The race to control distribution costs with AI

Look at what’s within your control, what isn’t and how you can prepare. “Start by mapping your exposure to volatility across three key inputs — fuel, containers and parts — because each of these has a different operational fingerprint,” said Grant Thornton Business Consulting Managing Director Brad Hulbert. Each distribution company has different exposure to these input costs, and some companies are already using technology to take control.

• For fuel, companies should look at route density, fuel spending trends and whether they are using hedging or optimization tools. “If you’re not already using AI-powered route optimization to reduce fuel usage across your fleet, that could correlate to millions of dollars in savings,” Hulbert said.
• On the container side, look at cycle times and demurrage fees. AI-driven solutions can track container flows globally, predicting port congestion to help you proactively reroute or reallocate assets before delays cascade.
• For parts, companies might look at maintenance schedules and supplier diversity. “Predictive maintenance is becoming a lot more common across transportation and distribution companies, and it's a real game changer,” Hulbert said. Telematics with AI technology can help predict part failures before they happen, reducing downtime and emergency repair costs. “I saw that with a client that’s managing a small private fleet and really leveraging telematics to determine when things should be repaired — to get ahead of unplanned breakdowns,” Hulbert said.

On the purchasing side, Grant Thornton Business Consulting Senior Manager Domenic Scavola added, “I advise clients to treat their spare parts — and some other items for maintenance, repair and operations — as inventory. Have a good strategy to ensure that, when something does go wrong or fail, you have that part on hand. We’re seeing very long lead times with some parts.”

Once distributors know where they have cost control exposure, and whether they have existing solutions in place, they can look at how to gain more control.

To gain control of costs, most companies need better flexibility across areas like pricing, scenario planning or forecasting.

• Pricing: “A lot of this issue correlates to the ability to have dynamic pricing across organizations, where you can have a fluid pricing structure based on what each company is actually costing you to serve,” Hulbert said. “A lot of companies don’t do this well. They take a blended average and load it into their cost profiles. That can get you in trouble from a pricing perspective.”
• “What often gets lost is that no two orders are the same internal cost to you,” Scavola said, citing factors like order volume, timing and routes that can affect your costs. “The cost to execute doesn’t always make it back to the customer appropriately.” Hulbert said that dynamic pricing requires both data and solutions. “You need that level of data, then layer in where costs are going and bring that back in some form of dynamic pricing. That enables you to mitigate your margin pressure.”
• Scenario planning: Scenario-planning tools can simulate what-if disruptions, and then recommend mitigation strategies. “I really think of this as a digital twin of your supply chain. ‘Digital twin,’ is a term that’s been around for years, but you can embed AI in it for scenario planning,” Hulbert said. With scenario planning, companies can prepare and establish options in advance of cost changes.
• Forecasting: When AI converges with IoT devices, real-time sensors can feed data into systems for budget forecasts, planning, dynamic routing and predictive maintenance. “I’ve seen this firsthand, and it can be very beneficial for organizations,” Hulbert said.

Every distribution company has a unique set of factors to consider for technology solutions, whether they are trying to control costs or recover margin in operations. Once you identify how technology can help, you need a cost-effective approach.

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Look for those three things when you’re really trying to determine the right path forward for you, with the money that you have available to spend.

Sometimes, you can expand existing solutions. “A lot of transportation management systems and routing solutions are starting to incorporate AI,” Scavola said. “The key differentiator now is that AI can give us a lot more visibility to bring in external factors that were very difficult to measure before.” That means AI-driven forecasting and other functions can go beyond an organization’s historical data to incorporate information about the market, weather, traffic congestion and other impacts.

With all of the new capabilities, it’s still important to keep the bottom line in mind. “Sometimes it gets lost in the excitement about AI, but you need to make sure that whatever you implement has tangible value that ties back to a cost driver or value driver,” Scavola said. “Even with forecasting, it’s a question of how you were doing before and how you are doing now. Are you actually more accurate, and what's the value of that change?”

As technology capabilities continue to advance, so will your competitors. The key is to find the right solutions to fit your needs and know when to make a move.

For companies in any industry, digital transformation takes time. It requires technology and data alignment that will continue to pay off in the future. Fortunately, technology solutions that help control costs, drive growth or achieve other goals can all contribute to your transformation. “You see a wide range of investment in technology and AI across distribution companies,” Norris said. “What I notice is: The companies that previously invested in technology are now able to pivot to some of the AI solutions, and those that had not invested in technology just don't have the capability of doing that yet.”