There are three fundamental approaches to reducing and controlling supply chain costs: avoidance, mitigation and improving performance. Understanding each helps companies to decide which is more likely to deliver the most bang for the buck within their supply chains, and what measures need to be taken to capture the full benefits.

1. Avoidance

Cost avoidance is achieved through structural change in the organization, explains LeAnne Coulter, vice president of freight management at Penske Logistics. "You might have employees who are focused on, say, transportation management, but the team is not centralized or coordinated, and there is an opportunity to deploy them more effectively," she says.

In such cases, the company must pinpoint the gaps in organizational performance and identify best-in-class solutions. Often, it is easier for the company to explore these options with a third-party logistics provider (3PL) than to undertake an in-depth review internally. Outside eyes can offer a unique perspective that may be difficult for people entrenched in the day-to-day to see and may also offer insight gained from working in other industries.

Another route to cost avoidance is to review and rationalize the enterprise's technical resources. For example, rather than making significant investments in advanced transportation management system (TMS) technology, an enterprise might choose to outsource that function and engage a system managed by a 3PL. When companies work with Penske, "they can take advantage of the investment dollars in our system and the in-house expertise we have to run it," says Coulter. This approach can be especially advantageous when existing solutions are not delivering sufficient value. An example is a software-as-a-service solution that fails to provide the analytics or data visualization features required to support the company's supply chain management goals adequately.

2. Mitigation

Mitigation measures address issues before they impose an unnecessary cost. "We might provide better network visibility tools that enable the company to track inventory more efficiently and reduce the amount of product it has to handle and store," explains Coulter.

Other cost mitigation strategies might be increasing the reliability of a distribution network, or using predictive analytics to streamline decision-making in the supply chain. Raising the efficiency of a distribution network can translate into improved on-time delivery performance and hence dollar savings in the form of reduced penalties for late deliveries.

Better decision-making delivers cost savings on many fronts. Consider, for example, a company that is preparing for a peak in demand. The ability to make more informed decisions helps the company to secure carrying capacity for the surge in shipments ahead of time "at more competitive rates compared to what they would have paid without the intervention," Coulter says.

3. Performance Improvements

In this approach to cost reduction, companies can focus on the current state of the supply chain and opportunities to improve performance.

Network optimization falls into this category of cost savings. There are several ways to approach this strategy. Evaluating the entire network — including sourcing locations and product demand — drives performance improvements by, for instance, analyzing which warehouses stock which products and which routes are the most efficient.

Another option is to create what-if scenarios to determine how altering certain elements — specific suppliers or cross-docks, for example — impacts costs and transportation. A third possibility is to leverage improved communications to increase visibility and capture efficiencies through, say, better ways to build loads.

Dynamic routing, the load tendering process, and sourcing strategies are other primary areas that are often ripe for improvement in the quest to cut costs.

Penske is often able to employ leading-edge technology to help customers discover cost savings they may be overlooking.

Planning the Road Ahead

Choosing which approach, or combination of methods, to pursue depends on the shipper's goals and the nature of its business and organization.

"Companies that are decentralized can present significant opportunities for cost avoidance," says Coulter. The company's time horizon sometimes impacts which approach to take. One enterprise might aim to capture short-term cost savings; another has mid- to long-term targets that can be realized by relocating distribution centers to meet customer needs better. "In general, we work to deploy all three cost management strategies," Coulter says.

Whichever track companies take, they need to be aware of what's involved in advance if they are to derive maximum value from the exercise.

Mitigation, for instance, is inherently forward-looking, and it helps if companies are "open to change and to viewing how success can be delivered by working with different tools and working through change management challenges," notes Coulter.

In cost avoidance, it's important to "spend time to understand the organization and what people do," she says. It might be necessary to delve into the fundamentals of operating a freight network and what different processes accomplish. "Companies that do this often experience the biggest transformations," Coulter says.

The investment in time and money can be significant — but so are the potential cost savings.

Young professionals are seeking out roles in the supply chain to help make a difference, take advantage of a variety of opportunities, and experience the fast pace and challenges of keeping supply chains running on time.

