Amazon is growing on-demand services after reporting a 20% sales increase in 2015.
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Smoothing the bumps in the road
Although web-based transportation management systems present retailers with opportunities for substantial improvement in the way goods are shipped to distribution centers and stores, not all aspects of cost-savings and efficiency are easy to come by.
Retailers who take control of shipping may find that, in some cases, they will have to absorb shipping costs for which some of their regular suppliers never charge them. For example, when suppliers ship products in ready-made displays, they may not pass on the extra cost of shipping the display material, preferring to average out the costs. “As retailers take control of their own freight, in some cases they get a surprise,” says John Fontanella, analyst with AMR Research Inc.
It can also take time to learn the best shipping alternatives, such as letting the largest suppliers continue to control shipping in order to benefit from volume discounts. In addition, a retailer needs to learn the particular shipping requirements of individual suppliers, so that, for instance, it doesn’t attempt to consolidate a shipment of dry goods with a shipment that needs refrigeration.
Nonetheless, he adds, retailers that control more of the shipments to distribution centers and stores through a web-based system should benefit as consolidation in shipping results in fewer truckloads that have to be processed. “The net result should be in the retailer’s favor,” Fontanella says.
But cutting costs isn’t always paramount as a goal in taking control of freight, experts say. Some retailers have begun recognizing the fact that taking the lead in managing transportation can result in higher costs when a retailer emphasizes faster and more direct deliveries in order to keep the right merchandise in stores while limiting inventory levels, says Dan Dershem, president of Lean Logistics. But in highly competitive retail environments with short windows of opportunity to sell at full price, faster deliveries often take precedence over freight savings, he says.
It may cost $900 to ship a truckload, but some retailers would rather absorb that full cost if it means they gain more control over assuring that the truck arrives at the right point at the right time. "At the end of the day, a $900 truckload may have $80,000 worth of goods on it," Dershem says. "So retailers want to control deliveries to shorten order cycles, that’s what’s most important."
“Although 6-10% of the cost of goods is transportation, that means the other 90% of cost is the goods themselves,” he says. “That’s where you can realize the most benefit in cost savings and higher profit margins.”
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