Combatting Rising Costs of Distribution
Rising freight costs — which have leaped by 14 percent since 2013 — are robbing retailers of the savings they’ve made in other links in their supply chains, a new survey from The Boston Consultancy Group (BCG) and the Grocery Manufacturers Association (GMA) finds.
As small to midsized retailers struggle against this rising tide of costs, attempts to control distribution costs are stymied by outdated communications technologies, a lack of automation in routing and load consolidation, and other distribution inefficiencies.
Yet solutions are emerging that enable retailers of all sizes to focus on their cost of distribution and slash their net landed cost of goods by as much as 30 percent with cloud-based technologies that automate communications and logistics. Now, with cloud-based automation technologies to optimize inventory allocation and distribution planning, even small retailers can reduce costs and increase margins without renegotiating shipping rates.
Distribution Costs Soaring
The BCG/GMA study portrays a difficult business landscape for companies, with freight costs rising as much as 14 percent for U.S. consumer packaged goods companies since 2013. What’s behind the surging costs? A shortage of truck drivers, the costs of regulatory compliance and the impact of the nation’s deteriorating transportation infrastructure.
Executives who participated in the study agreed that transportation issues are a top concern for all organizations. With aggregate transportation costs of $15.5 billion a year, it’s no wonder retailers are looking for efficiencies that will help them slash spending. Retailers that do nothing to reduce cost of distribution will, by default, see it rise rapidly in the years ahead. Consequently, retailers are increasingly focusing on automation to control costs and discover efficiencies.
Manual Systems Can’t Meet Customer Expectations
Across retail and other physical goods industries, customers expect quick and transparent delivery, supported by real-time updates. New cloud-based software solutions are empowering retailers to meet these expectations with real-time visibility.
Supporting this conclusion is a recent Eye for Transport (EFT) study that focused on automated, real-time visibility as a top priority among companies and their supply-chain partners. Based on responses from more than 200 companies, the study found that organizations increasingly expect to boost routing efficiencies, capacity levels and, ultimately, profitability using automated solutions.
Retailers Seek Long-Term Solutions
Instinctively, companies trying to reduce distribution costs look to renegotiate carrier rates. This may provide short-term dividends, but lacks long-term viability. As carriers foot the bill for rising costs, their rates stand to increase, reducing their willingness to negotiate retailer-friendly discounts.
Finding better ways to distribute can reduce costs in most facets of distribution, from inventory management to transport planning. Retailers can tap a variety of longer-term strategies to use carriers and vendors more efficiently, including the following:
- Route optimization and planning technologies, which apply algorithms to every order, can help mitigate the impact of driver shortages and increased road congestion. By examining orders for variables such as size, type and destination, and combining them with local variables like street restrictions (e.g., one way, no trucks over a certain size, etc.) and fees (e.g., tolls, border taxes, etc.), retailers can determine optimal carriers, fleet types and routes. Optimization and planning technologies enable companies to take control of operational and cost-related shipping variables without increasing staff workload by responding to problems with more informed decision making in a fraction of the time otherwise required.
- Execution monitoring and cost management technologies provide full visibility into carrier performance, while enabling rapid adjustment for unplanned delays. Even with the best route optimization and planning technologies, unforeseen variables such as accidents or severe storms can cause delays. Real-time insight into these delays enables quick route adjustments and rapid communication to all vested parties — staff, carriers, customers, etc.
Cloud Technologies Enable Real-Time Collaboration, Visibility, Communication
With 97 percent of executives in the EFT study citing the importance of achieving real-time visibility into all transportation processes, cloud technologies offer affordable, long-term solutions for closing the gaps between today’s reality and rapidly evolving customer demands.
A transportation management system in the cloud creates visibility from start to finish, with all elements of the shipping process in a single platform. It also enables a real-time flow of information and allows key decision makers to quickly check delivery status and address problems.
By implementing cloud-based solutions, companies may significantly increase visibility in supply chain operations and reduce net landed cost of goods by as much as 30 percent.
Lisa Henthorn is the vice president of corporate communications for Eyefreight, a transportation management system technology provider.