[Read more...] Show less

Resilience, innovation and a focus on strategic relationships are helping logisticians navigate challenging conditions that started last year and continue to disrupt supply chains globally.

[Read more...] Show less

Shippers and their third-party logistics providers are working together to navigate fluctuating demand, capacity problems and uncertainties in the market. The majority of both groups report that their relationships are successful.

[Read more...] Show less

LeAnne Coulter, vice president of freight management for Penske Logistics, has been named among the winners of Supply & Demand Chain Executive's 2021 Women in Supply Chain Award. The award honors female supply chain leaders and executives who set a strong foundation for women at all levels of a company's supply chain network.

[Read more...] Show less

Penske Logistics will once again be a Global Sponsor of the upcoming Council of Supply Chain Management Professionals (CSCMP) EDGE conference in Atlanta, September 19-22. In addition, Penske executives will lend their expertise to a trio of educational sessions at the Georgia World Congress Center.

[Read more...] Show less

Professional truck drivers have faced the challenges of the pandemic with strength and resilience as they worked to keep the global supply chain moving.

[Read more...] Show less

The Commercial Vehicle Safety Alliance (CVSA) has teamed up with roadside inspectors across North America to promote brake health and safety.

[Read more...] Show less

Logisticians have a history of rising to the occasion in the face of hardship, and third-party logistics providers worked throughout 2020 to respond to supply chain disruptions, addressing unexpected challenges while driving efficiency and innovation.

[Read more...] Show less

A continued increase in demand coupled with carrier constraints and a driver shortage has strained capacity, and carriers are getting more selective with the freight they will haul. The current situation is worse than the last extraordinarily tight market the industry faced in 2018, and it is expected to last through the end of the year.

[Read more...] Show less

Powered industrial trucks – such as clamp trucks, electric power jacks and forklifts, play a central role in helping to move millions of pounds of freight each year across the global supply chain.

[Read more...] Show less

Mark your calendars for June 24 – the date that the 2021 edition of the Council of Supply Chain Management Professionals (CSCMP) State of Logistics Report will be released. Presented by Penske Logistics, and researched and prepared by Kearney, it will be launched virtually. Click here to register.

[Read more...] Show less

In 2019 Penske Logistics truck driver Jerry Wood was just one of eight Penske associates to earn induction into the Driver Wall of Fame (reserved for company drivers who have reached the milestone of 20 years of consecutive safe driving). This week, he was named the 2020 Truck Renting and Leasing Association (TRALA) Driver of the Year.

[Read more...] Show less

Penske Logistics, the Council of Supply Chain Management Professionals (CSCMP) and Korn Ferry are seeking young professionals working in the supply chain and logistics field to complete a survey. The goal is to find out what young professionals think about working in the supply chain field, why they are attracted to the business, and what are they looking for in a career? Access the survey here. It is open until April 30.

[Read more...] Show less

A Penske Logistics executive has been honored for his leadership. Supply & Demand Chain Executive has named Jeff Jackson, Penske Logistics senior vice president of operations – dedicated contract carriage, a recipient of a 2021 Pro to Know Award.

[Read more...] Show less

On November 10, Penske Transportation Solutions will participate in a Reuters Event webinar, Intelligent Asset Management throughout Supply Chain Transportation. Bill Combs, vice president connected vehicles strategy and experimentation, will be the Penske expert.

[Read more...] Show less

With Tropical Storm Zeta expected to strengthen to a hurricane before striking the Gulf Coast, truck fleet operators are encouraged to take steps now to brace for the storm's impact.

[Read more...] Show less

Supply & Demand Chain Executive has launched a new award designed specifically for women leaders in the supply chain industry and Penske Logistics' own Stacy Schlachter, vice president of sales and enterprise accounts, is included on the inaugural list.

[Read more...] Show less

The 2021 25th Annual Third-Party Logistics Study shows that shippers and their third-party logistics providers are working together to create positive relationships as well as a competitive advantage. Additionally, shippers have high expectations of what they need from logistics providers, and 3PLs are responding with increased technological and digital capabilities, improved service levels and greater efficiency.

[Read more...] Show less