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.
What Are Shipping Cost Allocations and General Ledger (GL) Codes?
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.
What Are the Challenges of Managing Cost Allocation?
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:
- Limited visibility that leads to poor communication and collaboration throughout the larger supply chain network.
- Lack of understanding of what each code means when it is applied and what it indicates about an expense.
- Poor integration between systems and an inability to seamlessly combine systems and provide staff with proper onboarding.
- Many separate and disparate systems make tracking difficult when dealing with shipping cost allocations.
- SKU proliferation and an overabundance of codes, protocols, and processes make everything cumbersome.
- Difficulty managing inventory and issues with corroborating inventory with orders and maintaining good stock levels.
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:
- Customer order cycle time 19%
- Total delivered cost 18%
- Performance to plan 18%
- New product introductions 17%
- Inventory turnover 16%
- Customer service 12%
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.
What Are the Benefits of Parcel and LTL Cost Allocation?
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:
- Carrier diversification, which allows shippers to maintain better capacity availability and makes procurement easier when demands are high. With access to more options for carriers, shippers can utilize more services and take on more loads. Specialized shipments can be delegated to certain carriers while the bulk of the loads can be dealt with by the standard carrier base.
- Hub injection to avoid unnecessary travel and to ensure return trips are maximized for optimal efficiency and capacity utilization. The more distribution centers and shipping hubs that are available, the more opportunities there are to utilize cheaper local carrier and shipping services for last-mile and drayage transportation needs. Greater hub utilization improves shipping cost allocations.
- Insight into actual costs and operational expenses with access to accurate and real-time data broken down by quarter, mode, lane, and more. Rates and costs are easily compared to past years, methods, loads, and other specifications to look for trends and possible problem areas. These insights can help identify landed costs down to the SKU to analyze the profitability of a product to make data driven decisions. Reliable data and shipping history makes it easier to plan for peak seasons, downtimes, etc.
- Less confusion over demand versus capacity, which allows for better warehousing and inventory management and faster shipping fulfillments. Managing supply and demand and taking advantage of predictive planning will enable shippers to monitor warehousing processes and supply chain fluctuations more easily. Supply and demand remain front and center at all times.
- Zone skipping to consolidate moves, reduce dead haul miles, manage drayage services, and lower final-mile shipping expenses across the board. All of this works to streamline shipping processes and procedures to reduce waste while maximizing capacity and profits throughout the supply chain. Removing specific legs of the shipment can greatly increase profits and speed deliveries.
- Less risk of errors and mistakes with automated systems and proper onboarding of new systems and management processes and procedures. It is easier than ever to keep tabs on shipments with advanced techniques for real-time monitoring, automated communications, and on-demand status updates. AI machines and platforms reduce human error and allow for better allocation of man-hours.
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.
What’s the Power of Auditing in Managing Shipping Cost Allocations?
Any shippers operating with oversized freight spend should understand that implementing freight auditing and payment solutions is 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:
- Automated processing. Shippers can take advantage of faster processing, more targeted planning, better execution of data, and streamlined processes throughout the supply chain with automated data aggregation and processing. Automation and machine learning can accelerate mundane tasks and make critical aspects of shipping logistics more simplified and efficient.
- Data ingestion and distribution. Taking many separate systems and platforms and combining them into one easy-to-use system is a crucial part of shipping cost allocation. With an all-in-one access point, every member and department within the shipping company can access, share, and utilize the same up-to-date data.
- Data normalization in the network. Data in raw form is incomprehensible and challenging to compare, which can slow down shipping processes and make simple tasks more error-prone. But data normalization makes apples-to-apples comparisons easier and ensures everyone is on the same page when making decisions.
- Data analytics and actionable insights. With better data-driven strategies and cost allocations, it is easier to focus on actionable insights and understand costs based on different needs. Performance and integration are only as good as the available data to improve processes across the board.
- Easy-to-view tools and customizable reporting. Connecting all the various points in data analytics becomes more accessible with a clear view of starting and ending points and access to custom reports and analysis. Actionable intelligence helps to drive decisions and improve performance.
Increase Shipping Cost Allocation Across All Modes With a Single Source of Truth
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.