Optimizing Transportation Costs

Transportation on sales can be seen as a cost item, or as a competitive factor. The choice of mode of transport has commercial implications for customer delivery time, overall selling price and company image, but also operational impacts on inventory management and packaging. So that’s part of the company’s strategy.

Choosing The Right Mode Of Transport

The choice of a mode of transport must reconcile, on the one hand, the objectives of customer service vis-à-vis the external (efficiency: quantity, quality, delay), and on the other hand the internal objectives (efficiency: economic constraints).

Several factors influence the choice:

  1. time or duration of transport, an essential factor. The longer the delay, the longer the stock will be longer,
  2. technical criteria that take into account the nature of the product to be transported (volume, weight, fragility, dimensions, product dangerousness, etc.), packaging constraints, and the way stocks are managed (average turnaround time, just in time),
  3. financial criteria that cover the intrinsic value of the product (for those with low value, favouring maritime transport over air transport), foreign exchange risk, late penalties, etc. arbitration with the cost of ownership of stocks (for this purpose, follow the ratio: cost of transport / cost of ownership of stocks),
  4. The company’s communication strategy to highlight its commitment to reducing CO2 emissions. 

The management controller can list the determining factors for comparing different solutions between them in order to choose the most appropriate one for the company. Comparative analysis may include:

  • mode of transport: main transport, pre-delivery, post-delivery,
  • The number of load breaks
  • Stakeholders,
  • Transportation costs: freight, packaging, insurance, pre-routing, post-delivery, ancillary costs, fixed costs. This cost can be related to the starting value,
  • delays in days of transport, waiting, pre-delivery, post-delivery, and overall,
  • safety (from ‘to’) transport and delay

Manage Transport Costs On Sales

This involves evaluating transport costs and measuring the productivity of the solutions chosen. The objective is to identify areas of poor performance and to opt for actions that allow:

  • avoiding the extra costs associated with the inadequacy of certain modes of transport,
  • reducing the rates offered by carriers.

However, these actions should not compromise customer satisfaction.

Valuing Cost Items

Analytic accounting must be designed to enhance:

  • overall transport costs,
  • Transportation costs according to the appropriate lines of analysis to the needs of the company: by customer, by geographical area, by family of products, by mode of transport.
  • different components of transport costs: freight, packaging, insurance, pre-delivery, post-delivery and ancillary costs

These values can be a standard cost file that will facilitate the construction of the sales transportation budget.

Measuring Productivity

The first step is to identify the factors of under-productivity that generate additional transport costs: shipments that are too split, single mode of transport, packaging ill-suited to transport, vehicles ill-adapted to the load, insufficient revision of contracts and tariffs, poor size of the fleet of vehicles, rounds of poorly programmed deliveries…

Then, pilot indicators should be combined with the dashboard, measuring for example: the number of parcels per shipment, the cost of transport per tonne, the rate of damage, the rate of filling, the price differential of competitors, the rate of use, the cost per tour…

The evolution of measures over time will reflect the impact of actions taken on productivity improvement.

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