Relief for Distributors Facing Freight Pressure
On the surface, the 5.9% parcel rate hikes are not a surprise heading into 2022. Accessorial surcharges are the wild card. Rate negotiations don’t completely control surcharges leaving shippers vulnerable [Source: Supply Chain Dive].
LTL costs, too, are expected to further increase 6-10% and even higher in select shipping lanes. Truckload is not immune either. The go-to ‘toolkit’ for dealing with these changes - e.g., carrier rate negotiations and improved shipment planning and routing - only get companies so far.
The bottom line is that costs continue to go up. It is uncertain when costs will normalize.
How can distributors get relief?
“Our customers are looking at what changes they can make within their business to best serve customers while being more efficient with shipping and fulfillment.”
Stephanie Bixler, Synapsum CEO.
Two proven places to start…
Close the gap in freight cost recovery
Empower customers with choices that tie service to customer needs to cost savings and emission reductions
[1] Closing the gap in freight cost recovery
If you operate a paid freight program or include freight costs in product pricing, you are likely under-recovering costs in areas where you cannot easily predict shipping charges at time of order. Even if you are offsetting under-recovered costs with over-recovered costs, there is still money being left on the table. Worse, you could be putting customer demand at risk where you are over-pricing relative to competitors. Further, it is hard to maintain aggregate recovery. Static transportation rate tables quickly become outdated. It may be impractical or inaccurate to request carrier quotes at the same time customers are placing orders for a host of reasons.
What’s a better alternative? Look no further than your own internal data as a powerful tool to improve cost recovery.
If you are already partnering with a freight audit firm, you have access to carrier billing details which is one important piece of this puzzle. These freight billing details may be disconnected from your company’s transactional data limiting the usefulness to freight reporting alone. By combining detailed carrier billing with order, product, customer, and delivery information, you can unlock insight into drivers of shipping costs - also known as Freight Cost-to-Serve Intelligence, one important piece of the net profit equation.
Exhibit A - Freight Recovery Before and After (Freight invoiced at order vs. carrier fees charged)
With Freight Cost-to-Serve Intelligence, you can see what is driving outlier costs to inform commercial planning - from customer contract negotiations to free freight exclusions to pricing the cost of small, frequent deliveries. At the transaction level, the data model can be extended to predict freight costs with precision to improve recovery rates on shipping charges at time of order.
[2] Empower customers with choices that tie service to customer needs to cost savings
Cost-to-Serve is misconstrued as a rationale to take away from customers to boost bottom-line results. This is the exact opposite of what Cost-to-Serve intelligence can and should do. When applied correctly, it should empower customers with choice by providing transparency into the options and related costs of service. Let customers decide what is important to them rather than presuming what they value most and eating the costs to support that assumption.
Exhibit B - Comparing Cost of Shipping for Two Similar Customers
Take an example Customer A who receives 4 deliveries a week in peak season, with most shipping same or next day, and Customer B who receives 1 delivery a week by stocking in advance. Customer A costs 3x more to ship than Customer B. However, the distributor cannot quantify or isolate the difference. If Customer A had a choice to take consolidated deliveries to save on price and could pay for additional deliveries as needed, the company has given Customer A a choice that could ultimately benefit them. Further, if the customer knew they could save even more by receiving off-season shipments, they may opt to do that as well. This choice and transparency will likely make Customer A more loyal to the Company.
Check out more examples of how other distributors are using Cost-to-Serve Intelligence to manage transportation and fulfillment expenses.
Not only will companies have the tools to boost net profit, but they can also use this data to model emissions reductions. If a customer switches from same day deliveries three (3) times a week to one (1) delivery every other week, this will require fewer traveled miles, reducing carbon emissions. The environmental impact can quantified and communicated as part of commercial discussions and provide companies additional opportunities to reach emissions goals.
Cost-to-Serve intelligence is required to make the above possible. It is not a one-time exercise but a capability to embed into planning and operations.
If you relate to this point or want to discuss further, please reach out as we would like to hear from you (info@synapsum.com).