Three Ways to Cut Freight Costs
Liquidation Strategies Part III
With rising fuel costs and shipping delays throughout the supply chain, cutting freight expenses is top of mind for most retailers.
Historically, retailers and manufacturers have operated centralized returns networks or relied upon models that required multiple legs of freight. This strategy worked well when freight costs were lower. But today, many are finding that they need to re-evaluate their returns strategy to optimize freight costs and reduce the risk of freight disruptions.
Retailers and manufacturers usually tend to look at freight costs from the viewpoint of forward logistics. However, freight costs are a significant issue for reverse logistics operations as well. Ignoring them can come at your peril.
Why is this? Because more legs of freight equals higher operational costs and more damage to product, which ultimately results in lower total recovery value. The farther upstream in the supply chain that you can segregate items for final disposition, the more you save — by reducing both freight legs and total freight costs.
Thus, you should always work toward a goal of dispositioning product as far upstream as possible. That includes merchandise from stores, distribution centers, third-party storage , along with overseas factories and port facilities.
We recommend three strategies to maximize freight savings:
1. Sell on Location
If a product arrives late or is not needed in the store or fulfillment center, try to dispose of it before you incur transportation costs. Liquidity Services can sell directly from the dock or wherever your products are located — even if you don’t know what is in the container.
This is an especially good strategy for low-value items such as Christmas merchandise or seasonal apparel.
2. Avoid Storage Costs
If you know in advance that you are going to liquidate product, you can build processes to ship the product directly to a multichannel liquidation vendor, like Liquidity Services, which will avoid storage and transportation costs. Once the product is in our possession, we can immediately begin to recover dollars and reduce the total cost of the supply chain.
Liquidity Services has eight strategically placed warehouses and distribution centers to help cut storage and freight costs, including our newest 100,000 square foot warehouse in Hebron, KY, just outside of Cincinnati.
3. Target Different Buyers
The more buyers you reach, the faster your excess inventory will sell, which will lower your overall costs. Slow velocity leads to disruptions in the supply chain and more touches. Finding multiple channels to sell your product will create a leaner, more flexible supply chain.
Liquidity Services offers multiple channels to reach a variety of buyers (almost 5 million) in different marketplaces. If you’re disposing of a significant amount of excess, you’ll want to consider channels that reach consumers who can purchase your products directly. This strategy is particularly effective for high-value items like toys and electronics. Consumers will pay more and there are more of them.
For lower-value items, sold by the pallet or truckload, you’ll want to consider business-to-business (B2B) buying channels, such as auction marketplaces or direct negotiated sales to small regional businesses.
Keep in mind B2B truckload buyers comprise a relatively small percentage of the overall total of secondary buyers. If your supply chain is leveraged primarily to B2B truckload buyers, you are at risk for slower velocity and lower total recovery. Ideally, you would want your strategy to include a mix of both consumer and B2B buyers. The devil is in the details.
Freight costs are often a significant part of reverse logistics, but they are not the whole story. To accurately compare and evaluate your real recovery, it is key to look at Total Recovery Value – the sum of your resale price, plus handling costs savings realized through reduced touches, plus savings on transportation/freight. Taken individually, none of these metrics will yield an accurate recovery rate. Taken together, however, they provide a much more powerful and accurate picture of how well a recovery program is performing.
Retailers need more creative ideas to improve the efficiency of reverse logistics operations, and many also want to better understand how their colleagues are handling their reverse logistics challenges. If this sounds like you, download our benchmarking research survey, Recovery & Efficiency: Are Retailers Positioned for Reverse Logistics Success? today.
If you would like to explore other strategies to cut freight costs, streamline your reverse logistics, and improve total recovery, let’s talk. We can design a flexible solution that’s the right fit for your business.
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