You’ve seen it even on the consumer level: An e-commerce website boldly putting its stamp of “Free Shipping” or “Low Shipping Fees” on a particular product so that it can egg you on to buy them.
For those who know their logistics, however, we know there’s a proverbial Man Behind the Curtain who is not telling the more difficult truths about ‘cheaper’ shipping costs.
The most important one is what we all know as supply chain velocity. Like regular velocity, good supply chain velocity means your cargo is moving anytime and all the time towards its destination.
Obviously, this points us to the painful reality that more novice supply chain managers often ignore: The cost of time. When you opt for a shipping service that has ‘low cost’ but don’t press for details about the service’s delivery time, you are courting disastrous scenarios where customers are complaining, the security of your cargo is put into question and inventory holding costs rises!
Therefore, the next time you are looking for a shipping and logistics partner and you feel tempted by low costs up front, run the following questions through your head.
Would your customer sacrifice speed to market?
Remember, it is all about the customer and that extends all the way to the customers of your own clients.
Say, for example, you are shipping leisure items like books, toys and other commodities that were shopped online on an e-commerce site. Cyber Monday was just last week and many of the first round of orders were made with the expectation that they would arrive at least two weeks before Christmas break.
How would you feel if the site you shopped at used a cheap yet slow shipping process that takes about a month to deliver?
Let’s take another example on a bigger business scale. Say you're in charge of transporting components for machinery manufacturers. These manufacturers feature some big names. But with big names come big demand! They want to get the items on to store shelves to keep production lean. And as such, expect them to impose extremely stiff delay penalties on slow shipping and logistics work.
If your customer is not willing to sacrifice the speed at which they can get items to market, then neither should you. If it hurts their bottom line, then it is going to hurt yours as well. The price you pay for their dissatisfaction will easily eat up whatever you will save when opting for a ‘cheap’ service.
How can the price be justified while keeping cargo secure?
When something sounds too good to be true, then you definitely have to see if it is. There are ways to reduce the cost of shipping rates but not all these methods are to your benefit (or your customers).
Do not fall prey to usual suspects of unscrupulous carriers who cut corners and even standard safety procedures. For example, If they are using containers, said containers must be still in working condition and their handling will not result in damages.
Consider contacting the carrier’s other business customers as well. What are their reviews? Have there been any issues that could concern your particular type of cargo?
Of course, there is still a chance that you will find a genuine bargain. However, you won’t find out until you investigate yourself if the price truly worth the label.
Slow moving inventory increases inventory holding costs.
If your inventory is slow moving, that can only mean that the holding costs are going to pile up. Even today, there are supply chain managers who mistakenly believe that the issue of inventory storage and other related costs are more due to products not being sold fast enough instead of keeping production lean.
In reality though, the costs can just as easily come from taking so long for the shipping carrier to make port. In that time, the cost of time and maintenance pile up with each passing day. That means you can have an associated inventory cost that looks deceptively low (say 70 dollars a day) but in reality, you are actually paying well over 110!
Multiply that by an excessive number of days at sea and you will realize that the whole thing is really an undeniable negative, no matter how cheap it looks on paper!
To make a long story short, time can easily translate into a monetary price if you are not paying close attention to your shipping carrier. This same cost is exactly what an improved supply chain velocity is meant to minimize. Don’t be fooled by ‘low shipping rates’ if that velocity is dismal!