Transportation Cost in Supply Chain Management

According to an estimate by Logistics Report in 2019, US businesses and companies spend roundabout 10% of their profit on transport and its total worth is 1.04 trillion US dollars. There are various elements and components involved in the supply chain process; transportation cost is among them. Today, we’ll discuss transportation cost in supply chain management; its various elements, and impacting factors.

What is Transportation Cost in Supply Chain Management? 

Transportation cost in SCM outlines all the costs and expenses relevant to the flow and transport of raw materials for production, finished goods to the end consumers, and employees’ movement. The cost and expenses would make sure that various parts keep moving to the needed place and serving customers on time.

The most dependent expenses and costs are different in various industries. It would consume a lot of profit and revenue for the distribution companies. On the other hand, a software company would only have to spend a few expenses on the sales representatives.

• Many businesses and companies carry approximately 40-50% of the logistics costs
• It contributes roundabout 10% of the retail sale price of the finished goods
• Transportation costs directly impact the logistical and other functional costs
• Transportation has a great impact on the transportation

Various logistical areas rely on transportation like retail sales, wholesale, transportation, storage, and production. It is significant to beware of various factors in the logistical areas that would impact the transportation cost. However, various functions and sub-functions need efficient planning for the flow of goods and materials to reduce costs and improve profitability.

Various processes in the production and manufacturing facility are complete without a proper system of transportation. Storage and warehousing services at the manufacturing facility require separate transport. The supply chain process would complete by delivering the finished goods to the end consumers, and it won’t happen without proper transport.

Elements of Transportation Cost in SCM

Some of the main elements of transportation cost in supply chain management are as follows;

Compliance Cost

Various types of shipments and deliveries require proper management procedures for unloading and loading. While transporting and carrying out such types of shipment and transportation need proper documentation.

However, HazMat Cargo is a great example and it needs proper shipment, managing, handling, and packaging. You can’t integrate various areas of HazMat Cargo while shipping and transporting. Trucks should clarify various documentation while transporting and shipping goods of HazMat. Failure to perform any of the documentation procedures would cost a lot of money in terms of penalties and heavy fines.

Freight Audit Cost

Freight audit is the most time-consuming and complex process in the whole shipment lifecycle. Various big multinational companies outsource work and processes to the 3rd party firms in order to achieve cost efficiency. However, the freight audit process comprises of following steps;

• Carefully studying the freight invoices for accuracy
• Comparing it with carrier contracts and other relevant documentation that comprise freight invoice

In case of any error or mistake, the payment company, freight audit, or shipper would approach the carrier to make sure that it is correct and issue a new invoice. Often, it leads to repetitive correspondence back and forth with the carrier, and it becomes a highly expensive and laborious process.

Visibility Cost

Many transport and delivery experts are of the view that the information about the customer package is as equally significant as the package itself. Various businesses and companies overlook this step, and they end up spending a lot of money and resources on tracking the driver and shipper to gather information about the shipping lifecycle.

Collaboration Cost

Every shipment involves various parties and stakeholders like drivers, brokers, carriers, consignees, and shippers. It is significant to bring various parties on the same page. However, gathering the shipping information is not easy and it requires you a lot of manual work like emailing and phone calls; it could be costly and time-consuming. Businesses and companies should track various parties for every shipment.

Hidden Cost

Before discussing any type of cost, you should pay heed to the quality costs. The quality cost comprises of time, cost, and effort you spend in preparing the product relevant to the quality standards. However, the quality cost consists of all those costs that you couldn’t do the first time. It is significant to make a comparison between the quality cost and transportation cost.

Factors Impacting Transportation Cost In SCM

Some of the main factors that impact the transportation cost in supply chain management are as follows;

Route

The route or destination could be international or domestic. If you are making international shipments and trade, then it comprises fixed costs in taxes and tariffs. However, domestic shipment only comprises transport and delivery service cost.

Handling & Managing

If you are delivering sensitive and fragile products and goods, then it requires special care and attention. This extra care and attention would cost you more money.

Shipping

Failed delivery would mean that the delivery drivers have to make an extra route for the delivery of the product. That’s why it is significant to make the delivery the first time.

Urgency

Making the urgent delivery would greatly impact the price. For instance, sea freight would be much cheaper, but it would make 6 months for delivery.

Package Size

High package size would cost you a lot of money, and the small package size would cost less money.

Distance

How far the target destination is for you to transport the goods and package? It is costly to make long-distance shipments.

Conclusion: Transportation Cost In Supply Chain Management 

After an in-depth study of the transportation cost in supply chain management; we have realized that transport and logistics costs are highly significant for the growth of businesses. If you are learning about transport cost in SCM, then you should keep in mind the abovementioned elements and factors impacting cost.