How to reduce logistics spend with technology

Freight and parcel transportation come with different carrier contracts, rate sheets, delivery methods, service levels, lanes, and accessorials. It’s a lot. As a result, managing supply chain costs is challenging.

On top of all this, shipping costs skyrocket without the right tools. Manual in-house efforts simply can’t keep up. In turn, shoddy spend management leads to missed savings. How so?

Inaccurate audits likely cause you to overpay. Or lack of data could put you at a disadvantage during contract negotiations. In any case, it’s a vicious cycle.

Fortunately, there are solutions.

We’ll get to the best tips for logistics cost reduction. But first, let’s talk about the “why” behind effective spend management.

Why you should proactively reduce logistics spend

Leadership likely has high expectations for your department. In the modern supply chain, mastering cash preservation and optimization is the only way to achieve the substantial savings you’re after.

Understanding how to reduce logistics costs unlocks several benefits:

• Working capital retention: Holding on to working capital creates stability. Without cost controls, ensuring timely payments to retain cash is tough.
• Margin preservation: Cost of goods sold (COGs) eat into revenue. However, if you know your cost to serve, you can add margin to each shipment. Even a little extra increases your profit, allowing you to fund new projects and better meet customer expectations with value-added services.
• Invest in the customer experience (CX): Any dollar you save as you reduce your cost to serve can be put toward CX improvements. A better CX means repeat customers.
• Acquisition and retention: If you don’t offer free shipping, over 60% of shoppers won’t complete their purchases. Know the shipping cost and roll it into the total price. This will prevent end customers from feeling like they’re paying extra – whether they’re B2C consumers or businesses you manufacture products for.

Reducing spend is clearly worthwhile, but it does come with challenges.

What makes it hard to understand logistics costs and save money?

Incomplete and incorrect data makes it difficult to get a complete view of logistics costs. Most common challenges boil down to a data problem.

To refine your logistics processes and reduce costs, start with these three obstacles:

1. Scattered data sources

Data often lives in disconnected documents spread across varying formats and different systems.

The goal of procurement is to secure the most cost-effective carrier contracts through RFPs (request for proposals). However, contract details often live in PDFs or are manually entered into transportation management systems (TMSs).

Then, logistics teams need to select the right carrier for a given lane. For less-than-truckload and full truckload, shippers use TMS route guides to pick the best option. They may use a spot bid feature if they don’t have a contracted rate for a lane.

Next, carriers are responsible for picking up goods, delivering them on time, and sending invoices. These invoices can arrive through various channels like mail, email, electronic data interchange (EDI), or application programming interface (API).

Finally, the finance department needs to audit these invoices against contract data before approving payments from their enterprise resource planning or accounts payable platform.

All of this makes it tricky to wrangle your data into one place. Often, it’s incomplete or inaccurate. Not to mention that managing duplicate invoices or documents becomes a headache. It’s like the telephone game played out in real life.

2. Data verification and correction

Even if you can find most of your data across disparate sources, it may still be outdated, inconsistent, or incorrect. Different naming systems are often to blame.

Every carrier invoice looks different.

• For LTL and FTL: Some carriers write out all line-haul details on a line item – the National Motor Freight Classification number, instructions on the load, how the products are packaged, and the purchase order numbers. Others simply write the classification or product name, like “freight of all kinds” or “pork.”
• For parcel: Carriers often use different codes to refer to the same service level – for example, UPS Next Day Air and FedEx Priority Overnight.

As a shipper, if you don’t reconcile these variations in your systems, you can’t analyze that service level across logistics providers.

3. Inefficient workflows for data management and audits.

Manual data input and workflows don’t scale. Not only are they time-consuming, they’re also prone to error for a few reasons.

• Manual entry of data: Physical contracts or spreadsheets are hand-keyed into a system of record. In this way, supply chain data is a double-edged sword. It’s constantly changing and riddled with inconsistencies, which leaves a lot of room for human error and frustration.
• Undetected errors: Departments deal with a constant flow of new invoices – there are too many to audit manually. To avoid delays, they only spot-check for issues or skip audits altogether. This increases the likelihood of errors slipping through, leading to overpayments.
• Ineffective damage control: Manual workflows don’t correct the underlying issues that create inaccurate data. Without getting to the root of the problem, the cycle of errors and lost capital continues.

Logistics AI software helps shippers overcome many of the above challenges. Features like format-agnostic document digitization, data standardization, audit automation, and workflow optimization bring order to the chaos.

