Freight network optimization: 5 tips to power profits and efficiency

Shippers are navigating an industry with rapid inflation, carrier bankruptcies each month, and rising interest rates. As a result, the cost of maintaining working capital is high. You have to find ways to stretch each dollar as far as possible. Consequently, freight network optimization to make the most of every dollar spent is top of mind.

That said, optimizing an entire freight network is an ongoing, evolving task.  

It’s a complex undertaking. With the right tools that deliver high-quality data, you can make cost-driven decisions and identify insights that optimize your freight logistics network.

What is freight network optimization?

Freight network optimization is the process of structuring your network for maximum efficiency and performance at the lowest costs. To do so effectively, you need to look at your current network layout comprehensively. With a bird’s-eye view, you can identify places where it isn’t serving your present needs.

It’s often helpful to break it into two core categories: network configuration and transportation network optimization.

Network configuration

Your network construction is the current layout of your network. It captures everything from which carriers you use to the lanes to the discounts applied on each shipment.

When you picture your network construction, take every factor into consideration. When you’re gathering this data, don’t leave anything out. This holistic view is critical for making high-quality optimization decisions.

At a high level, here are some components to consider:

• Inventory: The goods you ship, whether that’s raw material or finished products. The type of goods you deal with informs your shipping needs.
• Volume: How much space the average shipment requires.
• International ocean and air: If you ship internationally, note the specific regulations for each shipment based on its destination.
• Facilities and distribution centers: Document all the different distribution centers and facilities you ship between and how you move between them.
• Service types: Compare the service type you receive against the one you pay for to ensure they match.
• Carriers: Certain carriers may focus on specific geographics or modes. It’s important to build reliable relationships with the ones you need based on your shipment needs.
• Shipping guides: The shipping guide provides instructions on how to prepare, package, and ship goods.
• Carrier performance: Capture how your carriers currently perform to determine if you’re getting the services that you’re contracted to receive.
• Lanes: Document the shipping lanes you currently use for each shipment. From here, you can determine if it’s the best lane for your current operational needs.
• Rates and discounts: Understand your current rates and discounts to uncover if you’re overpaying on each shipment.
• Product characteristics: Capture the specific characteristics of your freight, like handling requirements, weight, size, density, and fragility.
• Service requirements: Make note of nuances in transit time, tracking visibility, customer communication, and special handling.
• Equipment type: Document the different kinds of equipment needed to load, unload, and move your freight.

You’ll want this aggregated data readily available as it will guide how you optimize your network.

Transportation network optimization

Now, you have a big-picture view of your current network conditions. The second part of freight network optimization is identifying expensive inefficiencies coupled with the forecast from your sales and marketing team over the next 1-3 years. Making predictions about where demand will be located and where product should be shipped from is no easy task but let’s start with getting your freight inefficiencies eliminated first.

Data accuracy is at the heart of freight network optimization. It pulls back the curtain on your current network, so you can spot where inefficiencies eat into your profits.

Here are some common places to look:

• Cost: If you’re going to make the most of every dollar spent, you need to track every dollar spent. An accurate cost assessment looks at line-item expenses as well as aggregate costs. In doing so, teams can slice and dice their data in different ways to identify savings at the invoice, contract, and network levels. Verify you’re using the most effective service lane for your shipment. If one carrier consistently charges you with unexpected accessorials, it might be time to consider other options or negotiate discounted rates. Make sure you’re auditing every invoice so you can readily spot the 20% of invoices that have expensive errors.
• Carrier relationships: Selecting the best route for your current shipping needs is a great start. However, you need a plan B if the carrier that services that route suddenly fails. Say there is a major industry disruption and your primary carrier falls through. Who are you going to turn to for a favor to pick up and drop off your shipment? It’s critical that you have this backup plan in place to avoid expensive rerouting and delays.
• Modern operations: An ever-shifting industry demands technology that’s flexible enough to keep up and report in near real time. In addition, it’s important to ensure your back-of-house operations are modernized for efficiency. Here’s where to focus your efforts:
  • Verifying carrier compliance in invoicing and performance.
  • Ensuring internal team compliance. In other words, make sure you’re using the right service level for the right customer at the right cost.
  • Aggregating high-quality data to make good decisions and identify savings opportunities.
  • Creating automated and digitized workflows to reduce risks and unlock benefits like quick pay.

It’s important you have the operational rigor to identify these things long before hitting bad debt.

• Contract negotiations: Part of network optimization is negotiating for favorable discounts. If you can guarantee a certain volume of shipment, you may unlock meaningful carrier discounts. However, you need complete visibility into your network to find where you could consolidate shipments to get these discounts. In addition, it’s important to have insight into your future needs for scenario planning. That means you’re taking into account potential network disruptions and how they could affect your shipment when negotiating contracts.

Take GILLIG, a manufacturer, as an example, they leveraged data aggregated by Loop to improve operational efficiency. Loop identified an opportunity to cut down on same-day shipments by 25%. All told, GILLIG saved over $487,000 in 2023 alone.

Optimizing a freight network is an ongoing process. Sudden supply chain disruptions, such as an international conflict or carrier bankruptcy, can negatively impact network operations. As a general rule of thumb, allocate 10% to 20% of your transportation budget for unforeseen issues and make sure you have a resilient network with multiple options.

Why is freight network optimization so hard?

The simple answer is, you don’t have all the data needed to make a confident prediction. Optimizing your transportation network is no small task. Companies build out business intelligence teams or turn to a software partner with great logistics technology.

