Consumer goods and electronics manufacturers are busy figuring out what they’re going to do in December when President Donald Trump’s 10 percent tariff on an estimated $300 billion worth of Chinese imports takes effect. But that duty will impact much more than the highly publicized cell phone and laptop market — furniture will also be subject to the new import tax.
While Apple and Samsung scramble to determine how much they will absorb and what they’ll pass on to consumers, they will still enjoy a fairly unshakable demand curve with few alternatives. Furniture is much different. With virtually limitless options available, consumers can easily select less expensive options, or even worse — they are often in positions to delay pulling the trigger altogether until the dust settles. In fact, a recent study on the furniture market found that 1 in 4 consumers (26%) cite “expense” and “difficulty” as the main reasons for delaying purchases.
That leaves furniture sellers in a precarious situation. Passing the tariff to consumers isn’t an option. Neither is taking a ten percent hit to margins. The only other choice is to cut costs. And the most logical place to start is with the highest cost outside the products themselves: transportation.
Here are a few options to consider as you evaluate your transportation operations to identify excess costs that can be trimmed:
- Design a better network. Network design is one aspect of transportation most organizations view as relatively fixed. They don’t typically want to mess with it unless absolutely necessary, which often leaves behind a patchwork of distribution centers that make cross-docking difficult to optimize. Even the best planned networks can lose their efficiencies over time as target customer populations shift.. When was the last time you identified geographies that accept the most deliveries and referenced that data to your DC locations? If you’re like most companies, your furniture is spending too much time on expensive short route trucks and not enough on more economical tractor trailers.
- Model your fleet and routes efficiently. Have you ever modeled your fleet and the routes your last mile delivery vehicles use? If you have, you’re ahead of the game — but when was the last time you did it? Fleet modeling determines whether you have the right number of trucks to utilize the most effective way. This number does not typically scale on a 1:1 ratio based on what a single truck can do in one day, which is the metric that drives many fleet decisions. Instead, analyze delivery windows and route models before making decisions on how many vehicles to lease, purchase or sell. Doing so minimizes vehicular idle time and risk of losing customers who are waiting too long for deliveries because your fleet is overloaded.
- Adjust pricing to reflect true transportation costs. Understanding your transportation costs on a per delivery basis is complex, but necessary to model pricing appropriately. Costs naturally depend on distance and time, but many other inputs are frequently left out. Costs like tolls and hilly terrain that lower fuel efficiency can add up quickly. Time is also dependent upon a number of factors that are often not quantified when determining pricing. For example, how far a delivery vehicle has to park from a residence, whether a final destination is on an upper floor and if an elevator is available, and traffic slowdowns all influence the cost of delivering each item. Modeling those factors thoroughly is key to ensuring you aren’t losing money or overcharging for delivery.
One great byproduct of developing the right pricing model today is you can use it to adjust for new services tomorrow. Once you have a formula, it can advise what it will cost to add white glove delivery or similar options. Pricing can also be managed with a dashboard, so changing inputs can be monitored as they move. Dashboards make revisiting your current pricing structure simpler, which is something you should aim to do each quarter.
Optimizing transportation can help alleviate worries about the coming tariff by offsetting new costs without raising prices too high or cutting deeply into margins. Even if the Trump administration brokers a trade deal before December and the tariff is averted, you’ll still enjoy increased efficiency and profitability.
A principal in the Chainalytics’ Transportation competency, Bryan Wyatt has over 20 years of experience and expertise in transportation operations, strategic sourcing, data analysis and logistics planning, as well as logistics/supply chain change management.
