{"id":8575,"date":"2021-02-08T06:54:29","date_gmt":"2021-02-08T11:54:29","guid":{"rendered":"https:\/\/flevy.com\/blog\/?p=8575"},"modified":"2021-02-06T14:59:13","modified_gmt":"2021-02-06T19:59:13","slug":"supply-chain-management-2-phases-of-transportation-cost-reduction","status":"publish","type":"post","link":"https:\/\/flevy.com\/blog\/supply-chain-management-2-phases-of-transportation-cost-reduction\/","title":{"rendered":"Supply Chain Management: 2 Phases of Transportation Cost Reduction"},"content":{"rendered":"

\"\"Companies looking to improve efficiency and reduce costs can gain significant ground in the Supply Chain Management<\/a> function by incorporating Lean Management<\/a> and Six Sigma techniques.<\/p>\n

Reason this area has gone under the radar is that companies do not consider Supply Chain to be their core competency.<\/p>\n

Not only Warehousing but Transportation also has almost the same potential in terms of opportunities for Cost Reduction<\/a> and Process Improvement<\/a>.\u00a0 The approach to Transportation Costs Reduction, though, is different to that of Supply Chain Cost Reduction in Warehousing<\/a>.\u00a0 This is in part due to the complexity in Transportation Costs, as the costs come from numerous widely distributed individual operations every year.<\/p>\n

The approach to Supply Chain Cost Reduction in Transportation<\/a> encompasses 2 phases:<\/p>\n

    \n
  1. Understand the Baseline<\/strong><\/li>\n
  2. Identify and Implement Opportunities<\/strong><\/li>\n<\/ol>\n

    \"\"<\/a>\u00a0<\/strong><\/p>\n

    Let us delve a little deeper into the 2 phases.<\/p>\n

    1.\u00a0<\/strong>Understand the Baseline<\/strong><\/h2>\n

    Improvement in Transportation operations is hindered, in most cases, by enormous variability in operations, diverse service levels being demanded by various customers, and a multitude of transport providers delivering services in a variety of ways.<\/p>\n

    Transportation Costs of between 20-30% can be saved by compiling a complete perspective of the overall Transportation operations of an organization.\u00a0 The evaluation will also reveal essential service categories that have a skewed effect on Cost.<\/p>\n

    2. Identify and Implement Opportunities<\/strong><\/h2>\n

    Identification of the Cost Drivers is imperative for the companies to develop a systematic approach to Transportation Cost Reduction.\u00a0 This systematic approach involves observing 4 main levers of Cost Optimization<\/a> opportunities:<\/p>\n

      \n
    1. Compliance with Contracted Price<\/li>\n
    2. Negotiated Price<\/li>\n
    3. Contract Terms<\/li>\n
    4. Customer Breakpoints and Behavioral Changes<\/li>\n<\/ol>\n

      The 4 levers of Cost Reductions help in countering the issues impacting Transportation Costs and enabling significant savings.<\/p>\n

      Significant Cost Reductions can be gained by identifying mutual benefits and risks for both companies and suppliers in addition to understanding customer breakpoints that enable Customer Centric Design<\/a>.<\/p>\n

      Let us consider a few instances where Cost Reduction can have a quick impact.<\/p>\n