WHITE PAPER REDUCE TRANSPORTATION COSTS WITH TRANSPORTATION MANAGEMENT SOFTWARE

Transcription

1 WHITE PAPER REDUCE TRANSPORTATION COSTS WITH TRANSPORTATION MANAGEMENT SOFTWARE

2 Multi-carrier transportation management systems (TMS) have been implemented within the enterprise order fulfillment process for the last 20 years or so. However, over the last couple of years there has been a higher demand for these systems from mid-sized companies, ecommerce retailers, and Omni channel retailers. With the cost of transportation rising steadily over the years, a multi-carrier TMS is an excellent method to reduce transportation and fulfillment costs. Cost savings from a TMS starts at the time the customer order is placed and continues to save all the way through the pick and pack and ship process. Typical quantitative ROI calculations show the investment payback well within 12 months of implementing such a system. Each business application or industry will have different metrics which contribute to the cost savings. This document is built with the purpose of exposing the most common and important elements contributing to the cost savings. Not all of them will apply, and some will be more important than others depending on the personality of the industry and business automation stage. Costs of Transportation In addition to shipping automation and execution, there are other costs components that also influence transportation costs. When these components work together with a multicarrier transportation system, it creates synergistic characteristics that multiply further efficiencies. Transportation cost savings opportunities can be best described with the following three areas of emphasis: Carrier Costs - The carrier rating coupled with the terms and conditions describe the business relationship between the shipper and the carrier. A reduction in carrier rating cost is usually the most pronounced and quickest way to reduce transportation spending. Therefore, the ability to select the most cost-effective carrier for the shipment will also reduce carrier cost. Shipment Planning and Execution - The cost of the shipment will be directly related to the level of shipping automation in place. A TMS will provide increased efficiencies in planning, optimal carrier selection, reduced handling, transportation mode selection, shipping workflow integration into the fulfillment process and more. A single system for multiple locations will also contribute to cost reductions. Transportation Audit - Incorrect billing or incorrect service level charges by the carrier can amount to as much as 3-5% of the total transportation spending. Did the carrier live up to the original agreement by providing the proper service at the correct cost? The TMS audit functionality finds these mistakes and files proper claims to reconcile the payment process. Additionally, audit functionality will effectively provide business intelligence through reporting against the historical shipping data. Benefits include finding the true cost of carriers and deciphering trends and opportunities, and assisting in carrier performance and rating negotiations. Logistyx White Paper: Reducing Transportation Costs 2

3 Use Multiple Carriers system. Using multiple vendors for sourcing commodity products is a recommended business practice to mitigate risk, create a competitive environment of optimal pricing, and take advantage of each vendor s strength. This rule should also apply to using common parcel carriers like UPS, FedEx, DHL, USPS and many other smaller carriers that specialize in regional and international markets. However, shippers are made to believe that they are getting the best deal when using a single-source carrier. Best-in-class companies use multiple carriers and automate the selection of those carriers through a multi-carrier Below are listed some of the advantages achieved by using multiple carriers and automating shipments with a TMS: 1. Using a Single Carrier Involves Greater Risk The adage of putting all of your eggs in one basket regarding using a single carrier will always increase risk because of the inability to change carriers or service levels quickly. Single-carrier relationships may look good at the outset, but over time there is no motivation for the carrier (supplier) to excel in service or pricing because the relationship lacks a competitive impetus. 2. Multiple Transportation Modes Most shippers today will have more than one mode of transportation (parcel, LTL freight, international freight, private fleet, etc.). Those shippers not using a TMS system will, in most cases, use multiple systems or manual systems to tender packages to a carrier. A TMS will allow these modes to be planned and executed from a single system which, in turn, will increase efficiencies dramatically through common processes, single-user interface, automated rating for better carrier selection, and more. of shipping to the customer. 3. Rate Shopping Using the computer to rate shipments and compare those rates to other carriers for the same weight, destination and delivery times is a common feature of a multicarrier TMS. Best practices would shop rates and select the optimal carrier for the shipment at the time the order is received instead of doing this later in the process, thus alleviating constraints that may occur during the actual shipping process. Again, without multiple carriers competing for your business, this valuable function is not attained. Most systems can shop between the parcel mode and the LTL freight mode for those loads that could use either mode. 4. Carrier Compliance The common parcel carriers today have stringent requirements in meeting their compliance programs for all their service levels (next-day, express, ground, COD, etc.). These compliance programs address all facets of the shipping process from rating, creation of proprietary bar coding, EDI transmission of shipping manifests, and track-and-trace functionality to name a few. Carriers have certification programs like FedEx with their Certified Solution Provider (CSP) process. Shippers can find TMS providers that adhere to the CSP program through FedEx. TMS suppliers that have certifications with carriers will assure the shipper of meeting those complex standards. In return, the TMS shipper will now have a library of carriers and service levels to choose from, facilitating the best way of shipping to the customer. Integration with Business Systems When the shipping execution process is seamlessly integrated with the total fulfillment workflow, new Logistyx White Paper: Reducing Transportation Costs 3

