Supply chain managers can minimize hidden costs and waste in six easy steps with a reliable Transportation Management System (TMS).
Do you ever wonder what sets high-performing companies apart? Often, it's their mastery of supply chain logistics. By optimizing transportation costs, a major expenditure in any supply chain — high-performing businesses achieve faster, cheaper, and more efficient operations.
Transportation can account for a significant chunk of supply chain expenses — often as much as 50%. While costs like fuel, drivers, vehicle maintenance, and those emerging from other disruptions are obvious, they're just the tip of the iceberg. The 2023 State of Logistics Report by CSCMP shows U.S. logistics costs surged to $2.3 trillion in 2022, with transportation costs reaching $1.39 trillion, including $896 billion in road freight. That’s a huge dent, especially in a competitive market where every penny counts. Yet, hidden transportation costs more often than not lurk beneath the surface, causing considerable damage.
An effective solution to optimize these logistics costs is to carefully choose Transport Management Software (TMS). In this article, we list the various hidden transportation costs, and how you can tackle them with a comprehensive TMS.
Identifying hidden transportation costs is the first step toward mitigating the risks they generate. Enlisted are the top ten hidden costs that might be impacting your supply chain:
1. Fuel inefficiencies: Excessive fuel consumption due to suboptimal routes or poor vehicle performance.
2. Route deviations: Unplanned changes in routes leading to increased mileage and time.
3. Un-optimized loads: Vehicles that are not fully loaded, resulting in more trips than necessary.
4. Administrative overheads: Extra costs incurred from manual processes, paperwork, and inefficient communication.
5. Idle time: Wasted time due to traffic, loading/unloading delays, and waiting times.
6. Last mile challenges: Increased costs and inefficiencies in the final leg of delivery.
7. Poor fleet management: Inefficient use of vehicles and maintenance issues.
8. Excessive overtime: Increased labor costs due to poor scheduling and route planning.
9. Inefficient warehouse management: Costs associated with poor inventory control and warehouse operations.
10. Compliance penalties: Fines and penalties due to non-compliance with regulations and standards.
What is supply chain waste?
Supply chain waste is really about those extra costs that sneak in when things don’t run smoothly. When we look at transportation, these inefficiencies can hit your budget hard. Did you know that your logistics costs could jump by up to 10% just because of poor routing and trucks that aren’t fully loaded? On top of that, inefficient route planning can boost your company’s carbon emissions by 30%. These aren’t just numbers — they represent real money slipping through the cracks.
For instance, if a truck is stuck at a loading dock for hours, that's wasted time and money. Carriers end up paying a detention fee of $25-$100 per hour to the drivers. According to a survey, nearly 63% of truck drivers spend more than three hours waiting at a shipper's dock for loading or unloading. Moreover, if the truck is only half full, which is common in the USA where trucks typically operate at just 60% of their capacity, it wastes space and fuel. If there are any errors, non-compliance, or delays, the extra cost of labor plus the resulting fines are also considered as 'waste'. So any extra cost or time unit is supply chain waste.
You can easily cut down on this waste by focusing on smarter routing, optimizing your logistics cost, load planning, and making sure everyone in the supply chain is on the same page. These simple steps can save you money and make your operations more efficient.
Transportation Management Software makes managing logistics easy. It offers real-time shipment tracking, smart route planning, live monitoring, and clear records. With a TMS, you can communicate better with each stakeholder involved, cut down on transportation costs, and boost delivery efficiency, making your whole supply chain run smoother.
Step 1: Optimize routes and loads
One of the biggest challenges in transportation is dealing with suboptimal routing and load management. This can mean:
Taking routes that burn more fuel and increase mileage costs,
Not using vehicle space effectively, which leads to extra trips and higher expenses, or
Dealing with overloaded vehicles that rack up fines and wear and tear.
With advanced routing algorithms like Dijkstra's and Genetic algorithms, as well as real-time data integration, your TMS can adjust routes on the fly. If an accident or construction causes a major delay on the planned route, your TMS re-routes the vehicle to an alternative path, minimizing travel time and reducing fuel consumption. It also considers the toll fees on the route to reduce operational expenses.
Employing 3D load planning and linear programming equates TMS to a master Tetris player but for truckloads. It makes sure every vehicle is loaded to the brim, reducing the number of trips your vehicle needs to make. This not only saves fuel but also cuts down on labor costs and wear and tear on your vehicles. It can suggest the best way to stack goods within a truck to prevent damage and ensure compliance with weight limits, avoiding fines and reducing the risk of damaged goods.
Step 2: Minimize empty miles
There are times when vehicles travel without cargo on return trips, wasting fuel and generating no revenue. This inefficiency, known as empty miles, leads to unnecessary fuel and labor costs.
A TMS effectively minimizes empty miles in the supply chain by using GPS and telematics for real-time tracking. One of its key features is geofencing, which creates a virtual boundary around a specific area. When a vehicle enters or exits this area, the TMS sends an alert to the relevant parties. This ensures that vehicles can be scheduled for return loads in advance, reducing the chances of traveling empty.
