TOP 5 AREAS FOR 3PL TO FIX LOGISTICS COST LEAKAGE
Freight cost is a big component of your business for 3PL or Supply Chain Management organisations, and minimizing costs is always a primary goal. As a result, logistics organizations are constantly under pressure to eliminate inefficiencies and cut costs in logistics operations.
The COVID 19 pandemic, labor concerns, and a significant increase in fuel costs have exacerbated the situation. The number and rate of recent cost rises for logistics firms might soon put them in a competitive bind. Keeping freight expenses under control is therefore more critical than ever and more difficult than ever. Here are five ways where you can simply save money:
Vendor Bill validation
The goal of vendor bill or courier bill validation is straightforward: pay only the freight costs you owe and nothing more. The following are some of the areas that have been highlighted:
While irregular weights are identified, an increase of a few KGs per shipment is generally overlooked. In the courier rate contract, look for the nearest round off clause. Weight measurement is primarily reliant on the individual and is not done with proper attention. Make sure your contract has higher volumetric factors, such as 6 or 7.
To resolve this, it is preferable to assign the vendor weight on your own. Because the product will have a standard measurement, you will not need to measure it on a frequent basis. Make sure to include weight in the MIS so that any discrepancies can be highlighted right away. You may easily save 10 – 20 kilograms every docket with this method, saving Rs. 100 every docket. You can easily save Rs. 1 lakh with 1000 dockets.
Shipments for other customers are sometimes improperly billed. Dockets are sometimes billed twice – once in the current billing cycle and once in the preceding billing cycle.
Rate Contract Check
In some situations, the rate per kg may be greater, especially if the sender’s and receiver’s zones are not precisely matched. Other charges, such as fuel surcharges, risk surcharges, docket charges, green tax, minimum weight, and minimum freight, should be levied accordingly.
In Logistics, there will always be last minute changes or requirements that need to be handled. The following are the common scenario:
Requesting delivery vendors to arrange special delivery to meet customer requirement
Hiring market vehicle on demand to meet spike in load
Arranging Appointment delivery for modern retailers like Walmart, Reliance
Fixed contract vehicle exceeding per-day limit kilometers, Toll charges
Here, you might have given approval on demand over phone or e-mail. However if these approval details are not recorded and maintained properly, there will be two issues (1) Vendor might overcharge, which you will overlook (2) You might forget to pass these charges to the client.
Lost & Damage Claims
We like it or not, Shortage, Lost, Damage are part of the Logistics business. If not handled well, it will be a huge loss of money.
- Having a proper Liability clause with Clients as well as the vendor is very crucial. Usually, the clause will be something like this “Transporter is liable upto Rs.5000 per consignment. For damage or loss value above Rs.5000, Vendor will issue Certificate of Fact (COF).
- Vendor will drag to accept the shipment as lost. Give a deadline to trace the shipment and then declare it as lost. Delaying will make difficult for clients to claim. Also after time, this might get lost in our radar.
- Beware of fake delivery update. Sometime lost shipments are updated as delivered. By the time, Client discover this issue with the receiver during reconciliation, it will be too late. Having a mechanism to confirm that the shipment indeed delivered is very critical.
- For Shortage or Damage, ensure that this is captured in POD and take photo copies. Otherwise, it will be difficult to justify with the vendor.
- Ensure Client deducts only the amount that is agreed and pass the same to the vendor.
Above all, do a Root Cause Analysis(RCA) for those shipments and see if its specific to particular vendor, particular destination, shipment packaging condition. If you could find some pattern, then proactively avoiding this exception is the best possible outcome.
Raising invoice for Clients is the most critical part as anything missed here will directly affect the topline revenue of your business.
- Raising Invoice on time is very important as Clients will consider only the invoice submission date for payment.
- As far as possible, instead of monthly, raise invoice biweekly to have better cashflow, which is indirect savings.
- If agreement is based on net % on sales, never miss any orders that are fulfilled. Usually peak sales happens during month end, ensure that those orders are captured at least in one of the consecutive bills.
- Sometimes agreement is based on Kg or box level and can not be billed if not delivered. In those cases, ensure dockets that are intransit while raising invoice are billed in subsequent cycle.
- Additional charges that are agreed on demand such as special delivery, appointment delivery, toll charges should be carefully included in the invoice.
Choice of Couriers
- Have one courier who can handle single box really well. Negotiate mainly on Docket charges, ROV minimum charges, Minimum Weight, Minimum Freight. Do not worry about Rate per kg as weight is not a key metric here.
- There should be one vendor who can handle bulk loads. Negotiate as much as possible on Rate per kg and be flexible on Docket charge, minimum ROV, minimum weight, minimum freight.
- Have Location specific vendors. For example, vendor specializing from Chennai to Gujarat. Usually you will get competitive rates from those players.
- Be careful on DPH charges. Try to get flat DPH % instead of variable DPH linked to Diesel price. This will be a silent killer that goes unnoticed.
Have at least 4 – 5 vendors and Try to balance load amongst those players so that they give priority for your shipments. Routinely, review their price, re-negotiate the price, include new players. This is an ongoing activity.
How ShypVisor Can Help You?
We at ShypVisor, built a Cloud based Shipment Management Software (SaaS) exclusively for Third Party Logistics (3PL) service providers, Supply Chain Service providers, C&F, Distribution companies. Salient features include Client & Vendor Rate contract management, Bulk order import through XL or API, Multi Courier Tracking, Bulk POD download, Claim management, Raising Client Invoice, Vendor bill validation, WhatsApp notification, Customizable MIS templates and many more. The software automates processes that otherwise require huge time, efforts, and manpower resulting in huge cost savings. There is no huge upfront investment required for the software as you can pay only for what you use on a monthly subscription basis. Get in touch with our experts for a quick tour of our solutions.