One of the first lessons you learn about business is that you should do your best to keep your running costs low. While this is a simple idea in theory, it can be quite difficult to execute. In many cases, one of the most difficult operational costs to deal with is transportation due to a bad freight management system. Whether your business is small or large, you will have to deal with freight costs if you ship physical products to other locations. The only way to keep them as low as possible is to be informed about the factors that affect that cost and develop a solid plan to optimize your operation. This guide will help you do just that.
Know how class affects prices
The National Motor Freight Traffic Association has issued a total of 18 freight classes, ranging from 50 to 500, which essentially define the ease of transport of an object. This classification is determined by four factors: namely, density, storability, handling, and liability. The lower your class, the lower the transportation price for your products. The classification of your products can be affected by their dimensions, how it is packaged, and whether it is assembled or disassembled. While industrial products like steel are generally class 50, most consumer products are not.
However, there are steps you can take to get a lower rating. The first thing you need to do is employ an NMFC freight class 50 calculation to determine what your current class is. After that, you can analyze the aspects of your product and packing to lower its classification and the cost of transport. For example, you can package your product into 4×4 pallets, which improves its storability and handling scores.
Alternatively, some manufacturers “bump” their density through artificial inflation. This can move you to the next lower class, but you must list the real density and weight on your bill of lading and follow other NMFC rules. The trick is to ensure you achieve a lower classification without breaking the law, maliciously misreporting facts, or putting your product at risk. You don’t want to underreport the value of your products to reduce liability, as this would mean your insurance would offer less recovery in the event of damage or theft.
Create an integrated freight management plan
Far too many business owners view transport as a logistical issue. The fact of the matter is that this is a vital part of your company, and integrating it into your business model can go a long way in reducing costs and improving efficiency. Depending on the size of your company, you should have one or more freight management executives to oversee the procurement of goods, management of storage facilities, and mode of transportation to be used for moving the finished products to the final destinations.
Another way you can improve the integration of transportation is by utilizing a good enterprise resource planning software. Many ERPs include freight management software that allows for smooth behind-the-scenes opportunities to find freight companies, automatically scheduling shipments, and measuring KPIs. Your freight management executives should also be able to have contingency measures for any unexpected situations, such as while dealing with the unavailability of the mode of transport or internal issues in the organization.
Improved warehouse management
Your warehouses are an integral part of your organization, and you should be aware of whatever is going in and out of them. The most effective way to do this is through dedicated software that tracks your products and shipments. Some companies apply effectual written processes to keep track, but that method is not as useful in this day and age.
You could install technology that can track the position of items on the fly as they move through the warehouse. The tracking software will allow your workers to easily find the products they need, which means less time wasted looking for items in demand. Moreover, the information data you garner from the use of technology can provide fruitful metrics and analytics you can use to make informed decisions about how to manage your product in the future.
You should also look to optimize the space and storage within your warehouses. In terms of space, you can invest in vertical columns to expand the number of products you can house. Storage can be optimized based on the type of products your company deals in. For example, if you sell food items, you will need refrigeration to ensure perishables have the maximum possible shelf life; if you deal with electronic components like batteries, you should need to keep a temperate and dry warehouse to prevent any wastage of goods.
Develop a relationship with your freight carrier
Succeeding in business is also contingent on having strong relationships with the people you deal with. Of course, when you enter into a contract with a freight carrier, there is an exchange of money and services, but just like you, the carrier is looking to maximize their company’s effectiveness. In this line of work, if you choose to enter into a longer-term contract, the carrier is naturally inclined to find other businesses to collaborate with within the area. As they build their network and profitability, you will likely receive better rates. It is an indirect case of “scratch my back, I’ll scratch yours,” but it can positively affect your bottom line.
A longer relationship can help you during negotiations as well, as you would be in a position to lock in a lower rate and provide better service. You would need to research freight carriers more extensively and ensure you make the right choice, but it is well worth the trouble.
Freight management should take as much time and effort as any other aspect of your business. It’s obvious to think if the product cannot reach the customers, it’s as good as not existing. Unfortunately, too many companies treat this aspect of the business as a burdensome cost that they have to bear. However, you can see that by utilizing the right methods, you can bring down the cost of operations, better track your goods, and maximize your profits. The use of technology and dedicated employees will go a long way in ensuring you’re getting the most net profit per cube when it comes to your transportation logistics.