Inventory optimization and transportation share a common thread when balancing and justifying either enters the scene. No matter how the replenishment was decided, eventually what has been ordered needs to be moved from the suppliers to the manufacturer’s business unit location or drop shipped directly to the end-user.

Many business units operate under “just in time” manufacturing guidelines and on-hand inventory is a major concern when justifying inventory cost vs. the actual transportation spend.

So many business units have inventory whether (raw material or product components) that carry very low inventory carrying costs but based on either their commodity class, weight, usage, cubic capacity or origin location has impacted and may drive up the transportation spend.

By increasing order size and purchasing full truckload quantities (many suppliers have special pricing in place for truckload purchases) and comparing the actual carrying cost of the inventory vs. the mode of transportation, the business unit may have an overall savings with inventory and the transportation cost.
Of course a lot of variables need to be addressed and the capability of adding additional inventory on the business unit floor must be clearly defined, but if analyzed and optimized correctly it may well end up as a “slam dunk” for savings with inventory and transportation.

Transportation costs when implemented correctly reduce the (COGS, cost of goods sold). It directly impacts the profitability or margin, most important profitability directly shows up in the bottom line, and provides extra cash for any other priorities perhaps low value inventory.