These simple tips will help you better understand how to reduce your distribution costs.
And if you’ve never put your distribution ‘under the microscope’ before, you could potentially save up to 16% in total distribution costs! And it can be very low hanging fruit… so you might want to take a look. We’re talking about the transport element of distribution. So if you have a delivery fleet in-house or contracted out, you’ll find these tips very useful.
OK, so what is ‘Optimising’ Distribution Transport? For our purposes here, I’ll define it as: Minimising the cost of distribution transport to customers, whilst meeting required service standards. So if you’ve never really looked closely at your distribution operations, here are some key tips.
There are 5 main areas to focus on:
Your Service Offer
Your Supply Points
Your Delivery Fleet
I’m going to touch on these briefly here, highlighting some major things to look at and then give you access to a lot more detail if you want it.
(1) Your Customers
The things to consider here are the service levels your customers expect, the delivery time ‘windows’ they require, their typical order size and delivery frequency.
Have you ever been involved in a fleet optimisation project?
This is where you load up all of your customers, orders, products and vehicle characteristics into a ‘smart’ piece of software. You then typically replicate what goes on now, and then let the model have a go at optimising the fleet operation.
Do you know the single biggest thing that impacts the optimisation process? Its delivery time windows. Every time.
Stretching delivery time windows is a massive opportunity.
For example, let’s say your customers all have very strict requirements around what time they are willing to accept your delivery. Maybe a 1 hour ‘time window’, like between 9:00 am and 10:00 am only.
If you can work with customers to open that time window a bit more, maybe 9:00 to 11:00 am or even midday, it has a massive impact on your ability to better utilise your delivery fleet. And I do mean massive. Because it opens up a vast range of alternatives in terms of delivery route design and vehicle utilisation in terms of capacity and time. I’ve seen 12% cost reductions, just from this alone!
(2) Your Service Offer
The same then holds true for order size and delivery frequency.
Whatever you can do to encourage customers to order less frequently but in larger orders makes your delivery fleet more efficient. (Less stopping and starting).
But it will also make your warehouse operations more cost effective per unit.
Think Cost to Serve! There’s plenty about it on this Blog
And if you can better understand your customer’s service requirements and tailor those a little better to meet their needs, you’ll gain another slice of cost savings.
Because you’ll find there will be a sizeable part of your customer base that will accept a slower service level. It’s the case in every organisation I’ve worked with. And that’s hundreds…
So are you over or under servicing some customers?
(3) Your Products
This one is not so easy, at least for most organisations. But think about this for a moment…
Do all your products require the same type of delivery service? Could some be delivered by alternative / slower / cheaper means? Maybe they need to be delivered together? Are some products constrained by handling requirements? Fragile, temperature control? Are you using ‘expensive’ delivery means for all products, when in fact some don’t need it?
Something worth some thought.
(4) Your Supply Points
Very often these tend to be ‘set in concrete’. By that I mean, you have no control over the supply points of where you distribute your products from. Or do you?
If your distribution area is vast, it can make sense to transport your products in bulk to a distribution ‘area’ and then use the delivery fleet from that point on.
Quite simply you get a double benefit.
Firstly, your delivery fleet is operating closer to your customers, and so it’s better utilised in terms of time and distance.
And secondly, the transport cost per unit, to get your products into the delivery ‘area’ can be much cheaper.
Of course there is a trade off in transport cost and double handling, but this is often something well worth a look.
(5) Your Delivery Fleet
This of course is where it all comes together; with a delivery fleet that should match your precise needs.
And how often does that happen?
Either it’s an in-house fleet which isn’t really configured for your current needs, because it was put in place a while ago or without much understanding of what the right fleet size and mix should be.
Or it’s an outsourced fleet, which in theory should give you greater flexibility and utilisation, but the way you are paying for the service is just not working for you.
Finding that right balance of fleet configuration and / or pricing model is a bit of a balancing act. And that is precisely what I’ll be showing guests at a Free Webinar next week. (Monday 23rd Feb 2015)
So if you want to join us, you can grab a seat online right here: Free Fleet Optimisation Webinar.
Hello Rob O’Byrne,
You have shared all the important tips “How to reduced distribution cost”. So that is your article is very important.
Glad you found it helpful.