How Many Companies Even Keep Score?
Many companies know intuitively that they are spending more than they should on expedited freight, but how many really maintain an accurate scorecard?
Even if they do, it is often simply to have back-up to support budget-busting cost overruns as a result of expedited freight levels.
“First and foremost, you have to track expedited shipment frequency and cost,” Aimi says. “With that foundation, you can start to look at root cause analysis and actually make some progress attacking the problem.”
Aimi asks a very savvy question: Why is this most expensive of freight often the least well managed?
What is the Right Level of Expedited Freight?
In general, expedited freight indicates something went wrong in manufacturing, forecasting, supplier management, etc.
Therefore, many companies do not budget for expedited freight, as doing so seems to accept imperfect supply chain performance.
Aimi, however, says AMR Research has spoken with a number of companies that have become supply chain realists. Through historical analysis, these companies determine that inevitably some percentage of shipments will require expedited shipping. In fact, in Lean supply chains, expedited freight at some level may be a natural and very acceptable cost that comes with pushing inventories down to a minimum. However, these companies also want to gain control over this high-spend category.
The key issues then soon become:
- What is really an acceptable level of expedited freight?
- How can companies accurately collect data on the underlying causal factors? Was the expedited move simply the result of unexpected surging demand (a good thing) or issues with manufacturing planning or purchasing execution?
For many companies, these are truly “million dollar” questions.
Most traditional Transportation Management Systems (TMS) are not well designed out of the box to track and optimize, through a controlled bidding process, expedited freight spend. Many of these systems could be tweaked to do so, if the companies put in the effort to make it work. Aimi also says some specialty on-line vendors, such as Active On-Demand, are coming to market to help companies deal with problem.
But the bottom line remains that for many companies, there are significant opportunities to reduce expedited freight costs – even if the solutions are often outside of the direct control of the logistics organization.
“Unplanned or expedited freight is a reality in today’s supply chains,” Aimi says. “Don’t leave to chance how you manage it or what you pay for it. Gain control over the process and centralize the knowledge of where, when, and why your company needs to expedite shipments. Perform causal analysis and work to reduce the actual amount of unplanned freight before it happens.”
Do you think expedited freight is a real issue in many companies? What should be the logistics organization’s role in getting it under control, given the root cause usually lies elsewhere? Let us know your thoughts at the Feedback button below.