The driver shortage, government regulations and rising operating costs are some of the biggest challenges facing the transportation industry. The number of drivers is quickly decreasing, and the remaining drivers are demanding a salary raise. Due to these challenges, higher shipping costs are anticipated.
Rate increases will prove troublesome for manufacturers who are already taking extensive steps to reduce shipping costs. Many manufacturers are nearshoring and reshoring operations to avoid the costs of international shipping. Some manufacturers are redesigning product packaging to make their freight more attractive and cheaper to transport.
Why is transportation management so important to manufacturers?
- Operating Costs. Manufacturing activity in the United States has been sluggish and is expected to decline for the next several years. Decreasing activity means less and less revenue for manufacturers. This is a big factor behind the recent nearshoring/reshoring initiative. The rise in transportation costs has made freight movement a cost-saving priority among executives, as it is typically one of a manufacturer’s most inefficient processes – especially inbound freight movement.
- Data Mining. Efforts to optimize transportation have led to new processes, routes and carriers. To measure the efficiency of the transportation changes, manufacturers are increasingly turning to transportation management systems (TMS) for real-time performance data. This data is often a missing piece that fits into the larger puzzle of inventory movement, logistics processes and supply chain management. A TMS helps a manufacturer realize end-to-end visibility, which is a gateway to lean processes and reduced operating costs.
- Process Control. Manufacturers don’t have the ability to control raw material prices and other economic trends that increase their operating costs. They do, however, have the ability to take control of transportation. Inbound freight movement is typically an inefficient process without much visibility to costs. Vendors markup shipping prices, anywhere from 15 – 50%, and hide the cost of transportation in the overall cost of materials. When manufacturers take control of this process, they will immediately reduce costs.
- Service Improvements. End consumers are demanding better service all the time. These tough demands are passed up the supply chain, as B2C businesses need a higher quality of service that they can pass on to their customers. On top of this, B2B e-commerce is gaining popularity rapidly – a new logistics challenge that businesses struggle to overcome. If a manufacturer provides consistently poor service, they are likely to lose customers, just as a B2C business would. Improving freight movement is an obvious answer to this problem, especially when historically it has been ignored by manufacturers.
Click here for a case study about a manufacturing client who saved 20% on transportation spend.