So far on our countdown, we’ve covered #5 Direct Materials and #4 Travel & Expenses. Now, let’s move on to our third place finisher: Transportation. No surprise that this spend category has been hard hit …. no make that VERY HARD HIT … by rising fuel costs. But as Transportation Category Manager Rachel Rutkoski (who presented the transportation portion of the SIG webinar) put it, “market conditions are allowing companies to take advantage of softened markets and increased levels of competition.”

Like in the case of Direct Materials, Rachel recommends having a thorough understanding of Transportation cost structures - the mix of labor, equipment, accessorial and fuel costs that your shippers incur. For instance, do you know the percentage fuel contributes to your freight costs? That knowledge can be extremely important if you’re trying to push back on any ‘fuel surcharges’ your shippers are trying to levy, since those really should apply to only the portion of spend that is directly impacted by fuel prices. And how about last years’ emissions rules for trucks? How hard hit was your shipper’s fleet … or is that simply an excuse they are using to squeeze you for a few more bucks? Either way, it pays to not only keep up with macro trends, but also understand how they directly impact your vendors.

Now that you’ve got a thorough understanding of transportation cost drivers, where are the opportunities to leverage that knowledge into savings for your bottom line? Rachel offered up these tips:

• Negotiate Freight Rates - Although it may be tough to make much headway here right now, in some cases it could yield some immediate results.
• Negotiate Accessorial Charges - If you’re commonly getting hit with accessorial charges (weekend delivery, wrong address or any of the other 90 or so a-la-carte fees), now is a great time to revisit those costs with your suppliers. They may play hardball on freight rates, but this is an area where they may be more willing to play ball.
• Standardize LTL Tariffs - With all of your vendors working off the same tariff schedule, you can truly compare costs and weigh your options.
• Consider Alternative Ports - Flexibility here will allow you take advantage of shifting truck and rail capacity. And with some new routes coming online, you may have more cost effective routes to consider.
• Service Level Visibility - Are mavericks in your organization shipping Next Day AM when it could go 2 day ground? Without visibility into the premium services your company is using, you could be unnecessarily bleeding money on couriers.
• Demand Management - Are your just-in-time shipments actually being rushed due to over-zealous employees? For instance, could you delay 3 LTL shipments 24 hours in order to fill one truckload? If so, that provides an opportunity for greater efficiency and savings.
• Standardize Fuel Surcharges - Doing this across vendors will give you a level playing field to comparison shop. And reviewing it more frequently - say weekly rather than monthly - will give you greater insight and leverage with your shippers.

Justin Fogarty is Managing Editor of Supply Excellence. Justin can be reached for any feedback or questions at jfogarty[at]ariba.com.

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