By Clifford F. Lynch
With prices at the pump rising by the day, distribution professionals are
constantly on the lookout for fresh new ways to cut transportation costs. But
they might do better to look back to the past.
For 50 years, consumer goods companies (and food producers, in particular)
have shaved expenses by consolidating their smaller orders with those of other
manufacturers to create one large shipment. Although conditions at the time
these programs were introduced were quite different from todayís, this
tried-and-true concept could go a long way toward helping our transportation
system become more fuel efficient. And thereís nothing magical about consumer
goods; it can work for other industries as well.
The first food consolidation program was established by a public warehouse in
Huntington, W.Va., a half century ago. At the time, major food manufacturers
shipped most of their customer orders by rail, which raised the problem of how
to serve smaller accounts that didnít purchase enough to fill a rail car.
Utilizing one of the many interesting rail tariff provisions in effect back
then, the public warehouse came up with a plan: It would consolidate orders from
multiple clients and load the merchandise into a separate rail car bound for
each individual destination (up to three), thereby allowing its clients to ship
goods at carload rates (plus stop-off charges) rather than at significantly
higher less-than-truckload (LTL) rates.
Not surprisingly, the concept caught on with shippers. And though consumer
goods shipments gradually shifted from rail to truck, shippers continued to use
consolidation programs in order to get truckload (rather than LTL) rates.
Participation in consolidation programs has waxed and waned over the years, but
the technique has remained a basic tactic in the distribution of consumer goods.
These days, consolidation programs are typically administered by logistics
service providers (LSPs), which market their programs as "shared
services," a more sophisticated term for the time-tested technique. With
their large client bases and sophisticated systems, LSPs are able to combine
what would otherwise be LTL shipments into truckloads, reducing freight and
handling costs. The leading LSPs boast systems that combine orders into truck or
container loads by customer and requested arrival date, route the shipments, and
electronically tender them to the appropriate carriers. As testament to their
capabilities, one food manufacturer eliminated its network of privately owned
and operated DCs several years ago and outsourced the entire system to firms
with sophisticated consolidation programs.
For those companies that might benefit from such a program but havenít yet
given it much thought, now might be the time. The traditional objection has been
the additional storage and handling costs incurred through outsourcing, but
these are beginning to pale in comparison with rising trucking costs.
You donít have to be a small shipper to find value through collaboration.
The Jacobson Companies recently announced the opening of a 424,000-square-foot
distribution center for two big food companies.
Nor do you have to spend months locating the "right" companies to
combine shipments with. Your partners need not be companies similar to your own
or even companies that store their products in the same facility you use. In the
1980s, Trammell Crow Distribution Corp. operated a very successful program that
combined shipments of compatible products originating in the same industrial
park and delivering them in truckload quantities to LTL carrier terminals. It
worked then and can work now, with even more dramatic savings.
There are several ways this cat can be skinned, and new thinking about old
ideas can often be very productive. If we cannot reduce fuel costs, we can at
least strive for maximum fuel efficiency.