Establishing Cost Effective Freight Rates
A plastics manufacturer engaged AMEND to identify transportation-related cost reduction and process improvement opportunities. AMEND partnered with the client to observe current state processes and evaluate effectiveness in rate shopping, shipment booking, freight audit and pay, and customer freight charges.
Through this analysis, AMEND identified the opportunity for the client to ship via truckload closer to spot market rates and the need to correctly calculate freight class on LTL shipments to properly pass along freight costs to their end customers.
To ensure proper freight class on LTL shipments, AMEND developed a class calculator incorporating our client's product and packaging dimensions and weights to determine correct freight class. Now, our client can obtain accurate rates from carriers and charge customers the correct freight amount on orders.
Overview
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Company Overview
- 50+ Production Lines
- 4000+ unique SKUs
- Over 2,500 open customer orders
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Assessing the Landscape
- 2 domestic manufacturing locations and 2 international manufacturing and distribution facilities
- 180 employees
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Identifying Opportunity
- Truckload rates were more expensive than the spot market
- Incurred fees on re-weighing and reclassing shipments
- Did not properly recover freight costs from customers on LTL shipments
- Did not track if freight charge to customers matched actual shipment cost
Results
Within the first three months of implementation:
24%
Rate of Truckload Shipments Where Spot Market Saved Money
*Compared to contract rates
15%
Improvement to LTL Freight Class Assignment
52.9%
Freight Cost Recovery Improvement Opportunity Identified
The Solution
Identified Savings Using the Spot Market vs. Contract Rates
We benchmarked all truckload lanes against spot market rates to determine rate shopping efficacy. We identified 24% of shipments were shipped using contract rates more expensive than spot market rates. We implemented cost-saving measures and generated savings of 18% per shipment.
Developed LTL Freight Class Calculator
We incorporated our client's product SKUs and packaging dimensions to calculate LTL freight class. With this process change, our client could book shipments and retrieve accurate rates from carriers.
Additionally, we implemented a tracking process to identify orders where shipping charges exceeded customer freight charges, leading to tool refinement and cost recovery.
The AMEND Process
Understand Current State Capabilities
Interviewed resources executing rate shopping, shipment booking, freight audit and pay, and customer freight charge processes. Evaluated operational gaps causing increased transportation costs.
Define Future-State Processes
Identified process changes that would eliminate operational gaps. Measured potential impact if process improvements were sustained and operational gaps were eliminated.
Bridge the Gap
Identified routes that would generate savings by using spot market rates instead of contract rates. Constructed LTL Class Calculator to determine shipment class prior to shipment booking, allowing our client to charge freight costs to customers properly.
