Freight is often seen as a core expense in medium-large organisations. However, many organisations do not have the internal expertise to review their expenditure in detail, and therefore continue using the incumbent supplier without benchmarking against market prices.
Organisations can find savings by working more efficiently with suppliers, and can dramatically cut suppliers’ costs – and these savings go straight to the bottom line. For example, based on an eight percent gross profit margin, you would have to increase sales by $625,000 to match the same impact on the bottom line of $50,000 savings on costs.
Our experience suggests that around 90% of businesses are overspending on day-to-day expenses, in some cases by as much as 70 %! Organisations should look to protect themselves by reducing the wasteful spending in freight and courier expenses and invest that money in other projects or upgrading their business processes.
The first step to reducing freight and courier expenses is to understand your needs. There are many different methods of moving goods, parcels, items from one location to another. These methods will depend on the time frame, urgency and needs that will be determined by the customer. Customer needs and demands are paramount to future dealings with them and the service provided to match their needs will be vital. Matching the right supplier with the proper service levels required by customers with the right costs is not an easy task. When determining which supplier to appoint in a review, these factors need to be taken into consideration.
For example; parcels, pallets, cartons etc. can be moved same day, same day by the end of the day, the same day within one hour two hours, four hours, overnight, overnight express, VIP Express, slow mail, linehaul, full truckloads, partial loads, road, air, the sea. Each method has a different cost base and warehouse managers, receptionists, despatch clerks or any employee authorised to act on behalf of the organisation, needs to ensure the right options are chosen to match the customer’s needs as well as provide the organisation is not selecting an unnecessary method that will add costs.
Rarely will a supplier volunteer a price review. Let your suppliers know that you are undertaking a review of all your overhead costs. In addition to reviewing prices, look at establishing key supplier performance indicators that are appropriate for your business. Never assume that you know the market as well as your suppliers – and never imagine that they’re providing you with the best deal possible. Do you know what your competitors are paying for the same products? Compare your cost-management performance to others. “Gather the data from outside agencies, consultants or benchmarking services where necessary.”
Reducing costs is not just about going to a cheaper supplier. You can in the majority of cases generate savings without affecting or disrupting standards of service through changing suppliers. Good relationships in any line of business are fundamental, and the one with your supplier is no exception.