The increasing pressure of the market, the rising consumer demand, and dwindling supplier deliveries have brought into full view the need for adequate and functional shipping cost allocations. There's more pressure for shippers to produce and provide products faster and more reliably than ever before, and this requires specialized shipping allocations and cost considerations for optimized supply chain analytics. Shippers must focus on making the product and managing the delivery channels, supply lines, warehouse hubs, and distribution centers. As highlighted by Hellenic Shipping News, ocean freight has seen a steady increase in recent months, but those impressive numbers are dwarfed by more than double the dry container freight rates and demands. Here's the reality of the situation and how it adds up to lower total landed shipping spend through management of shipping cost allocations.
Cost allocation refers to systematically associating costs to an individual process, service, or department. Though businesses are usually already engaged with accounting for general expenses related to individual projects or a specific department, parcel costs remain somewhat of a gray area. Do costs get counted with production, shipping, or general management? This is where shipping cost allocations can help ensure costs and expenses are correctly prepared and budgeted for. General Ledger Codes can be assigned based on a customer's specific set of business rules for allocating their cost out among departments, brands, or even divisions. It is a customized way to track shipping costs and monitor expenses and operational costs within a multi-level company.
Poor visibility in freight allocation can make the process of monitoring shipping cost allocations all the more challenging and complicated within the global supply chain network. This problem is evidence of a disconnect between shippers and carriers as well as a lack of communication and connectivity among different team members. The problem goes much further and includes issues such as:
Supplier deliveries took a bit of a dive and slowed down considerably over the course of the pandemic, while the rate of purchase and consumption only grew. This created an even wider gap between supply and demand, and manufacturers have struggled to build inventories and maintain enough supply to meet the still soaring consumer demand. All of this has led to shipment and supply backlogs that have continued to grow for the past year and a half. In this context, improving order cycle time could prove to be complicated.
Shipping cost allocations can also show surprising insights into where shipper's interests and focuses are in terms of what areas they feel need improvement:
These and other critical aspects of shipping service operations today are primarily driven by the rise in e-commerce shipping demands among consumers and the Amazon Effect that continues to be felt throughout the supply chain. According to Supply Chain Dive, "digitally-focused companies could have a leg up compared to manufacturers that rely on legacy applications. Speeding cycle times can stem from improving the flow of information across an organization and its partners." Focusing on these and similar areas can help shippers better manage expenses and more closely monitor shipping cost allocation to drive value and boost profits.
Proper monitoring and management of shipping cost allocations for parcel and LTL loads bring forth a host of impactful changes and benefits. Shippers taking advantage of enhanced cost allocations and expense management can benefit from the following within their e-commerce shipping processes:
The management of shipping cost allocations for parcel and LTL loads enables shippers to execute more control over shipping costs and maintain better insight into logistics. Of course, that all depends on the ability to ingest, normalize, analyze and apply data.
Any shippers operating with oversized freight spend should understand that implementingfreight auditing and payment solutionsis a necessity. Auditing bills, invoices, and shipping costs make it easier to gain transparency into market trends and demands. According to Supply Chain Digital, "Many companies use smart software solutions to establish automated processes, i.e. freight management software that automatically reallocates freight costs to cost centers or cost units." This is vital for managing freight costs and mastering the practice of shipping cost allocation. The true power of auditing services management and shipping allocation comes to light in the following ways:
Shipping cost allocations bring many benefits that can impact the shipping and transportation industry in many ways. Freight cost and logistics cost accounting are just the first steps on the road to maximizing supply chain performance and tapping into the many benefits of managing parcel, LTL, and shipping allocations. IT-supported freight cost management allows for the ideal optimization of shipping operations. Contact Intelligent Audit today to learn more and to get started.
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