LSS Blog

Logistics solutions and services blog

It’s time to improve your margins

By Paul Publow

Improving margins can either be accomplished by increasing price of the product or reducing costs or a little of both. Unfortunately during these times, most companies are often unable to gain any ground with their customers by increasing prices. As such management is forced to look at methods of reducing costs and one of the most obvious area of any operation that is reviewed is the supply/distribution operation. It is one area that tops the lists year in and year out.

Some questions that can be asked are:

  • How many carriers is your firm dealing with? Is there room for consolidation of volumes to drive a better deal?
    Although there are very few “national” carriers in existence today, there are still many opportunities to leverage fragmented volumes to maximize the bargaining position of the company. Logistics Solutions often visits many companies that have intentionally divided up their transportation programs between two and three times the necessary number of carriers and often ignore the value of volume in their negotiations.
  • Do your buying terms with your customers allow for higher priced smaller shipments?
    The smaller the shipment the more expensive the freight is on a hundredweight basis. For example a $5.00 courier cost for a shipment less than 5 lbs. equals an amount of $100.00 per hundredweight if it was shipped in LTL services. It’s an expensive way to ship small amounts of product. Although there is no solid replacement for courier services real economies start at 150 lbs. or more.
  • Is there merit in exploring the idea of shipping collect and levering the retailer’s volumes to gain lower prices?
    Some of the retailers that manufacturers deal with are huge in size and can wield tremendous leverage when negotiating their transportation costs. Consider shipping collect on their deal rather than paying the freight and building it into their cost. Know your freight costs and do not give too much away as a freight allowance if you elect to go on their deal.
  • Are the break points for the company’s shipments being followed closely to ensure that the proper mode is being utilized and thus the best price?
    Over and over again, we find that the shipper in the back room selects whether the product should go courier or LTL (less than truckload) based on a magical “if it’s less than 150 lbs, it goes courier and if it’s over it goes LTL”. Often time’s great amounts of money are wasted on this premise. Depending on destination, courier rates can be more economical up to 180 to 200 lbs. while sometimes LTL minimums can provide an advantage at levels below 150lbs. Sound confusing? It is!  There is no magic cut-off and certainly not one that can be easily memorized in the shipper’s mind. Check the weight break and check the costs; there is big money to be saved here.
  • What type of distribution process is being utilized? Are you operating a stand alone warehouse for a seasonal slow moving inventory and could a 3rd party logistics service provider be the answer?
    If you have a reasonable slow moving product line, carry a lot of inventory, and suffer from a seasonality issue, your business is a prime candidate for a 3PL service provider. These companies make a success out of moving many companies’ product throughout the entire year. One manufacturer’s seasonal spike might come at the downturn of another manufacturer. Operating costs are spread across the entire year and result in a savings to you. But before you proceed down this road know your costs…there are many traps.
  • Are your transit times allowing you the best value for your distribution dollar?
    We often see manufacturers using expedited premium priced transport modes and then waiting for an appointment to make the delivery. Use the right mode at the right price. In fact the value of your goods has a lot to do with the mode that should be used. The higher the value of goods the more expensive and expedient the transportation mode should be.
  • Are you declaring value and paying for additional insurance when your in-house insurance covers your product in the event of loss or damage?
    Many companies have in house insurance that provide coverage for shipments in route to the consignee, yet many shippers declare value on their shipments. This type of insurance is costly. The first $2.00 per pound per piece is usually included in your transportation rates and the transport companies charge 1% of the excess value over and above that amount. A $200.00 power tool weighing 20 lbs has automatic coverage for $40.00 in the event of loss or damage. The excess value charged is 1% or $1.60. That’s a pretty hefty premium for the coverage. Check the fine print of your insurance policy.

If you have any concerns about any of these issues, call Logistics Solutions & Services Inc. and at (905)-896-9080 for your no-cost consultation and start improving your margins.

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