4 automation opportunities appear that bear substantial cost savings to the shipping function Furthermore, if the front-end order management process uses the TMS for transportation planning and carrier selection functions, another set of costsaving opportunities can apply. Below are listed the components representing the most effective cost savings of shipping integration; however, they differ from company to company depending on the characteristics of the shipping process. 1. Reduce Handling Costs Reduction in fulfillment cost relates directly to reducing the number of times a product is manually touched through the fulfillment process. With the integration of the TMS, the final pack, inspection, weigh, and release are accomplished with only one bar code scan. Only exceptions should need access to keyboard entry. 2. Centralize all Shipping Functions The TMS will be able to execute shipments throughout an enterprise regardless of multiple shipping origins and/or multiple modes of transportation. With a single database and single-user interface, rating and routing rules can be set for all locations while gaining efficiencies through managing all transactions in one system. 3. Higher Automation by Using Business Rules Most shipping systems today can filter requests through a business rules execution of some kind, whether it be a 4GL or an open language like Java. These rules can be turned on or off with a click of a mouse, thus giving the shipper much more control over the automated shipping methods used to control process flow or customer transit preferences and ultimately reduce the cost of the transaction. 4. Multiple Location Control Even though an enterprise-class TMS achieves cost savings through centralization, local control must be available to each shipping origin within the enterprise. Shipping origins affect rating, unique customer preferences, and manifest control. The TMS will give the shipper the best of both worlds: centralized control with local personalization. 5. Integrate with Material Handling One of the more common uses of a TMS in a high-volume operation is the integration with material-handling servers to automate a print and apply operation. This process utilizes robotics with conveyor sorting functionality, wherein packed containers can be weighed, rated, and labeled with a packing list and a carrier label can be applied robotically. One of the key advantages of the TMS being used in this environment is higher performance. It is, in some cases, the determining factor in the ability to apply 10 labels per minute or 60 labels per minute. 6. Better Transportation Planning The mix of transportation modes used by the shipper will determine the overall benefit of preplanning. If freight loads can be identified or if parcel carriers can be selected based on lowest cost prior to fulfillment, bottlenecks and constraints can be removed at the shipping execution point of the fulfillment process. Preprocessing of the shipment can also lend itself to printing of the shipping label with the pick ticket before the order is picked, which can replace any in-house LPN labeling, in addition to removing any label printing constraints at the end of the line. 7. Reporting Function Now that the TMS has collected all the shipping origins, transportation modes, and all shipping transactions and business rules in ONE database, using simple report writers, the enterprise shipping information can be more readily accessible for business intelligence reporting. In most cases, this will be the first time the shipper can compare historical information of multiple-mode shipping transactions occurring across multi-location shipping origins. Logistyx White Paper: Reducing Transportation Costs 4

