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For years, a company’s freight expenses were a gray area that “those guys in shipping” dealt with. However, since freight costs are usually a major cost center at most manufacturers and distributors, many chief financial officers and presidents are digging in and finding that controlling these expenses is not as scary as they once thought. In “Freight Focus,” a new column in CI, I will provide tips for companies to lower their freight costs using resources they already have.
Freight is a huge cost center that eats up a big part of manufacturers’ sales, and I get many calls from salespeople asking for ways to lower costs to their customers. The first challenge is trying to convince salespeople that freight is a real cost, something I know a lot of accounting and operations people can sympathize with. (I’m a sales guy, so I’m allowed to pick on other salespeople.)
Fortunately, one solution-consolidation-is very simple. Consolidation is an easy way to provide a cost-cutting solution to your customers without lowering your invoice price and without threatening your relationship with your freight carrier. All we really need to do is to delve into some simple shipping patterns.
It is amazing what a little shipment consolidation to the same customer can do for the cost per pound. Most freight carriers charge less per hundred pounds for heavier shipments than for lighter shipments. In other words, it will cost less per hundred pounds for a 1000-lb shipment than it will for a 200-lb shipment. In fact, the cost per pound for a 1000-lb shipment will be less than half of that for a 200-lb shipment.
I have a Cleveland, Ohio-based customer who produces particularly high-classed items. A recent review showed that they shipped three 200-lb shipments a week to one customer in King of Prussia, Pa. Each one of these shipments carried a cost per pound of $.41. However, if their customer bought one 600-lb shipment at the beginning of the week, the cost per pound dropped to $.24 per lb-a savings of about $100 a week ($5200 a year!) to that customer. My customer didn’t have to lower any invoice prices, and their customer was happy because they could save money and dock space, and they don’t have to expend the labor to unload the truck three times a week.
How Do We Get Started?Considering order/shipment consolidation can be an eye-opening experience for your customers, who often don’t realize how frequently they are ordering. In the previous example, the customer initially didn’t want to look at consolidation because they didn’t think they were ordering that often. In this case, two years of data illustrated that multiple purchasing people were placing orders at different times, sometimes three and four times a week.
The first thing you need to do is to pull out a spreadsheet of all of your shipments for the last quarter and sort them by customer, then by date. Break down the shipments into blocks by week, and ask your rating program to price out all of the consolidated orders as if they were one big order. Subtract that amount from the total of the multiple freight invoices, and the result is the savings that the customer will see due to consolidation. While not rocket science, order/shipment consolidation can be a great way to provide an excellent cost-cutting solution for your customers that does not negatively affect your bottom line.