In my last post on this subject, I talked about the pricing model for LTL shipments, the complexity of comparing price points, and the type of data you need to get started with an LTL sourcing initiative. Today I am going to talk about the assessments and analysis you need to perform once you collect the data, and the things you need to do to achieve sustainable savings on your LTL spend. You can also listen to a podcast I did on the subject here.

The first thing you want to do once you have your data is to create a lane analysis. The lane analysis is a detailed, shipment history that demonstrates the weight and class of each shipment, where it came from and where it went, how long it took to get there, and how much it cost, by carrier.

The cost is an important thing to note – you want to capture the gross (before tariff) cost, the net (discounted cost) and a breakout of all accessorial fees, including fuel surcharge. With this data in hand, you should label the different types of shipments (inbound, outbound, etc) and indicate which of your facilities requested the shipment - this information will be necessary later on. As you collect data, it is important keep in mind the goal of the analysis, which is three-fold.

• First, the analysis will allow you to compare current costs and cost structures for each carrier you currently ship with.

• Second, you will use the analysis as the basis for a shipment profile, which indicates where product is coming from and going to, highlighting major lanes of traffic.

• Third, the analysis will allow you to summarize shipments and service level requirements - information that can be used during a bid process.

The final step in developing a lane analysis is standardizing the tariff. Depending on your past usage, this could be the easiest or the most difficult step. As I mentioned in my last post, not all carrier rate bases are the same, so getting access to a standard tariff, and adding the standardized gross charge, as well as the reflective discount, is important in comparing cost by carrier.

Once you have your lane analysis, it’s time to develop the shipment profile. The shipment profile is really a summary assessment of all shipments that is derived from the lane analysis. This profile should help you develop your LTL sourcing strategy. Some things to consider as part of the shipment profile include:

Summary of shipments – this is the total weight, total number shipments and total cost for each lane (zip to zip) of traffic, by freight class. This tells you where the bulk of your shipments are coming from and going to.

Inbound/Outound analysis – seeing how product moves in and out of your facilities and the carriers used for both can help you identify shipping synergies and opportunities for carrier consolidation.

Regional shipment assessment – moving beyond a lane to lane analysis, this means determining which region(s) of the country (North East, Southwest, etc) you ship to the most. This will help you identify the appropriate carrier base. You don’t want to end up using a carrier that is strong in the Midwest for shipments that are predominantly in the southeast.

Overall, the shipment profile should help you finalize your sourcing strategy, identify carriers to invite to a bid, and demonstrate to carriers where synergies in your shipping history exist. Developing a strong shipment profile to provide to carriers and standardizing on a rate basis will, on its own, help drive savings through an easy comparison of carrier price points and the identification of optimal carrier solutions.

Still, many shippers feel the need to optimize every shipment – which means bidding out to a group of carriers on a daily or weekly basis. This is not the best use of a shippers time, and will eventually have diminishing returns as carriers get frustrated with the process.
Conversely, other shippers will pick a single carrier and try to consolidate all shipments through them. This also isn’t the best way to go, as different carriers have different strengths and weaknesses depending on which part of the country you are shipping to.

The best way to achieve savings is to identify a set of regional and national preferred carriers as part of a bid process, ensure they are providing competitive discounts off of the same rate basis, and using routing guides or routing software to ensure that the preferred carriers are being used where they are strongest, in terms of price as well as service – including transit times. Once you’ve accomplished that for outbound shipments, it’s time to start working with your raw material suppliers to ensure they use your preferred carriers – and your preferred rates – when shipping to you.

Overall, partnering with a select group of carriers that can meet your business needs at a competitive price, and driving volume to those carriers, will ensure sustainable savings for years to come. If you are looking for more information on sourcing LTL, we have a whole chapter dedicated to the subject in our book, Managing Indirect Spend. Check it out!
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Joe Payne

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