5 Additional Functionality & Capability Companies not using TMS-based shipping software probably manage transportation functions that are distributed between systems, spreadsheets, websites and manual errorprone processes. This section will describe the integrated capabilities of some of the most commonly used shipping functions that may not be available without the TMS. 1. Higher Performance Most shipping systems purchased even 10 years ago, are probably using older technology, which may be slowing down the shipping process by just waiting for a label to be printed or for a manifest to close. With higher processing speeds, wait times have been eliminated and throughput increased. 2. International Shipping Documents As most companies continue to expand their businesses into global markets, shipping internationally requires more documentation and greater care when doing final preparations. A TMS can provide all the needed documentation by carrier and be completely automated, resulting in the reduction of errors in shipments to the international customer. 3. Shipment Consolidations Oftentimes the same customer/recipient can place multiple orders in the order management system within minutes of each other without adequate planning taking place to take advantage of packing those orders into one container. Heavy freight shipments to the same approximate destinations should also be combined to achieve a better rating. A TMS can do these consolidations at the time of order or at the end of the day to ultimately reduce transportation cost. 4. Address Validation and Verification If the address on the shipping container is not correct, the carrier will re-bill the shipper an address correction charge anywhere from $4.00-$6.00 per package. On average, 22% of a company s shipments are occur these fees. In addition to the address, certain carriers require that a Residential Delivery Indicator (RDI) be used when shipping to a residential address. If the shipper does not include this information, the carrier will bill the shipper an additional charge. The TMS can provide address correction, usually using the USPS CASS database, to assure that the shipper will not incur unforeseen and expensive charges to his or her rising shipping expense. 5. Omni Channel and ecommerce Value ecommerce shippers are always looking for a marketing edge to keep their customers and acquire new ones. A TMS can allow what if scenarios to the shopping public regarding shipment rating their purchases prior to the final purchase. In most cases, the retailer using this TMS rating approach will consistently present a lower shipping cost than its competitors not using this method and ultimately attract more business. Studies have shown that buyers will abandon their purchase if they believe the shipping cost is excessive or not competitive. TMS Benefits Summary Occasionally it is a challenge to quantify the cost saving benefits to an operation without the familiarity or experience in dealing with a TMS. The following is a summary of the benefits, both hard and soft, that would comprise the cost savings portion of a typical ROI analysis. 1. Intelligent Carrier Selection Using the computer to analyze the lowest-cost carrier within seconds has shown to reduce the overall spend from 7% to 2% depending on the volume, mode, and service levels used by the shipper. Larger savings are found when the shipper is Logistyx White Paper: Reducing Transportation Costs 5

6 shipping heavy products and using more expensive LTL or FT moves or may need to compare LTL to parcel. 2. Automated Business Rules The TMS with advanced business logic can filter transactions through the shipper s business rules that will attain higher levels of automation. An example of such a process would be a shipper that implements a promotion where free shipping is provided if the order amount is greater than $50. The TMS would execute the shipment according to this rule. Rules can run exclusive of each other and can be turned on or off with the click of a mouse button. Cost savings achieved with this function can be high, with the primary impact on labor savings, customer personalization or customer service. 3. Integration with the Supply Chain In many cases the shipping function is a stand-alone process at the end of the line. With integration of the TMS with the supply chain systems, shipping is now a seamless process within the business. This new process includes accepting the download of expected orders and sending back to the (ERP) order management system key shipping transaction information for real-time status. Product handling during fulfillment is reduced, and customer service is improved. Cost savings in this sector can be substantial when coupled with multiple modes of transportation that have traditionally been disconnected from the overall process. 4. Increased Functionality Adding new capabilities to the existing workflow will add cost saving benefits. Usually not all of these would apply, but they would all have an effect within the right application: a) Address Validation - Correcting the address so the carrier would not bill a surcharge to your account. b) Shipment Consolidations- Intelligent grouping and rating of shipments to the same or similar destinations. c) International Shipments - Automating this more complex shipping process to eliminate bottlenecks, reduce errors, meet compliance and increase efficiencies. d) Multiple-Mode Shipments-All shipments (parcel, freight, international, etc.) can be executed from the same system. e) Multiple-Location Control -All shipping locations use the same centralized system through the web-based interface. f) Drop Shipping- Outside vendors can use the system just like anyone within the company to ship to your customers, reducing overhead and gaining better information on the shipment. 5. Improved Customer Service-A common theme achieved by using the TMS has been marked improvements in communication and better results in serving the customer. Proactive functions like notification and immediate track-and-trace enablement of a shipment with the carrier have been shown to result in a significant decrease of calls to customer service. Ultimately, satisfied customers translate to repeat customers and increased business. 6. Carrier Performance Review - As a result of including all shipments from all locations in one system/database, the ability to use Key Performance Indicators (KPls) to track carrier performance has facilitated better carrier contracts and rates. Specific KPls such as cost/mile/density can be calculated easily through base reporting methods. Logistyx White Paper: Reducing Transportation Costs 6

7 ABOUT LOGISTYX Logistyx Technologies optimizes businesses transportation management execution with industry-leading software, hardware and knowledge. This unique, comprehensive package offers a configurable solution for smarter shipping anywhere by leveraging a multi-national carrier network and predictive analytics for data- and value-driven decisions. info@logistyx.com Logistyx Technologies, LLC. All rights reserved.