As you fine-tune your network to maximize every dollar spent, it’s wise to be aware of its most significant challenges. Some obstacles you face arise from network influences beyond your control. In this case, utilize data-driven scenario planning to determine how you’ll respond to certain events. But some obstacles live within your own operations. The best approach is to optimize your network to have overall resilience.

Here are some of the things you may come up against:

• You’re dealing with an inaccurate or disparate freight data set. Without a central repository for all your freight data, you’re relying on incomplete insights. You can’t make impactful optimization decisions without a holistic view of your current network.
• You’re navigating volatile market conditions that can impact your network. It’s impossible to prepare for every potential disruption to your supply chain. However, the risks of not scenario planning and building networking resilience could eat into your profits. You need to be able to deliver as close to on time as possible, even if disruptions occur.
• You’re relying on too few carriers, so you’re not covered if there is a disruption. You need to ensure successful shipment delivery if your primary carrier fails. Here is where carrier diversification is important. You need a secondary carrier – one that has your information and can fulfill your shipment.
• Your freight network data isn’t accessible to everyone at your company. A lack of data transparency leads to missed opportunities for cost savings. If each organization at your company separately negotiates with a carrier, each has its own discounts. However, if you consolidate shipments across your entire organization, you can unlock the next level of discounts.

Optimizing a freight network is an ongoing process. As a general rule of thumb, you should always be assessing your current network and looking for ways to improve. With insight into where to focus your attention, the process is simplified.

5 tips to efficiently optimize your freight network

1. Establish a central repository for all your freight data.

Simply put, if you want a holistic view of your freight network, you need a central repository to store the data. It’s this baseline that supports streamlined network optimization.

You most likely gain tons of data from carriers on every shipment. However, since each carrier structures that data differently, it’s up to you to organize and standardize it. Something as simple as mapping unique carrier accessorial codes to resolve duplicates is crucial to building a high-quality data set.

The problem is, basic data standardization is near impossible to do manually. It consumes time and resources that shippers simply don’t have. As a result, most end up skimming documents to try and synthesize insights. They refer to only a handful of data points, and then use this incomplete data to attempt making strategic network decisions.

So, how do you ensure a comprehensive data set?

Logistics-AI software like Loop does this automatically. Standardizing your data in one place ensures you’re working with accurate insights. Start using this information to make data-driven decisions that improve your network.

2. Spot inefficiencies in your present shipping network.

Inefficiencies in your network can end up costing you hundreds of thousands of dollars per year – just look at GILLIG’s example. These bottlenecks use up valuable time and resources that eat into your profits. With that big-picture view of your network construction, you can more easily spot where little mistakes lead to big expenses.

Say, in reviewing the aggregate data, you identify a facility that always ends up charging you a lumper fee. Sometimes, resolving such a fee looks like restructuring to avoid expensive accessorials. Other times, switching to an entirely different mileage plan is optimal.

The point is, find these inefficiencies so you can appropriately reoptimize your network and save money. Holistic freight network data sets ensure you have proper insight to find these opportunities.

Pro tip: Don’t forget about the small per-shipment expenses. You might be inclined to brush off a tiny fee. But if that same little fee appears on every invoice, it’s suddenly a very expensive charge. It might also be a sign to re-optimize that part of your network.

3. Build resilience for future supply chain changes.

A pandemic, international conflicts, carriers filing bankruptcy – these are all inevitable disruptions that could impact your network. It’s impossible to predict every supply chain shift. Most changes are beyond your control. However, building a resilient network is fully within your power.

An in-depth knowledge of the different lanes, carriers, and transportation modes available to you is crucial. You need to understand your options. If a lane is suddenly unavailable, how will you adjust?

Optimizing your network is one part of being resilient. You also need to be financially resilient.

Financial resilience means having enough working capital on hand that you can adjust to disruption without owing carriers. This will afford you enough space to pivot while avoiding a huge financial loss.

4. Diversify your carrier network.

Building relationships with several carriers grants you greater flexibility in optimizing your freight network. If your present carrier suddenly increases its rates and it’s no longer a cost-effective option, you can swap to an alternate carrier.

Diversifying your carrier network looks different for each company. Take note if you need a specific type of carrier for your goods. If you require refrigeration or a flatbed truck, maintain ongoing relations with multiple carriers specializing in these delivery methods.

Remember that a disruption in one place trickles down to impact everything after. Segment each shipping lane so your entire shipment can continue even if one carrier fails, minimizing disruption.

5. Proactively manage carrier contracts.

You most likely sign annual carrier agreements. Ideally, you’ve agreed to the most optimal contract terms based on your projected needs for the next 12 months. However, a lot can change across the industry and your network in one year.

To ensure you maintain a cost-effective network, you need to actively manage carrier contracts.

But here’s the challenge: Countless moving parts within a single freight network makes accepting existing contracts as status quo easy. Without modern technology, it’s difficult to track and analyze all these data points. Yet you risk leaving money on the table by not actively managing the agreement.

Improve your freight network optimization with Loop

Effective network optimization hinges on high-quality data and your logistics team having the focus on constantly reviewing your network. It’s these insights that pull back the curtain on your current operations and highlight cost-saving opportunities.

Loop leverages AI automation to extract data from where it’s trapped in documents. It aggregates and standardizes your freight data. With it all in one place, you can easily reference a single collection of real-time data to inform your network optimization.

You can skillfully lower operating costs and increase profits with an optimized network. Contact Loop today to learn more.