Author: John Cole
At the most basic level, freight arrangements are in place to satisfy targeted service standards at an accepted cost. When these standards are threatened or need redefining, your freight arrangements need to be reviewed. But how do you know when that threat or need exists?
Through the course of many freight reviews at Logistics Bureau we have found there are a small number of factors that predictably disrupt the balance of service standards and cost.
The most common, and obvious, factor is a trend in the broader customer base for higher service levels. This is not about being able to restore a deterioration of service levels if it happens, rather it’s about raising the standard, usually in relation to information availability and timeliness, or service flexibility. Many businesses don’t consider the capabilities of their selected carriers beyond the short term and when they reach a service “tipping point” find themselves in relationships with under-resourced and under-skilled carriers, a situation that often forces a review.
Also very common is the situation of volume growth reaching a point where the current carriers are operationally stretched. This can manifest itself in late pickups, inappropriate vehicles and late transit. In this situation existing rate structures can also become inappropriate. Weight breaks and pallet breaks that were originally focused on winning your business at a lower volume need to be recalibrated to the new volumes which are often un-competitively costed.
New markets and new products, if they represent significant operational change or the need for revised service standards, will also drive a review. There may be a need to deliver to new regions. There may be different product characteristics to accommodate through different packaging and handling methods. The product mix may drive a review of rates and rate structures.
A further driver of the need to review is a history of growth by acquisition. This is quite prevalent in some industries, such as the chemical industry and the food and beverages industry. It is not unusual to find companies in these sectors using in excess of 100 carriers. The circumstances under which these carriers were appointed are typically long past and there has often been only a token attempt to integrate services. It is also found that this costly situation is perpetuated by the continuation of a decentralized decision-making structure.
The need for Supply Chain flexibility is also driving more frequent changes in channels to market. This is the final factor identified as a driver of freight reviews. For example, moving to or from distributors will potentially alter the consignment characteristics, frequency and geography of deliveries. This in turn necessitates a review of carrier capabilities as well as rates.
Identifying and monitoring the factors that impact on your service equilibrium will take you a long way towards the right response. Ultimately, making the right choices of carriers in the first instance will determine whether you are in a position to respond with your current carriers, or have to move on. At Logistics Bureau we have a long track record of assisting businesses in making that important initial choice.