Get Ready for the Rising Cost of Fuel to Impact Supply Chain Spend (Part 2)

Spend Matters welcomes another guest post from NPI, a spend management consultancy focused on delivering savings in the areas of IT, telecom, transportation and energy.

In last week's post, I discussed the impact that rising fuel costs will have on supply chain spending in the coming months. While you may not be able to control the cost of fuel, companies can offset the impact of higher costs by tightening spend in areas of shipping where they do have control. Here are a few tips:

Enforce Compliance. The average enterprise shipper loses hundreds of thousands of dollars a year (if not seven-figure sums) by failing to identify carrier mistakes and recover refunds appropriately. Make refund recovery a priority by first understanding the contractual obligations for each of your carriers in detail, then auditing your monthly shipment invoices for service delivery failures. The results may surprise you.

Ensure Fair Market Pricing. More often than not, shippers' rates are higher than they need to be. Add increased fuel costs and surcharges into the mix and you can rest assured that you'll be paying too much for shipping services. Now is the time to solicit competitive bids from multiple carriers, regardless of how much you like working with your current vendor. Familiarize yourself with each carrier's tariffs and rate structure. One method used to normalize freight data comparisons is a median tariff structure -- commonly called CzarLite -- to achieve a coherent picture of pricing. If you can't verify competitive pricing, consult a third-party pricing expert. Most work on a contingency basis, and require payment only when savings are achieved.

Evaluate Discount Effectiveness. Certain discounts are ideal for some and useless for others. Carriers often offer discounts that look great on paper but do little to reduce actual spend. Analyze the projected savings your discounts will deliver based on current shipping volumes. If the savings aren't substantial, work with your carrier to identify discount opportunities that will deliver real cost reductions in 2011.

Rising fuel costs may be inevitable, but paying more for shipping doesn't have to be. Most companies can negate or lessen these increases by tightening their current spend and aligning their carrier contracts to best fit their unique shipping profile.

-- John Haber, EVP of Transportation, NPI

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