There are times when shipments have to be expedited, and shippers are well aware that there is a price to pay for these last minute loads. But it is easy to overlook the total cost of expediting – and the measures you can take to avoid this added transportation expense.
Perhaps your primary customer genuinely needs a truckload of product the next day, or one of your customer service representatives has been pressured into making a rash delivery promise. Either way, you will go the extra mile to meet the deadline. But what is the true cost of this expedited move? Here are some costs – some obvious, others less visible – that organizations can incur.
Route guide compromises
You have spent a lot of time and a significant amount of money developing a robust route guide, only to go outside the guide to secure a carrier for a rush order. The obvious penalty is that you will probably pay a higher rate by going with a non-guide carrier; but what about the impact on your relationships with core service providers? Overreliance on the spot market can mean that your core carriers are rejecting too many last minute loads, and eventually they could vote with their feet by moving to another customer that offers more consistent freight business.
The labor premium
Unscheduled shipments push up costs by consuming unscheduled work hours. One example is making overtime payments to the warehouse staff members who stage the loads and wait for the trucks.
When a rush order comes in production schedules and lines may have to be reconfigured to accommodate the customer. Each change comes with a cost.
Not so lean
Similarly, your inventory management system has to be tweaked when an order appears out of the blue. This can be costly if you are running a lean operation.
Reallocating product to a rush order can mean that inventory earmarked for another customer is no longer available. What if that other customer happens to be just as important as the one you are accommodating, and has to wait longer for their delivery? These knock-on effects may not be immediately obvious, particularly in situations where the loudest buyers tend to get the most attention.
These issues involve various departments, but there are three ways in which transportation managers can take the lead in developing ways to avoid the cost of expedited shipments.
1. Put a Protocol in Place
Create a protocol for accepting expedited shipments. The guidelines could include items such as the freight cost (especially in relation to margin) and the relative importance of the customer that requires the rush delivery. Specifying what conditions have to be met before such an order is accepted not only brings clarity to a process that is often haphazard, it also encourages staff members to be more circumspect when agreeing to ship the order at short notice. Customer service reps have to explain their rationale when they confirm these orders.
2. Collaborate with other departments
Each department often has its own view of expedited shipments, and may be unaware of the full costs. Sales reps, for example, can make promises to customers that are unrealistic from an operations standpoint. Breaking down these departmental barriers by communicating the end-to-end supply chain implications of last minute orders promotes a more rational approach to this type of business.
3. Use Your TMS
Advanced transportation management systems (TMS) provide a wealth of information on rush order activity (for more on this see the recent post Tracking Spot Bids Under a TMS). A TMS can supply analyses of spot market usage by volume and geography for example. In addition to creating a clear, comprehensive picture of these moves, the facts and figures can be used to educate senior management and other departments.
Expedited shipments are necessary in certain situations – especially in these uncertain times – but they do inflate freight transportation budgets. Commonly agreed upon guidelines on when these shipments should be accepted help to keep expedited costs under control, and to avoid disagreements with your customer as to when a rush order is justified.