Efficiency equals economy

Experts weigh in with real-world advice on streamlining operations for cost savings

David Hannon, Managing Editor -- Purchasing, 8/11/2005

Tip #1: Deconsolidate and DC bypass

DC bypass is so named because it enables companies to bypass a stop at their distribution centers (DCs). Freight moving through a DC bypass travels from a port of entry to a deconsolidation center, where it's broken up into smaller shipments and sent directly to customers, instead of arriving at a port, being transported to a company's distribution center, unloaded, put away, picked, reloaded, and then shipped out to end customers.

The potential advantages of DC bypass are myriad, especially for companies with U.S. ports of entry on one coast and distribution centers near another. For example, perhaps a shipper's freight is arriving in the ports of Los Angeles, its distribution center is in Atlanta and the majority of it's customers lie somewhere in between. Without DC bypass, the goods would have to cross the continent twice—first to reach an East Coast distribution center and then back again to the Midwestern retail locations or customers. DC bypass lets the shipper avoid the extra expense of this redundant transportation—and shave several days off the overall transit time, thus reducing the inventory carrying cost.

Source: Tom Hickey, vice president of consolidation and deconsolidation services at APL Logistics.

Gathering and centralizing data can go a long way toward streamlining logistics operations. Storing information such as carrier-rate agreements, service-level agreements, noncarrier related costs, and insurance information in one place can expedite the settlement process and let buyers make more informed decisions on shipping alternatives. Self-invoicing and electronic match-and-pay processes let shippers marry status tracking with settlement. "Eliminating paper freight invoices can provide shippers with a higher level of compliance from the carriers for status reports," says Rick Kelly, vice president at logistics technology firm Nistevo. "The carriers see a benefit also, with fewer discrepancies in settlement and faster payment."

Source: Rick Kelly, vice president, Nistevo.

If you're a logistics or supply chain manager, walk through your company's receiving department once a week and pick up any package that was shipped express or premium freight. Tell the head of receiving that the package will be sitting on your desk if anyone is looking for it and take it with you. Then calculate the difference in shipping this package at different levels of normal freight vs. premium.

Most likely, after a few days or more, someone (maybe even a buyer) will come looking for the package and you can ask them to explain why it is worth the additional cost to the company to have the item the next day, when the package was not missed for a couple of days. Unless the individual is a repeat offender, the conversation should be educational. Ask for facts and give facts. Word will spread quickly about what happened. (And by the way, if you did happen to select a package that was really hot, make sure in advance that there is a way to get that package to the right person immediately.)

Source: John Brockwell, practice lead, global supply chain management consulting, JPMorgan Chase Vastera.

How can shippers position themselves to deal with the new realities in transportation, while controlling costs, incrementally improving service and maintaining their competitive edge? The key is to carefully measure and analyze the performance of suppliers and the impact of each of the external market factors on their own transportation procurement, planning and execution processes. And then implement strategies that will help mitigate the pain points. What you cannot measure, your carriers will not improve. Performance-management technology tools enable shippers to dynamically monitor and measure the performance of transportation providers in real time and use that information as a basis for future carrier-selection decisions as well as scheduled performance review sessions with their serving carriers.

By intelligently applying information technology and adopting a culture of collaboration and continuous improvement, shippers can improve their relationships with suppliers/customers and carriers, automate many of their processes, and move towards fully optimizing their transportation execution.

Source: Manhattan Associates

It is important to understand cost drivers for carriers and service providers and then structure processes and operations that make it easier and more cost effective for carriers to do business with you, as a shipper. Examples of carrier-friendly programs include a collaborative rate negotiation process, reducing or eliminating live loading/unloading with drop-trailer programs (for drop-and-hook, etc.), minimizing wait times for pick-up and delivery, providing multiple and appropriate mechanisms for the tendering and confirmation process, and having a network-wide fuel surcharge program. At the end of the day, shippers need to develop a mindset wherein their core carriers are dealt with as strategic partners.

Source: Razat Gaurav, solutions executive, i2 Technologies.

Logistics efficiency can be driven by organizations beyond logistics and supply chain. For example, closer collaboration between the logistics and design packaging groups can lead to a better understanding of what is favorable and unfavorable to logistics movement (packaging size, weight and dimensions). A simple example of this would be if a company was shipping potato chips, and the allotted space on a trailer was full before the weight limit was reached because chips take up a lot of space, but do not weigh much. Logistics can work with other parts of the organization to reduce or optimize packaging or even change the design of products to make them more compact so more can fit on a truck, plane or ocean container and transportation dollars can be reduced per unit.

Source: John Frasca, director of logistics, Hewlett-Packard.

Outsourcing the "back office" managed transportation function that moves freight via common carrier can help logistics personnel focus on more strategic operations. Managing common carrier freight should not be viewed as a tactical part of the business. Realizing benefits means selecting a partner that will provide outsourced transportation management services that add value to your business. This is done by operating a set of basic and enhanced services that are integrated with fundamental changes to the supply chain.

Source: Mark Morrison, senior vice president of business development at TNT Logistics North America.

Trucking companies do not own the freight in their care. However, they do have a contractual obligation to pick up and deliver the goods in the same condition they were in when they were on the dock. The details are most often outlined in the bill of lading but many shippers do not read or understand these agreements until it is too late. The FOB (free on board) terms as defined in the Uniform Commercial Code determine the legal owner of the goods at various stages of the process.

In the absence of clearly defined terms on the purchase order or contract of sale, the consignee is presumed to be the legal owner of the goods while it is in transit. The title to the goods changes based upon the FOB point. If the terms are FOB Origin the consignee is the legal owner; if the terms are FOB Destination, the title of the goods changes at delivery and the shipper is the legal owner of the goods while in transit. The need for precise FOB terms is only of critical importance when there is a mishap, such as an accident, theft, loss, or other kind of damage. All freight claims are filed by the legal owner of the goods during the transportation process.

Source: John Heckman, president of MESCA Freight Cooperative.

Many logistics and supply chain organizations are beginning to explore the area of shared network optimization, which involves external supply chain partners inputting actual and planned supply chain information into a shared parent system environment.

For example, a carrier can log into the procurement site and view the lanes that are for bid for the furniture company Stiberth Furniture. In order to determine the right lanes to bid on and the right price to bid, the carrier is able to input the business they already have with Johnson Textiles and Murphy Pharmaceuticals. The carrier benefits from the systems that Stiberth Furniture and Stiberth Furniture ultimately receives more competitive bids from carriers. Both companies make the best choices given their internetwork relationships resulting in the most efficient long-term solution for both organizations.

Source: G-Log

While it may sound obvious, keeping your warehouse and loading docks clean and organized can have a major impact on efficiency. It can help reduce damages, make inventory issues more identifiable, spot stranded orders, and make the network and logistics professionals more efficient.

Source: Shawn Barnett, vice president of business development for Ozburn-Hessey Logistics.