Test your own freight management knowledge and skill

Controlling freight costs is a key element of good supply chain management. If costs are allowed to sLogisticspiral out of control they can impact and impede the bottom line and profitability. David Schneider the CEO of David K Schneider and company, (professional material handling consultants), and President of the Association of Professional Material Handling Consultants, Inc recently took on the case of a company in the manufacturing sector whose freight costs had risen to $31 per annum.

The case study Mr. Schneider was asked to investigate in his consultancy role, had arisen due to the way that the business involved managed the shipping function within its supply chain.

Attempts to renegotiate freight prices back-fired

The company’s freight manager had recently handed in his notice and his responsibilities had been dumped on a colleague who had no wish but little choice other than to accept the role. The new guy was tasked with bringing freight costs down which he began to set about doing by summoning all of their carrier companies to a number of meetings.

They attended the meetings, but instead of being prepared to negotiate lower prices, they all said that they needed to raise their prices even higher. When he then threatened to go out to competitive tender, the suppliers wished him the best of luck. Not quite the response that the new freight manager had hoped to get.

A self-generated problem

Mr. Schneider began his investigation into the problem by sifting through the desk of the previous, now departed freight manager. The evidence that he saw in terms of correspondence and computer files all pointed to him being a knowledgeable man and that he had done the right thing in terms of finding out what the going rate for transport was. It became apparent that it was the way that the company managed freight transport (or rather didn’t manage it) within their supply chain that was the problem.

The company had many remote facilities spread across the US and the new freight manager set about contacting those responsible for organizing transport in their satellites. His message was that they all needed to put more work into planning their shipments and stop having to use expedited collections at premium prices.

He got two types of response; firstly that that was the way the company ran (it was the nature of the beast), and secondly that he should stop wasting time trying to change that and concentrate on trying to negotiate better rates. It is little surprise that he tendered his resignation.

Ignore next LTL carriers and air freight instead

The old freight manager had done a thorough job in collecting all of the data relating to freight movements to support his bid process. When David Schneider studied this information it became apparent that there were numerous less-than-500-pound consignments happening on a nearly daily basis. Some transport lanes covered frequent air freighting rather using the usual LTL carriers.

In some instances more than 40% of freight movements were via air freight charged at premium rates. These shipments were being made between plants that were only 300 miles apart, and in every case next-day-delivery LTL services were available. It was no wonder that the logistics sector of their supply chain was ramping up huge costs at a rate of knots.

The tip of the iceberg

Upon further investigation panic inventory swapping was going on between the satellites because of poor planning and inventory control. It was just the tip of the iceberg, an iceberg that had formed to back-up their 3 day delivery promise to clients from receipt of order.

Look out for the next article on this scenario to find out what David Schneider recommended to lower freight costs in the supply chain.

Why not test out your own knowledge and judgment ahead of reading the next article by advising us what your solution would be?

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