Feature Definition: Freight Cost Optimization

The food industry is a very competitive business which makes it imperative to manage costs well. Freight costs are probably the next most important block of costs, after yields (management of material costs) and labor efficiencies. Freight costs can have a significant impact on a company’s bottom line. Freight exists in basically three different flavors for each company:

  1. Managing an own fleet
  2. External Carriers FTL (Full Truck Load)
  3. External Carriers LTL (Less Than Load)

If you manage your own fleet you can use route optimization software. Market Leaders in the US are Roadnet and PC-Miler. These software packages allow you to optimize routes by balancing driving distances between different routes thus reducing overtime and reducing overall milage driven. These software packages consider different optimization constraints such as truck capacity, truck capabilities (cool, frozen, no refrigeration), customer delivery windows among other things. Route optimization also enables other efficiencies, such as pick and load optimization. The latest trend for companies with their own fleet are telemetric board computers. Most trucks that have been build in the past 10 years have already a PLC of some sort integrated. Telemetric computers allow to record different states of the truck and its trailer, such as start and stop times of the engine, when the engine was idling, when the loading doors where open and closed etc. This kind of board computers enables validation of optimized routes, comparison of actual data vs. expected and provide a detailed and manageable account of all events that happened during distribution. Route optimization software in conjunction with telemetric board computers are the way to go when you manage your own fleet. Savings potentials are in some instances 10% of distance and about 5-15%% of transportation labor costs due to overtime reduction.

A lot of companies within the food industry do not have their own fleet, they deal with external carriers. They essentially outsource a service. Assuming that carriers are largely the same in terms of reliability and quality of their service, the key differentiator are the costs for the services. Pricing agreements with carriers are very complex and vary between FTL carriers and LTL carriers.

LTL carriers typically charge you for bringing a certain container (or multiple), such as boxes or pallets from A to B. LTL carriers such as UPS and FedEx charge for different service types (next day air, ground), by weight, destination region and packaging size. If you buy such a service, you don’t have any influence on how the actual package will travel, you just book a service to get it from A to B in a certain time under certain conditions. The only way to optimize LTL freight costs is basic comparison shopping. Pricing agreements of LTL carriers need to be in place to see which provider offers the required service at the lowest cost. The more options you allow, the better the benefit.

FTL is very similar. FTL carriers are designed to take a full truck load, exhausting the capacity of the truck entirely, from one point to another. If you do this, you use any FTL carrier at its optimum. As soon as you derivate from this, you start using an FTL carrier suboptimal, whether that is load weight deficits, additional stops or any other activity outside of this core competency of external carriers. Good comparison shopping among the different FTL carriers can also provide great benefits, especially due to the fact that each of them have structurally different pricing agreements, such as entree fees, lumper fees, stop fees, different fuel surcharges etc. These costing systems make it inherently complex to make sound decisions on the lowest cost alternative, so again a good system that provides computerized support to show the least cost alternative out of all these options.

Any optimization is only working if you really have options. If your location dictates which carriers you can use, you can gain very little by proper comparison shopping. If you have an own fleet, but your sales drivers are commission driven and service the same accounts regularly, you cannot really change the routes every day. This means that freight costs optimization is always limited by the options you make available to the process. No options means no optimization.

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