How can purchasing managers reduce their transport costs?

Written By Reagan Nyandoro


Two HGVs on motorway

Many areas of British industry are struggling to successfully balance the pressure of cost increases caused by inflationary issues with the demands of consumers seeking both lower costs and improved service levels. Unfortunately, there’s no quick fix: the only truly sustainable way of achieving this is to become more efficient internally by driving out waste.

It is the purchasing manager who is usually responsible for identifying suppliers who can make sustainable savings. But how can you be sure that the company you choose really can provide the benefits that they claim – particularly when dealing with transport costs which are often volatile due to the uncontrollable proportion of fuel costs?

The transport tendering process

The established purchasing approach is to undertake a tender. In fact, we have noticed an increase in tendering activity and frequency, with some companies tendering their transport using e-auctioning sites (web auctions).  This generates a commodity based approach to transport purchasing, but getting a better rate does not guarantee service levels. When dealing with commodities the purchasing manager can stipulate the level of quality at the time of tendering, but the quality of transport service can be more variable.

Individual haulier’s costs are pretty much set and equal, consisting of three key elements: depreciation of the asset (vehicle), the cost of a driver and the cost of fuel. Having a poor quality depreciated vehicle just reduces fuel efficiency. With the average profit margin of the top 100 hauliers currently below 4%, there’s little room for manoeuvre on the cost.  A haulier’s ability to provide a lower rate is based on the amount of empty running that they factor in to undertake a transport request.  So, unless a company is flexible enough to allow the haulier to transport goods at the latter’s convenience as opposed to their own, this approach does little to lower costs.

Logistics: getting what you pay for

Lower rates don’t necessarily equal lower costs – ultimately in logistics you get what you pay for.  The purchasing manager has the tricky job of deciphering and comparing the differing tariff and service options presented by transport companies. This is complicated by the fact that carriers often present different fuel surcharges, have different interpretations of special shipments with different order cut offs – and quite often a different standard service offering.  This makes it very difficult to compare tariffs without the necessary logistics knowledge, which is why many purchasing managers choose to bring in external transport experts to identify and implement the optimum solution.

Mix and match: dynamic outbound requirements

When it comes to general haulage, purchase leverage doesn’t really exist because a customer only wants to pay for the vehicles when they are loaded, which usually means one way. It is the haulier’s job to minimise their empty running so they can offer more competitive rates.  This means that they will only be efficient for the loads that they can backload – which in turn is dependent on finding an exact fit of business that matches all of a company’s variable dynamic outbound requirements.  In fact, it’s an unwritten rule that hauliers will be efficient for about 50% of a company’s complete transport activity, with the remaining 25% inefficiently fulfilled at the customers’ expense and a further 25% subcontracted.

Using multiple carriers to fulfil transport requests whilst allowing carriers the flexibility to provide rates for work when it suits them can save money. However, this also creates complexity in the transport fulfilment process as well as increased administration, requiring checks of different carriers’ tariffs and daily contact to check availability and assign loads. In addition, transport activity must be logged at the same time as managing the communication of delivery performance and reporting.

As experts in transport management, we have found that automation is an important tool in managing processes and so we developed two solutions in-house that enable us to really help purchasing managers sustainably reduce their costs. The EVENT service was developed to allow companies to manage a complex multi carrier solution themselves, using proven technology.  The system automates the multi carrier solution, removing complex administration processes and enabling companies to focus on continuous improvement. Furthermore, the tailored management information that the system provides facilitates additional cost reductions.

For those companies who prefer to outsource their transport activity more completely, the Symphony service enables organisations to tap into a cost leading flexible carrier network. Users have access to an internal carrier network, with the additional benefit of synergy with other 3t customers including Saica, JCB and LINPAC Packaging.

Unfortunately, at a time when most companies simply can’t afford wastage in their supply chain, the majority of hauliers will only ever be efficient for at most half  of the day to day demand of a business. This puts purchasing managers tasked with driving down transport costs in a difficult position. Fortunately, with the helping hand of technology and automation, it is still possible to reduce costs whilst maintaining (or even improving) service levels – even when transport margins are tight.

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