As shippers we are always looking for opportunities to optimize our freight costs. The transportation environment has changed dramatically since 2018, first with the capacity crunch and now increased market demands to deliver smaller more frequent orders with less tolerance for shipping delays.
Over the years we have worked with customers to implement various optimization techniques using SAP. In today’s post I will describe some of the common transportation optimization techniques and how they work and that way establish a common body of knowledge. In a later post in this series I’ll also show you some of the basic tools available in SAP to allow you to support them.
In SAP order processing orders the route is determined at the delivery level. The delivery is used to tender the order to a LTL or parcel carrier for delivery to the end customer as shown in Fig.1.
Transportation optimization tactics
There are several transportation optimization tactics we can use to optimize our freight, some simple and some complex. Lets walk through some of the most common, in some cases we are using SAP terms but even if you do not use SAP these should be straightforward to understand.
The simplest tactic to use in your logistics operation is internal shipment consolidation, it”s easy to achieve using SAP and provides quick cost savings. As you can see in Fig. 2 this entails consolidation of customer orders into one shipment going to the same location on the same day to reduce the overall freight cost. In SAP this means combining deliveries destined for the same customer into a shipment document that is then used to plan/execute transportation, Ill show you how that is done later in this post.
Note there is also the ability to combine multiple orders into a single delivery, this is controlled in SAP at the customer master level and makes it even easier as there is no need for a shipment.
Pool distribution is the consolidation of shipments going to the same geographic area, shipped to a pool point and then distributed to customers. There are various ways this is implemented in cooperation with your carrier but as shown in Fig.3 we combine orders to achieve a FTL which is delivered to a pool point and then distributed directly to the customer. We have implemented scenarios as shown in Fig. 3 that combine small parcel and LTL shipments to a pool point, this is dependent on your carrier but we suspect this will become more common over time. Note that pool distribution can be beneficial In cross border shipments as this can also simplify customs clearance of shipments in addition to reduced shipping costs.
Multi-stop shipment consolidation is the the combination of multiple deliveries into a multi-legged shipment tendered to a carrier to achieve a better price for the truckload instead of multiple LTL deliveries.
Note Multi-stop shipping is not supported or accepted by some carriers and the best way to approach this is in cooperation with your carrier during negotiations. Executed properly in cooperation with your carrier you can achieve costs savings but if not planned properly or in cooperation with your carrier the routes may actually cause additional costs as opposed to any cost savings.
Fig. 4 Multi Route shipment consolidation
Cross Dock Pooling
In our cross docking scenario our goal is to consolidate multiple shipments to a single location. This can be for a customer order or stock transfers.
Handling transportation optimization in SAP
Now that we have an idea of several optimization techniques (note there are other consolidation scenarios but I only described the most common) that we can use to achieve freight cost savings. I’ll describe how these transportation optimization techniques can be supported in SAP.
The key to making this work in SAP is the shipment document. The shipment document in SAP is specifically designed to provide flexibility in the way you ship orders and is intended to represent the load you are tendering to your carrier. So the key to supporting our transportation optimization in SAP is the creation of a shipment document that represents our consolidated load.
In SAP since this falls out of the normal order processing flow I have seen companies use a myriad of custom solutions built to satisfy the requirement. Hopefully this will show you how to do it without any custom work.
The normal shipping process (Fig. 4) starts with a delivery which is used to initiate the shipping process. (note we we will not cover inbound shipments but this is also supported) Our typical SAP Order to Ship flow is as follows.
- A Sales Order(s) is created for a customer’s order.
- Deliveries are created from sales order(s).
- Warehouse transfer orders / pick lists are generated
- Items are physically picked and confirmed using the pick list or transfer order.
- Items are packed per delivery ( assumes you perform HU packing, which I hope you are )
- Deliveries are individually tendered to the carrier.
- Last step – the deliveries are post goods issued to relieve inventory.
Because of the length of this post I am going to split it into several posts to make it easier to digest. In the next post I’ll show you various ways to update our standard business process flow in SAP to accommodate our recommended way of performing transaction planning to handle our various transportation consolidation techniques.
As supply chains become more expansive and sophisticated, the need for transportation optimization solutions using SAP will increase. I hope this post has provided you with some ideas that you can use to add consolidation to your shipping options.
If you want to learn more about logistics related topics in SAP, you can follow us on LinkedIn. If you have any inquiries or suggestions, don’t hesitate to contact us here. We’ll be happy to hear from you.
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Phillip Avelar is a Managing partner at Advanced Solutions, based in Chicago. He works with SAP enterprises to optimize their supply chains, increase productivity and challenges the status quo. He shares his passion for solving customers problems in his blog posts, industry articles and conference talks.