By John Cole
“I get carriers in here all the time and they can’t beat these rates.”
I can’t tell you how many freight optimisation projects I’ve kicked off where those are the first words out of a transport manager’s mouth. Often they’re right, too: I can’t beat those rates! But I can still save them money, because so often, it’s not about the rates…
In fact, I use an ‘opportunity matrix’ where the rates are only one of seven criteria I look at to save clients’ money on their freight. And don’t think the other criteria need a whole lot of time and analysis. There’s some work involved, but the starting point is to know what you’re looking for. The work is in sizing up the savings!
Let me give you some examples that will show you how easy it is to identify these opportunities…
- Capacity Utilisation: Some years ago I consulted to a diversified chemical company; nine divisions, 13 warehouses: had grown like crazy through
regularacquisitions. I got the “can’t beat these rates” line.For their core divisions, they bought “commodity” freight – lowest rates, no frills. On top of that, they couldn’t remember the last rate increase; real hard nuts. In fact, so hard and so confident of the rates, the logistics manager rarely saw his freight on a truck and his underlings didn’t know or concern themselves with how the freight was charged.As it turned out, they were paying by the load and over the past three years, with changes in product mix, their average load dropped from 20 tonnes to 13 tonnes! They renegotiated tonne rates and saved 27%.Understand that your consignment profiles aren’t static and negotiate rate structures to suit them.Make sure any personnel who can affect cost, understand the drivers of that cost. - Vehicle Mix: I’m sure that many of you will have had the pleasant experience of a free upgrade of a rental car. The hire company just can’t manage the mix, so you have a win. Local distribution isn’t like that.Whether you get it wrong or the carrier gets it wrong, you typically end up paying. And the fact that anything is wrong at all is not always obvious.Surprisingly, to me at least, one of the most common reasons I’ve found for poor vehicle mix is the mismanagement of sub-contractors (subbies) by the company that’s hired them. Let me give you some typical comments from projects I’ve worked on that make my point…
“We’ve got six drivers and I share the work around so they all get at least 38 hours”
“We paid someone to come in and work out this roster for us about three years ago”
“We’ve got the wrong mix, but none of these guys are eligible for a new truck soon”
A little independent and objective observation will usually expose these problems and result in a smaller and differently configured fleet.
Mismatching can happen in a more subtle way as well. In a project I completed recently, the client outsourced its local distribution to a 3PL that had a gap in its fleet mix. The gap wasn’t obvious, because the client used a range of vehicle types and services.
But the gap was significant because it corresponded with the van size the client needed most. Every time they needed a four tonner, they got a six; and paid for it. The client’s focus was on whether the six tonner rate was competitive and not what vehicle mix they needed!
Recognise the skill set and reporting required for effective fleet management.
Understand your distribution profiles and negotiate vehicle sizes to suit them.
Next time, we’ll look at another two opportunities from the matrix…
Best Regards
John Cole
Email or +61 411 706 726