April 15, 2014 posted in Location Consulting
From Austin Consulting
Inbound and outbound transportation or freight costs are typically one of the highest expenditures for many companies. They are also one of the most important cost factors considered during the early phases of site location while determining the most favorable area for the new location. These costs are extremely complex to calculate due to the combination of transportation modes and the intricacy of the variables within each transportation scenario.
While conducting the inbound and outbound transportation cost analysis, a common shortcoming we see is the provision of basic, low-detail freight analysis data. In order to select the lowest cost location, it is important to not underestimate the many factors used in analyzing this information.
Inbound transportation costs measure the freight cost to transport raw materials from their source locations to the new facility location. In the analysis, each potential location should be provided, along with all possible locations of raw material sources. This requires a ‘closest-to’ analysis depending on the potential location of the new facility.
Outbound transportation costs calculate the cost to ship finished products to a given final location – often to customers, distribution centers and warehouses. It is important that companies give thought to their distribution network goals, both presently and for future years. While it is helpful when clients understand their needs upfront, we can also work with clients to help them evaluate various alternatives and ultimately perform the analysis to achieve their goals.
Raw materials used consist of varying volumes, shipment sizes and modes of shipment. The information provided should include total annual volume, individual shipment sizes, and annual number of shipments. And to avoid guesswork, these figures should balance. A company that provides the annual volume, but approximates the average weight per shipment and annual number of shipments, leaves analysts guessing which side of the equation should be used. Incomplete information causes a need for further clarification and slows down the analysis.
Depending on the quantity of your products, there are several ways to ship them: less-than-truckload, full truckload, intermodal and rail. Method of shipment, contracts, special rates and freight class identifications are all key considerations when analyzing transportation costs and alternative scenarios. The company should fully understand its current logistical procedures and be able to relay this information to the analysts for the best results.
Next month, we’ll take an in-depth look at analyzing transportation costs. Stay tuned!
Whether your freight costs are in the hundreds-of-thousands or multi-millions, developing complete information – with or without the help of an outside consultant – will determine the optimal results from any analysis. We can help your fill in the blanks or identify reasonable assumptions that can be made by the project team.
Analysts want to provide you with the best location available and arm you with plenty of knowledge to optimize your current transportation network. At Austin, we work with our clients up front to ensure that the entire team understands how the data will be used in the Favorable Area Analysis and why it is important to be detailed and accurate.