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With diesel fuel prices up significantly over the past 12 months, the cost of transporting product is as high as it has been in the deregulated era. But take a step back and look at the full picture. In the grand scheme of things, are gas prices as large of a concern to global companies as has been suggested in daily headlines?
The Supply Chain Consortium's Fuel Savings Strategies Hot Topic Report shows that while the cost of diesel fuel has increased by approximately 40 percent over the past 12 months, fuel represents only about one-fifth of transportation expense. In turn, that typically represents 2 to 7 percent of total expenses.
The Consortium data shows that companies across all industries and segments have felt, and will continue to feel, a pinch. The report also notes that 90 percent of the survey respondents track fuel as a separate cost, and 68 percent claim that almost all of the increased transportation expenses they have experienced in the past 12 months are fuel related. More than a third of the respondents even say that they have experienced an increase of 6 to 10 percent in transportation expenses.
While these numbers are significant, it is unlikely that a cost increase of this magnitude will represent a tipping point that reverses the larger, macroeconomic trends of outsourcing and globalization.
So, to borrow a phrase from the popular bumper sticker: "Think Global; Act Local," to help relieve some of the stress, best practice companies are:
Maximizing truckload (TL) capacity--97 percent utilize TL freight for some portion of their shipments, but less than half are measuring capacity utilization or anything other than outbound loads to customers. Surprisingly, 17 percent do not track TL capacity utilization at all.
Optimizing distribution networks--Sixty-three percent are in some stage of implementing a network distribution optimization study. Another 30 percent are considering a study.
Implementing or upgrading transportation management systems (TMS)--61 percent are implementing or upgrading a TMS, and nearly one-third are considering an implementation or upgrade.
Optimizing ports for international shipments--Only 53 percent of applicable companies have optimized their ports for international shipments.
Reviewing order quantity minimums and targeted in-stock percentages--Nearly half have revised order quantity minimums, and 42 percent are lowering targeted in-stock percentages. However, companies should be careful about this strategy because both of these changes have the potential to negatively impact customer service.
Implementing a fuel hedging initiative--This is the most considered initiative, but only 7 percent have implemented fuel hedging.
The U.S. Department of Energy forecasts suggest that diesel fuel is unlikely to drop below $4/gallon at any time through 2009, and companies need to plan and budget accordingly.
Service-based fleets, CPU opportunities, and freight terms should be reevaluated and optimized for a $4-plus paradigm. Companies that have not upgraded their Transportation Management System (TMS) over the past few years or completed a network optimization within the last 12 months need to do so, or they may be leaving money on the table. Finally, remember that fuller trucks shipped means fewer trucks needed. Evaluate the utilization of all types of TL shipments and take advantage of latent capacity.
These best practices aren't new and do not need to be limited to those times when the cost of fuel is high. But the consequences rise and fall with the price of diesel, so there is no time like the present to implement these initiatives.
About The Supply Chain Consortium: The Supply Chain Consortium is the premier source for supply chain benchmarking and best practices knowledge. With 180 participating retail, manufacturing and wholesale/distribution companies, the Consortium sponsors a comprehensive repository of 17,000-plus benchmarks complemented by search capabilities, online analysis tools, topic forums and peer networking for supply chain executives and practitioners. The Consortium is led by the needs of its membership and an Advisory Board that includes executives from Campbell Soup, Hallmark Cards, Ingram Micro, Mervyn's, Molson Coors Brewing Co., Target, The Pep Boys, and Coca-Cola Co. To learn more about how your company can become a member of the Supply Chain Consortium, contact John Foley, 919-855-5461 or visit www.supplychainconsortium.com.
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