Question

Discuss your strategy, if you worked at a shipping company that wished to reduce transportation costs?

Answer 1

Transportation costs heavily contribute to a company's overall logistics expenditure. As fuel prices increase, transportation costs are also increased in proportion. This increase in transportation costs leads to increase in the price of goods

There are a number of transportation strategies that help the management in reducing transportation costs. Some of them are :

Fewer carriers : The transportation manager is given the task to provide the best quality transport, at the right time, and at the right price.

A transport manager spends most of their time in finding the best carrier at the best price. It often leads to the usage of large number of carriers Multiple carrier approach arises when the transport manager negotiates the best deal for each route, but not as a whole. On reducing the number of carriers, the work load on remaining carriers automatically increases. If vendors does some transportation, the carrier will be able to offer lower rates across all routes. On some routes, the negotiated rate of a carrier may not be good, but overall rates are reduced. With the increasing work load, negotiated rates will be lowered eventually as the carrier tries to retain the routes they have even with increased work load.

The main disadvantage of using small number of carriers makes the company more dependent on them. Suppose a Company uses only five carriers. If a carrier is out of business, the company must replace the carrier as soon as possible to avoid delays. Otherwise delivery delays may lead to financial consequences with customers for not receiving their deliveries on time. Drop in customer satisfaction results in fewer orders in the future.

Consolidating shipments : If a company uses carriers for their deliveries, the rate is negotiated by trip based on weight, distance and some other factors.

One strategy that can be used by transport managers is to consolidate or combine shipments so that fewer trips are enough. This benefits in lower rates with larger shipments.

Consolidating shipments means less than truck load shipments are moved to truck load shipments whenever possible. Discounts for larger shipments are always available. This strategy can be used to reduce costs

Single sourcing : In this strategy, only a single source is used for all the transportation. By offering all transportation to bid, using a Request For Quotation, the company must provide carriers with detailed explanation of what they need from the carrier, which falls outside the normal service provided by a common carrier.

If they decide to use only a single source, a company must evaluate the bidder's ability to provide the service. If the winning bidder fulfills the needs of the company, and is fully evaluated, the company can gain notable transportation savings by using a single source.

Reducing the transportation costs can be a significant way to spend less money, without impacting customer service