Transportation costs are climbing, putting pressure on companies to find savings wherever they can. But the most obvious place to look is the transportation budget itself, where an organization can negotiate carrier rates, rebid contracts or shift freight to a cheaper service.
While those moves can help, they can miss a larger source of raised costs. Transportation expenses are often shaped well before a shipment is handed to a carrier, through decisions about where inventory is stored, how many warehouses a company operates and how quickly customers expect orders to arrive.
Jamie Saucedo, senior vice president of business operations with GXO Logistics, says many companies have become very good at measuring costs inside transportation or warehouse operations. The harder task is bringing those figures back together and understanding how a decision in one area changes costs somewhere else.
“The cost of a decision is sometimes showing up on someone else’s budget,” Saucedo says.
Transportation procurement has long focused on what a carrier charges to move a shipment from one point to another. Saucedo says that approach can lead companies to ask for a lower rate without questioning whether the shipment should be traveling from that location in the first place.
That makes network design a balancing act involving demand, labor, real estate, inventory and service expectations. The right answer depends on what a company is trying to deliver to customers and how much speed they require.
In the end, the biggest obstacle to a more connected approach is often internal.
Transportation, warehousing, finance, planning and sourcing teams may each work from their own data, budgets and performance measures. Bringing those groups together requires shared visibility into the cost of serving a customer, along with a common understanding of which decisions push those costs higher.