To minimize empty miles, TMS also uses smart algorithms to find and match backhaul opportunities, making sure vehicles always travel at optimal capacity. Your TMS achieves this through load sharing, collaboration with multiple carriers, and optimizing routes to accommodate additional loads.
Step 3: Consolidate freight
In a traditional supply chain set-up (sans modern-day planning, tolls, and real-time data), a lack of visibility and synchronization can often lead to less-than-truckload (LTL) shipments. Shippers might prioritize speed over efficiency, sending out LTL shipments as soon as they're ready without considering opportunities to consolidate with other shipments. This means increased transportation costs, higher fuel consumption, and more emissions from multiple trips.
TMS identifies these gaps. It reviews shipment data to find small shipments for consolidation, analyzes load patterns, and monitors inventory levels and shipping schedules. Using freight consolidation algorithms like clustering and bin packing, the TMS combines loads. Real-time data integration from warehouses aligns shipment schedules, while automated scheduling tools ensure consolidation. Advanced load planning software visualizes and optimizes the loading of consolidated shipments into vehicles.
When TMS integrates with real-time freight rate management, you also gain granular visibility into every step of this process, from rate adherence to potential discrepancies, allowing for immediate corrections. During the shipment planning process, the TMS can automatically apply the appropriate rates based on the shipment's characteristics (e.g., weight, volume, distance, mode of transport).
So, how does this reduce waste in your supply chain?
Multiple small shipments are combined into fewer, larger loads.
Trucks are loaded to their full capacity.
Suppliers and customers are on a unified platform, allowing for better-coordinated shipment schedules and reducing the frequency of small, individual shipments.
Consolidating shipments qualifies them for volume discounts with carriers, further reducing transportation costs.
Fewer shipments mean less paperwork, processing, and administrative effort, leading to cost savings in administrative functions.
By ensuring adherence to negotiated rates, you can avoid unexpected charges and overpayments.
Maintain compliance with contractual rates and regulatory requirements.
Lower fuel consumption and greenhouse gas emissions, contributing to a more sustainable supply chain.
The final result? You offer improved customer satisfaction with reliable and consistent delivery schedules.
Step 4: Enhance carrier performance and delivery schedules
Inefficient carrier performance and poorly optimized delivery schedules significantly contribute to supply chain waste. These issues inflate transportation costs, increase fuel and labor expenses, and erode customer satisfaction.
Transportation Management Software addresses these challenges by employing performance metrics (KPIs) and carrier scorecards to select and manage transportation partners effectively. Additionally, it optimizes operations through dynamic scheduling, efficient route planning, and coordinated delivery windows.
Here are a few other things your TMS does to minimize costs and offer better customer support:
Optimized schedules and routes reduce the need for overtime and minimize driver idle times, lowering labor expenses.
Improved carrier performance and reliable delivery schedules help avoid penalties associated with late deliveries and service failures.
Increased customer satisfaction and loyalty due to on-time deliveries.
Offer transparency and trust through real-time tracking and proactive communication about delivery statuses.
It helps you make data-driven decisions based on detailed performance dashboards and reports.
Step 5: Spotting cost leakages with freight spend analytics
When it comes to uncovering hidden costs in your supply chain, one area that often gets overlooked is the potential for invoice discrepancies. These errors, like incorrect fuel surcharges or miscalculated shipment weights, can quietly drain resources and inflate your transportation costs.
This is where your TMS steps in with freight spend analytics and Freight Audit and Payment (FAP) solutions. Also, as the FAP is an in-house solution, you can avoid the cost of outsourcing. With FAP, you can customize rate configurations and scale efficiently without increasing expenses.
Your TMS meticulously analyzes each invoice and compares them against contracted rates, shipment details, and historical data to catch and correct any discrepancies. The result? You can automate 95% of reconciliations, allowing human review for only 5% of outliers. You pay exactly what you owe, avoiding those unnecessary cost leakages.
Here’s how your TMS uses freight spend analytics to minimize costs and improve your bottom line:
Ensure clarity on pricing and service levels, share audit results regularly, and collaborate with vendors to prevent overcharges and resolve proactively.
Provides insights that help you negotiate better rates and terms with carriers.
Offers a clear view of your freight spend, making it easier to track and manage costs.
Gives you detailed reports and dashboards, so you can make smarter financial decisions.
Step 6: Leverage real-time data and reporting
The success of any supply chain rests on planning and how fast a decision is made in case of a disruption. This requires an eagle's-eye view of daily operations. With its AI-driven enhanced capabilities, transportation management software flawlessly integrates with other technologies such as GPS, telematics, and IoT devices.
So what conspires behind the scenes?
Don't you agree that a Transportation Management System (TMS) is the key to achieving a near-zero-waste supply chain? By providing real-time visibility, optimizing routes, and fostering collaboration, a TMS empowers businesses to streamline operations, reduce costs, and enhance overall supply chain performance.
Pando's Transportation Management System (TMS) is a true innovation in boosting supply chain efficiency. With AI and ML-powered route planning, live monitoring, and transparent records, you can see exactly where your money is going and make smarter decisions.
Gartner even praises Pando's platform for its ability to reduce costs, boost productivity, and keep customers happy. So, if you want to streamline your operations and stay ahead of the competition, Pando's TMS is the way to go.