Why Transport Matters for Cost and Service

Every product a customer buys has been moved many times: from the raw material supplier to the factory, from the factory to a warehouse, from the warehouse to a shop or a site. Transport is the activity that links these places. Without it, stock in the wrong place is of no use to anyone.

For many companies, transport is one of the largest costs in the supply chain. It is also the part the customer sees. A late, damaged or incomplete delivery is the moment a customer decides whether to order again. A transport manager therefore manages two things at once: cost and service.

The Supply Chain Management course introduced the five transport modes and the idea of consolidation. This course goes further. It is written for transport planners, fleet managers and supervisors, and logistics coordinators who buy freight. It shows how to choose modes and carriers, buy freight, plan loads and routes, run a fleet at the lowest total cost, keep it safe and measure the result.

Worked example: what a 10% saving is worth

A food distributor (figures invented for teaching) has sales of 10,000,000 a year. Its transport costs are 600,000, which is 600,000 ÷ 10,000,000 = 6% of sales. Its net profit margin is 3%, so its profit is 10,000,000 × 3% = 300,000.

The transport team finds savings of 10% through better loads and routes. That is 600,000 × 10% = 60,000 a year.

• Profit rises from 300,000 to 360,000. That is a rise of 60,000 ÷ 300,000 = 20%.
• To earn the same extra 60,000 of profit at a 3% margin, the sales team would need 60,000 ÷ 3% = 2,000,000 of extra sales.

This is why transport savings get attention from senior managers. But a saving that makes deliveries late can lose customers worth far more than the saving.

Service is a promise you design

A transport service level is a set of promises: how fast, how reliable, in what time window, and with what information. Each promise has a cost. Next-day delivery to every customer needs more vehicles and smaller loads than delivery twice a week. A narrow one-hour delivery window makes routes longer than a four-hour window.

Good transport managers agree service levels with the sales team and the customer before they plan the network. They then measure the service actually delivered, for example the percentage of deliveries on time and in full (OTIF, on time in full), and the cost of delivering it.