High fuel costs are extremely painful for logistics-oriented companies such as retailers, distributors, carriers and logistics services providers. While fuel costs have been cyclical, it’s misguided to think that the current predicament will go away soon. The good news is that there are numerous strategic and tactical actions that companies can take to mitigate the impact of high fuel costs. Now is the time to act as the gains will continue whether fuel costs are higher or lower in the future.
It’s not just a transportation department problem.
Many strategies and tactics can be deployed to reduce the impact of high fuel costs. In all cases, keep in mind that high fuel costs are a company problem—not only a transportation department problem. Many of the drivers of fuel consumption are dictated by departments outside of transportation. In particular, sales or whoever owns the customer, needs to be engaged as they can have the greatest impact on mitigating high fuel costs. Another important department to involve is finance. Finance can help determine the impact of fuel cost mitigation strategies and is a significant influencer of other parts of the organization.
Strategic and tactical actions that require a little investment but produce big returns.
- Optimize your logistics network. Over time, logistics networks become suboptimal due to, for example, customers coming and going, buying patterns changing and new product offerings. Network optimization incorporates these types of changes and rebalances the network to reduce fuel consumption. Focus on service policies, operational strategies and other “soft” considerations as opposed to brick and mortar to deliver results more quickly—then go back and look at “hard” stuff for greater benefits.
- Rebid carrier contracts with a focus on fuel cost reduction. Softness in various modes of transportation and geographies present an opportunity to rebid contracts. Existing contracts may not have given as much consideration to fuel costs because they were written when fuel costs were much lower, but now significantly penalize the organization given today’s elevated prices
- Implement optimized transportation or route planning solutions. Far too many companies still do not use optimization technologies. It doesn’t take much complexity to go beyond what the human mind can process, and the savings in distance travelled and fuel can be quite large. In addition, evaluate existing legacy systems versus more modern solutions. Not only are they less capable, but they are also harder to use, resulting in many manual workarounds that are not as effective at reducing fuel costs.
- Steer customers and sales to delivery options that drive delivery density. Customers and sales reps can make delivery appointment requests that make the fleet less efficient and use more fuel. Proactively provide customers with options that increase delivery density, which reduces distance travelled per stop and lowers fuel costs.
- Use dynamic delivery pricing. Not all customer deliveries cost the same. Instead, provide customers with unique delivery fees at the point of sale to better capture the real cost of the delivery. Customers will determine whether they want to take premium delivery times or a lower cost option. Many will select the latter, which will make the delivery operation more productive, driving down fuel costs, driver hours and more.
- Provide eco-friendly delivery options. More and more customers want delivery options that help the environment. Eco-friendly deliveries reduce carbon footprint and result in lower fuel consumption. It’s a win-win-win option. Customers are happy, the environment benefits and the organization has lower fuel and other delivery costs.
- Deploy telematics. Telematics solutions are essential to improving driver and vehicle performance. They monitor the health of the vehicle as well as driving behavior. Telematics allow fleet operations to be more proactive in catching declining vehicle performance and facilitating driver coaching to help eliminate behavior (e.g., speeding, idling) that leads to unnecessary spikes in fuel consumption.
Many organizations have likely not yet tapped into even some of the strategies and tactics that can make a meaningful difference in lowering fuel and other logistics costs further. For those who haven’t started to address the problem, why wait? All the methods outlined above will reduce fuel costs today and into the future, so let’s get going!