTR modes can offer double-digits savings. Earlier this year, intermodal versus truckload savings hit an all-time high, rising to nearly 35%, reports Ari Ashe of The Journal of Commerce.
Transportation Management Optimization #2: Shipment Aggregation
Aggregation is creating a single shipment of multiple orders, originating from the same shipper to the same destination on the same day, that would otherwise be released as separate shipments.
For instance, shipper A has two shipments, one that is 4,000 pounds and another is 2,000 pounds. Both of these shipments are destined for Customer B and routing via an LTL carrier. Aggregated together, these orders can ship via a more cost-effective LTL rate. Finding the best rates is only part of the equation; finding the right service level for each shipment and knowing how to aggregate shipments are essential to overcoming supply chain disruption.
Transportation Management Optimization #3: Shipment Consolidation
Shipment Consolidation is an option when multiple LTL orders can be combined with a truckload-sized order that is not at full capacity if they can be part of a stop-off in route to the final truckload destination.
In building this multi-stop route, several things must be considered:
- The out-of-route miles that will be incurred.
- The impact on delivery times due to the stop-off and pick-up requirements and constraints.
- The stop-off charges that will be incurred.
Other routing opportunities include aggregating freight to take advantage of intermodal transportation or even leveraging long-haul LTL when shipments have some slight variety within delivery timelines. For instance, if the stop-off occurs near a rail ramp, it’s possible to leverage intermodal, while also still meeting the long-haul LTL needs and leveraging the benefits of consolidation along the way.
Consider what may happen if the shipments are routed individually. The truckload shipment, which is not at full capacity, has a route of 750 miles to Customer XYZ. At $1.40 per mile, the cost of the shipment is $1,050. A 10,000-pound LTL shipment to Customer ABC, located within 50 miles of the truckload destination, ships at $5.00 per CWT for a total cost of $500. The total of the two shipments routed individually is $1,550.
Using shipment consolidation, it’s possible to complete both moves at once. If we assume that the total distance of a new, combined truckload moving both original shipments simultaneously is 800 miles, the total transportation costs change significantly:
|$1,120||Truckload Line Haul Cost (800 miles X $1.40/mile)|
Compared to the total cost of the shipments routed individually ($1,550), this represents a savings of $380 or 25%.
It is important to note that this strategy is not limited to consolidating LTL shipments with truckload shipments that have excess capacity.
For example, three large LTL orders could be combined to build a multi-stop full truckload shipment.
As long as stop-off charges and delivery time windows don’t constrain the route plan, this is a very viable option to drive cost savings. And by offloading one of those shipments to another mode along the way, the opportunities to pick up more freight to avoid empty transit space give rise to the next best transportation management optimization strategy.
Transportation Management Optimization #4: Continuous Moves
Up until now, the strategies discussed have focused on maximizing vehicle capacity or improving asset utilization. If no further optimization can be obtained, the shipment must go out the door, and the truck must move as loaded.
Continuous move solutions allow for minimizing empty miles. To deploy this strategy, individual shipments are combined into legs of a continuous move. To illustrate, consider the following scenario within Company XYZ’s network:
- Truckload Carrier 1 ships inventory replenishment materials from the manufacturing plant to their distribution center (DC). This distance is 800 miles at a cost per mile of $1.50, or $1,200.
- Truckload Carrier 2 moves finished goods orders from the DC to their customer. This distance is 250 miles at $1.50 per mile, or $375.
- Truckload Carrier 3 moves inbound raw materials from a supplier to the manufacturing plant. The distance is 800 miles at $1.50/mile, or $1,200.
- The total cost of all three shipments is $2,775.
A given carrier’s rate structure takes empty miles and situations of unattractive back-haul opportunities in its network into consideration when pricing lanes. If a carrier could operate at or near a 100% revenue to miles operated ratio, the carrier would be able to operate these lanes at a lower price per lane and still make a strong profit.
Let’s now assume 200 empty miles are incurred in positioning the equipment from Company XYZ’s customer to their supplier. This makes the total system miles for Company XYZ, 2,050 miles.
If a single carrier charges $1.20 per mile for the entire tour, the network cost to Company XYZ is now $2,460 (2,050 miles x $1.20 per mile). Comparing this cost with the individual carrier routing scenario, Company XYZ saves $315 or 11%. If the distinction between the two lies in having a wider network, taking advantage of a 3PL provider with access to more continuous moves can effectively make those savings a reality.
Depending on the type of freight, it may further be possible to leverage that pick-up option for reverse logistics, eliminating wasted space and maximizing carrier efficiency. Efficiency gains among carriers will always trickle down into benefits for shippers in the form of total freight savings.
Transportation Management Optimization #5: Cross-Docking Strategies
Many times LTL freight is long-haul in nature due to several network considerations, such as the following:
- Company XYX has customers throughout the country and they ship to each customer directly from all their manufacturing plants.
- They have customers throughout the country and they ship all products to a single finished goods DC, where they hold inventory and ship to customers as required.
- On the inbound side, Company XYZ has suppliers located throughout the country who all ship directly to Company XYZ’s manufacturing plants.
- These same suppliers ship materials to an inbound raw materials DC where they are then shipped to Company XYZ’s manufacturing plants.
Let us consider the scenario below:
If we deploy a cross-dock network and replace the network where the individual manufacturing plants all ship directly to the customer base at the required frequencies, plant orders would be shipped to plant assigned cross-dock facilities. All customer orders from a given plant may now be merged and shipped to a single cross-dock, from which we can mode-shift and build truckload shipments. In some cases, it may be more cost-efficient to use multi-plant milk runs to drive freight to the assigned cross-dock.
Each order can be consigned to a customer-assigned pool distribution facility. The cross docks assemble pool orders and ship full truckload to the pool points, where they are distributed to customers via LTL. The objective of this solution is to maximize the distance shipped with lower truckload rates. This is subject to customer order transit time requirements and constraints.
Increase Value Within Your Supply Chain by Leveraging These Best Practices While Partnering With GlobalTranz
Efficiency is essential to keeping customers happy and controlling freight costs. Ongoing market disruptions undermine transportation efficiency and result in adverse customer experiences. Shippers need a strategic game-plan for overcoming challenges and maximizing throughput. Applying the above optimization practices requires data analytics and tech-driven solutions powered by industry experts.
Together, it all amounts to increasing efficiency and allowing your network to flex in tandem with disruption. Check out what your organization needs to know about the value of supply chain resiliency by downloading this white paper.
Learn more about how your team can put the best practices to transportation optimization to work by requesting a GlobalTranz consultation.