The costs of freight are controllable; however, managing this important aspect of logistics requires some expertise. The companies who are unable to efficiently manage the costs of freight are sure to find it extremely challenging in today’s complex world of modern transportation. It is imperative to maintain a constant track of cost controls in every transaction at every turn. This seems to be a daunting task for the companies whose area of focus is not the optimal freight cost control as their core competency.
Here we have discussed some of the main issues that businesses encounter while trying to manage the freight transportation.
Skill Set Development
Generally, companies discover that managing transportation and logistics is a full time job while struggling to independently manage them. Most of the businesses then ultimately come to a conclusion that this area of responsibility cannot merely be listed under warehousing, packaging or other operational functions. This realization holds especially true if the primary objective of a business is to optimize the cost of freight to achieve significant savings and divert the cash flow towards the customers and stakeholders. In order to achieve success in this area, it is essential to find a skilled, talented and experienced transportation manager with a successful and strong track record. Alternatively, a source from the third party logistics company with good reputation can also be utilized for efficient transportation management.
Businesses are generally more focused on customer services and production instead of freight cost controls that greatly impact the profit margins. Consequently, the individuals who are given the responsibility to manage the costs of freight find themselves overwhelmed by the new range of complex challenges in addition to their regular responsibilities.
Ultimately, the employee who has taken these responsibilities becomes overburdened. He or she becomes less efficient in handling the regular work assignments and fails to succeed in yielding the desired freight cost management results. The major mistake while factoring the operational pros and cons (that consist of calculations for determining in-house transportation management feasibility) is underestimating the scope and complexity of freight cost management functions.
Bottom Line Strategizing
Shipping costs affect the budget of all the departments. It is not sufficient to manage the freight costs by simply reducing the costs of other departmental budgets without proper rationale along with the calculation of numerous other logical factors that are included in freight costs.
Development of a comprehensive business strategy is required for the optimization of transportation management system. Moreover, to operate efficiently, a transport management system shall be well equipped with the software services that are designed for rate tracking, monitoring of expenditures across all the departments and for integration and acquisition of other significant logical information.
In most of the cases, the in-house transportation manager is burdened while operating within the organizational hierarchy with the incoming data required for freight cost management. He or she is required to perform flawlessly in order to be effective in such a dynamic field where it is necessary to respond with continuous provocative and adaptive measures to counter the constant irregularities across the shipping markets from international and local networks.
The fundamental error in structuring the hierarchy of transport department is not recognizing the role of a transportation manager. Although keeping authority in other departmental roles to make sound financial decisions on behalf of the company makes perfect sense but it is necessary that the function of freight transportation management is vested with necessary authority to compromise, strategize, negotiate, design, order changes, implement new methods or routines and execute important decisions immediately.
Without managing the costs resourcefully by creatively manipulating the elements and entities, transport management function is restricted and cannot follow through with the level of rapidity and precision of adjustment crucial for uniformly taking advantage of all the opportunities available. These opportunities in turn increase the feasibility and reduce the waste of resources. In order to fully realize the possible benefits of freight management optimization, one requires extensive reach of the authority to shift along with the contingencies as required. The freight manager cannot be ideally effective if he attempts to operate without sufficient authority.
Contact Network Development
The shipping industry is built on the relationship between well established carriers and their long term preferred customers. In other words, relationships are the root of freight and transportation management. Building good reputation heavily depends on the management’s long term quality relations with the carriers. The shipper is more likely to perform efficiently in obtaining competitive pricing, controlling freight and scheduling perfectly if the number of strong relations with particular carriers is greater. Transportation managers with the ideal pricing leverage to efficiently manage the costs of freight are the ones with the optimum level of experience and reputation with a wide range of networking contacts.
It is very common for companies nowadays to utilize external services for transportation management to optimize delivery services and reduce the freight costs. This transition of responsibilities from in-house personnel to a professional service provider raises issue of concern by one or more of the employees who had been serving the company in this field before. The employees who were managing the freight transportation may feel displaced and disfranchised by this change. So, shifting the responsibility of transport management is a transition that requires special care and sensitivity in addressing it with the staff that may feel negatively affected by the change.
Third-Party Logistics (3PL)
Businesses are usually under the false impression that a third party logistics provider services are only suitable for large firms. On the contrary, modern 3PLs offer a vast range of services even for small scale enterprises. A 3PL generally provides all the administrative tools, software and the expertise for lesser cost than the in-house employee hired for transportation management. Overall, many small businesses have realized that 3PL services provide better quality of delivery services which translate to increased financial benefits from enhanced customer satisfaction and reduced freight costs.