Reduce freight costs by up to 20 percent simply through least cost carrier selection

How an automated least cost carrier selection works

Many shippers acknowledge that their freight business processes need improving; freight costs are forever creeping up and so they are looking to find a way to ensure that staff can efficiently select the most cost efficient of their supplier carriers for their orders, without negatively impacting the speed with which those orders are processed.
One of the advantages of constant technological development and ever greater computing power is the ability to complete mathematical or financial calculations using large amounts of data very quickly at low cost.  

Today’s computing power, combined with sophisticated databases, have now given software systems the ability to calculate the estimated freight cost for any consignment comparing many carrier options, all within a blink of an eye.  What’s more, the system can compare differing freight pricing models simultaneously.  Freight pricing models refers to carrier pricing criteria or rate types.  Some carriers prefer methods such as item rates, for example per pallet, carton, or skid, or rates by cubic metre or shipped weight, or whichever is the greater. 

A company may have competing carriers that favour different methods for pricing their services.  Some carriers favour the certainty of a fixed price per pallet and may also define their pallet by height, weight or both.  Other carriers favour a pricing regime that charges by kilogram dispatched, which is then converted to a chargeable weight by looking at the ratio of cubic volume to the actual weight of the item.   

Therefore, when comparing offers from competing carriers, senders must consider many different variables that can make the carrier pricing matrix extremely complex and cannot be reliably calculated manually for a large number of 

Reduce freight costs by up to 20 percent simply through least cost carrier selection

consignments dispatched each day.  The following tables show how a simplified least cost carrier decision matrix will work. Consignment data is fed into the pricing matrix (Table 1), with the results shown in Table 2:

Reduce freight costs by up to 20 percent simply through least cost carrier selection

Sophisticated software combined with powerful computers gives the ability to fully calculate the freight cost for each competing carrier’s rate card allowing for different pricing models, delivery services, post code rating zones, and various fuel levies almost instantly.  This means that senders with these advanced systems can automatically pick the least cost carrier option for each and every consignment if they prefer.  There is an arbitrage opportunity that exists and these systems can facilitate the ability of the senders to take advantage of this opportunity.

Without these systems, senders normally appoint one carrier to carry all their cargo, or they may instruct warehouse staff that carriers should be used according to the service offered i.e. time or not time critical or the freight type dispatched e.g. pallets versus cartons.  It is quite common for senders to have a carrier for their time critical small items like parcels or airfreight satchels while they retain another carrier for their bulk goods dispatched using pallets. 

Some senders may even go further and add to this by appointing carriers for particular geographical locations such as Tasmania or far north Queensland for example. However, these senders are still limited to general rules that warehouse staff can adhere to without complicating the process and reducing efficiency of the dispatching process.

The benefit of an automated system is that it no longer requires warehouse staff to select the carrier for a consignment.  The system makes the decision according to rules and parameters set inside the software.  As a result, the system will process the transaction, allocating the carrier, calculating the freight cost, automatically printing a carrier consignment note and sorting the items by carrier choice.

All the staff are required to do is apply the label and pack the pallets and even this can now be automated.  Because of this decision making efficiency, senders can utilise competing qualified carriers and quickly and efficiently select the best option each and every time, thereby significantly reducing the cost of a sender’s outbound freight and eliminate decision mistakes. 

Senders have the choice of deploying a manual based least cost carrier model where the pricing information is displayed in order to facilitate a decision made by the operator. Large sophisticated senders may choose to go a step beyond this and automate the least cost carrier decision process into their order fulfillment and dispatching systems.  As with all decision systems its important that safe guards are built into the decision system so that only validated data is used to create the decision and errors can be diverted for manual validation.

Companies that have installed a multi-carrier dispatching tool that includes a least cost carrier function have recorded significant freight cost savings. For example, a client of ours in the hardware supply market has enjoyed a 20% freight cost reduction since the addition of our Freight Selector (least cost carrier decision system). Here is more information on our system, if you would like to know more.    

In an economy where competition between companies for sales is getting fiercer every year, speed and efficiency is a vital weapon in maintaining or capturing a competitive edge.  For large distributors, automated lease cost carrier selection could provide your company with the competitive edge that you’ve been looking for.

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