Where to start to reduce your logistics expenses

Here are the most impactful ways to boost your operational efficiency and improve both variable and fixed costs:

1. Network and route optimization.

To determine the most valuable network changes, you need to run simulations based on the outcomes you want. Any of the following changes may be in order:

• Network reconfiguration: Customer demand, supplier locations, and regulations reveal ways to improve transportation costs. They also help define inventory management needs. For instance, you could relocate suppliers near distribution centers or work with a third-party logistics provider (3PL) to support high-demand network areas.
• Route and mode optimization: Optimizing shipping routes and modes of transportation improves fuel consumption and transit times, and it also reduces vehicle wear. One way to cut costs is by consolidating LTL shipments into multi-stop truckloads. Another is using UPS’ SurePost or FedEx’s Ground Economy.
• Customer segmentation: Categorizing customers by service level, business priority, or other parameters makes it possible to tailor services to their needs. Mission-critical clients are appropriately prioritized, boosting customer loyalty.
• Reverse logistics establishment: It’d be a dream if customers never returned products, but the reality is that they do. A reverse supply chain is necessary to get products back in inventory and sold to the next customer.

Determining the factors above is key for balancing speed and cost while keeping customer service standards high.

2. Carrier network diversification

Building a diverse carrier network protects you from risk as costs continue to rise.

For instance, say your primary carrier suddenly increases their rates. Without existing relationships with other logistics providers that can transport your shipments, you may face:

1. Higher costs, because you have to pay expensive spot rates or your current carrier’s higher rates until you can switch, or
2. Shipping delays while you search for and get set up with another carrier.

Neither scenario is ideal.

Use the fact that you have backups as leverage to negotiate more favorable rates with your current carrier. Or make a seamless switch to a more cost-effective option.

3. Strategic contract negotiation

Complete and accurate data gives you insight into performance benchmarks, shipment volumes, delivery times, and service quality. This makes it easier to navigate discussions with carriers about pricing, service level agreements (SLAs), and discounts.

Set yourself up to negotiate and cut logistics costs by doing the following:

1. Evaluate your freight needs before negotiations to determine what services and routes are ideal. Also, consider forecasted demand to help carriers plan and quote based on realistic scenarios.
2. Understand current carrier rates and market conditions. This will give you a more accurate idea of pricing for individual cost components. If you’re negotiating with publicly traded carriers, listen to their earnings call to get an idea of their priorities.
3. Look at landed operating costs beyond load costs. Consider your total spend across the entire delivery. Does it take a multi-stop truckload and multiple warehouses to get a product delivered?
4. Perform carrier evaluations to check for compliance, timeliness, and invoice errors. Their underperformance gives you more power at the negotiating table, making carriers more likely to offer competitive pricing.

The better you prepare for negotiations, the better the outcomes you can get.

4. Technology and audit process improvement

Auditing every freight invoice is the only effective way to stop overpayments and improve spend management. But manual auditing is tough when you’re constantly flooded with high volumes of invoices.

To compensate, some companies only audit invoices over a certain dollar amount to catch the biggest errors. Yet even small overcharges can add up to spending waste.

Automation is a must to quickly and consistently conduct audits that can help you achieve cost savings.

Look for a digital freight analytics platform like Loop that offers these features in one place:

1. Rate sheet centralization to verify accurate rates by carrier, route, service, accessorials, and other parameters.
2. Data extraction from documents to prevent human error and ensure accuracy.
3. Audit automation to perform thorough comparisons of invoiced parcel and freight charges versus expected costs.
4. Self-serve analytics to leverage insights across the customer base, identify trends, and conduct freight reason coding.
5. Payment automation to avoid late fees and streamline payment to carriers.
6. Automated GL coding to guarantee accurate documentation of all approved costs.

Together, these features can lower your logistics and supply chain costs. Plus, they give you visibility into every shipment and carrier.

Unlock high-quality data to reduce logistics costs with Loop

To stay profitable, you must keep your logistics expenses as low as possible. While implementing these cost-reduction strategies takes effort, they’ll give you an edge over the competition.

With Loop, you’ll enjoy several benefits thanks to our spend management and workflow automation software. You’ll save up to 7% in transportation spend and see labor cost improvements of up to 80%. Plus, audit times drop to under 4 hours compared to the previous average of 30 days.

With full transparency and data confidence comes the power to control logistics costs, maximize working capital, and eliminate inefficiencies.

Try Loop today, and get on the path to reducing your logistics spend.