Fuel prices remain volatile and continue to increase. The price of fuel has a direct impact on transportation costs. Some experts have calculated that each $10 increase in the cost of barrel of oil results in a 4-cent per mile increase in transportation rates. That adds up!
For an average arviem client, this would mean around 400US$ more for each and every shipment.
Increased transportation costs can affect the optimal design of a supply chain. With low transportation costs, it often makes sense to pool inventory in fewer locations so you can optimize space, labor and inventory pooling. However, as transportation costs increase it is more optimal to place inventory closer to customer locations, reducing overall transportation miles. However, as a distribution professional, it can be significantly more complex to manage multiple smaller warehouses rather than a single large facility.
Another key to managing the fuel-optimized supply chain is transportation optimization. Many organizations use manual processes to plan their transportation routes. They have people manually reviewing orders, combining orders into loads, and determining the best service levels and carriers to ship those loads. Technology exists that can review groups of orders and select the least cost route and rate to ship those orders by combining them into optimized loads.
Small and midsized businesses may perceive that this technology is out of reach for them. However, recent advances have made this technology easy to use and made it available at affordable prices. Optimizing your transportation planning can yield significant savings which help offset ever-increasing transportation costs.