Many of have heard about A-B-C inventory planning where your A inventory turns over rapidly and your C inventory turns over slowly while your B inventory is somewhere in between. It is advantageous to think of your transportation spend the same with an important twist.
Transportation spend as KPI (key performance indicator) can be looking at a number of different ways including: the total spend, which carriers the money is being spent on, important lanes of traffic, premium spend, and affect of profit margin. One important one to view this spend is regularity of movement.
If the product moves regularly to predictable customers and destinations, the transportation spend on this type of what I will call “A” freight can be designed to be very efficient for not only your firm and your customers but also for the transporting carrier. Planning is easy, chance for continuations improvement of the process is strong. You should be your best cost per item for freight in the “A” catagory.
Some freight is seasonal or temporary and can be grouped into your “B” freight. By grouping it together you can plan for it thus reducing your costs. For example, I worked in the salt industry many years, and there were predictable surges of bagged ice control salt demand in winter.
Then there is the wildcard freight, the “C” freight if you will, which is highly variable. A customer in Anchorage, AL might order twice a year. A repaired machine needs to move on an emergency basis. A regular transportation route is blocked by flooding. Even this can be planned for and cost savings achieved. Premium services can be contracted in advance of shipment. A procedure to ship to Alaska can be developed.
By going to an A-B-C model of freight it breaks the whole into workable parts and thus more easily planned and the process improved.