Many companies today are working in an environment of fierce competition and razor-sharp profit margins. What separates the top performing companies from the rest of the pack is how well they are able to adhere to standard operating procedures and continue to improve upon those processes. One example of this is how companies control the carrier selection decisions that are made by their suppliers and how these suppliers are being utilized. When there are hundreds or even thousands of vendors to reign in, this can be a daunting task for many companies to manage. How can companies ensure they optimize savings opportunities without experiencing a reduction in service levels?
- Understand your supplier network: Determine where your key suppliers are located and how often are they shipping the product to your facilities. Could shipment order quantities be increased to reduce the frequency of LTL shipments? Reducing the frequency of shipments will reduce the occurrence of minimum charges and ultimately yield larger freight savings and lower cost per pound over the course of the year.
- Create visibility into your freight expenditures: By developing reporting that captures where you are spending your LTL transportation dollars at the vendor level, a company can better understand where there may be opportunities to reduce cost. Which shipments do you pay the freight for and have control of today and are their opportunities to convert pay terms to maximize savings? A reputable third-party logistics provider can capture this critical information with the use of a transportation management system (TMS).
- Consolidate your supplier base: Are there opportunities to buy more products from regional suppliers to reduce transportation expense? Companies do need to have redundant sources of supply as contingency and for leverage in negotiations, but key regional vendors can be established in many cases. Reducing the length of haul can enable you to use more regional LTL carriers and in turn, potentially reduce your transportation expense while simultaneously improving your average transit times. Generally speaking, regional LTL carriers’ networks are better positioned to provide more reliable and faster transit times than their national LTL carrier counterparts.
- Monitor & enforce vendor compliance: Are your vendors sticking to the plan? Vendors need to understand and be held accountable for their carrier selection decision. If vendors are not selecting the least cost carrier, have they been given the authorization to do so? If a vendor violates the rules for carrier selection, hold them accountable by enforcing chargeback penalties. Having a single point of contact for your vendors will help to reduce the chances of incurring unnecessary expenses. Consider outsourcing the vendor compliance and carrier selection process to a third party LTL provider that has a robust LTL TMS. This will remove the expense and burden from the shoulders of in-house staffing as these third parties can provide flexible resource levels to handle surges in incoming requests.
- Communicate with your vendor base: Distribute a vendor instruction letter. To ensure an efficient transaction, this letter should detail who to contact to request an LTL shipment and what information will be required such as purchase order numbers, origin/destination contact information, freight class, and weight. When a shipment needs to be expedited or a carrier other than the least cost option needs to be selected for service reasons, ensure the vendors are aware of the proper procedure for authorizing these additional expenses in advance. Remember to provide feedback to your vendor base on their carrier selection performance- both positive and negative. Solid reporting at the vendor level that quantifies the cost of these lost LTL freight savings will help to change behaviors and provide negotiating power at supplier negotiation time.
Incorporating these behaviors into your vendor assessments will enable your company to monitor your vendor network, leverage opportunities for shipment consolidation, maximize vendor compliance to preferred carrier routing, and ensure vendors are aware of your standard operating procedures.