Based on Profit Point’s recent Transportation Survey of industry leaders, 90+% of shippers identify cost, service, and finding adequate transportation capacity as their continuing priorities in 2011. Fuel costs, tight carrier capacity, CSA 2010, and new Hours Of Service rules all mean it’s “crunch time” for logistics and transportation professionals. Alexander the Great is reported to have said: "My logisticians are a humorless lot ... they know if my campaign fails, they are the first ones I will slay." How can you avoid the fate that faced his logisticians? Let’s look at these five threats/opportunities:
1. Transportation: Transportation is often a company's most over-looked and under-scrutinized cost area. Yet year after year, surveys show that transportation is the biggest segment of overall logistics costs. On average, companies spend 10 percent of their budgets on logistics, and transportation is by far the largest component of logistics costs. A dollar saved in transportation falls directly to the bottom line, and companies simply must attack this greatest potential area for savings. For example, combining inbound and outbound traffic lanes with one carrier may produce savings, while data from auditing freight bills plus tracking shipments better can substantially cut demurrage and detention charges.
Accurate, timely shipment information allows companies to better manage costs and improve efficiency through an Order Management System (OMS). Without adequate visibility into logistics operations, a company may not realize that an air shipment could move by sea at a much lower cost or that an intermodal move is less costly than a straight rail or truck movement. Companies that shift modes typically get a 5% to 8% cost reduction. And integration of a Warehouse Management System (WMS) with an efficient Transportation Management System (TMS) can also bring about significant cost savings, and reduce labor costs if tied to an effective Labor Management System (LMS).
2. Inbound Freight: Inbound freight in particular is one of the most ignored areas for significant cost reduction. Case in point: Wal-Mart, who has recently shown a renewed interest. Companies with DCs often spend from 2% to 5% of their gross sales on inbound freight. Those who have paid attention view inbound freight management as controlling inventory in transit. Since inventory is, in many cases, your largest asset, the management of this asset is critical to business success. There is also a growing trend to use freight collect rather than prepaid freight terms, and a strong trend to mandate routing guides for suppliers rather than letting them control transportation. Tracking inbound freight receipts, Purchasing’s use of “order notify”, and realistic carrier appointment scheduling, can all free up docks and yards. These also allow better scheduling of receiving personnel and equipment, as well as help carriers better utilize their drivers’ limited on duty time.
The economic downturn has sparked greater interest in consolidation at origin. Consolidating, for example, inventory overseas, rather than sending multiple separate shipments from each supplier to a DC in the United States can lower overall costs. With transportation costs mounting and environmental sustainability becoming an area of concern, internationally you will see increased collaboration on freight consolidation options, and domestically you will see more strategic loading and multi-vendor consolidation to create full truckloads.
3. Outbound Freight: One of the largest expense items that is a primary target for cost reduction is outbound freight. With rate increases (depending on the transportation mode) ranging from 3% to 5%, this should be the first area to be challenged with: “What can we do to reduce our shipping costs?” Truly understanding the freight marketplace requires segmentation of rail, ocean, barge, intermodal, and air freight, which are for the most part very uniform modal markets. However, when you examine motor carriage you find a mixed bag of sub-segmented markets comprised of parcel, small LTL, large LTL, and Truckload. Outbound freight asset utilization is maximized by building larger, more economical loads within any one of these modes, or shifting to more economical modes.
4. CSA 2010: The availability of transportation capacity is critical to efficient and effective logistics operations. When capacity is constrained it is difficult for shippers to move product to customers in a cost-effective and timely manner. When the effects of the new Comprehensive Safety Analysis (CSA) 2010 initiative are felt, trucking prices will rise as carrier capacity is reduced below what shippers demand. What many don’t realize is CSA 2010 will shrink the pool of qualified drivers where a shortfall already exists, and therefore reduce overall truck capacity.
5. HOS Rules: In addition to CSA 2010, the new Hours Of Service Rules may result in shipment declination by carriers because of your facilities’ excessive unloading/loading times, yard congestion, and/or missed dock appointment waiting time. Why? Because drivers’ working hours are limited. When they arrive they are still ‘on-duty’, so even when trucks are not moving their drivers are burning hours they cannot recapture. Consequently, drivers and carriers are under increased financial and operational stress to “not run out of hours.” Therefore, when a declination occurs, pickup and delivery appointments will have to be moved for lack of truck capacity, and delayed deliveries will be the result.
So, knowing these issues and their consequences, what are you doing to avoid being the first to be slain?
This article is part of the monthly series authored by ISM’s Logistics & Transportation Group Board Members, who are current practitioners, consultants and educators. In future columns they will be sharing their views on a number of Supply Chain topics.
Thomas L. Tanel, CTL, C.P.M., CISCM, is the President and CEO of CATTAN Services Group, Inc., specializing in Logistics and Supply Chain issues. He is also the Chair of ISM’s Logistics & Transportation Group and can be reached at tanel@cattan.com or (979) 260-7200. Membership in the Group is open to all ISM members who are responsible for or have an interest in the Logistics & Transportation fields.
1. Transportation: Transportation is often a company's most over-looked and under-scrutinized cost area. Yet year after year, surveys show that transportation is the biggest segment of overall logistics costs. On average, companies spend 10 percent of their budgets on logistics, and transportation is by far the largest component of logistics costs. A dollar saved in transportation falls directly to the bottom line, and companies simply must attack this greatest potential area for savings. For example, combining inbound and outbound traffic lanes with one carrier may produce savings, while data from auditing freight bills plus tracking shipments better can substantially cut demurrage and detention charges.
Accurate, timely shipment information allows companies to better manage costs and improve efficiency through an Order Management System (OMS). Without adequate visibility into logistics operations, a company may not realize that an air shipment could move by sea at a much lower cost or that an intermodal move is less costly than a straight rail or truck movement. Companies that shift modes typically get a 5% to 8% cost reduction. And integration of a Warehouse Management System (WMS) with an efficient Transportation Management System (TMS) can also bring about significant cost savings, and reduce labor costs if tied to an effective Labor Management System (LMS).
2. Inbound Freight: Inbound freight in particular is one of the most ignored areas for significant cost reduction. Case in point: Wal-Mart, who has recently shown a renewed interest. Companies with DCs often spend from 2% to 5% of their gross sales on inbound freight. Those who have paid attention view inbound freight management as controlling inventory in transit. Since inventory is, in many cases, your largest asset, the management of this asset is critical to business success. There is also a growing trend to use freight collect rather than prepaid freight terms, and a strong trend to mandate routing guides for suppliers rather than letting them control transportation. Tracking inbound freight receipts, Purchasing’s use of “order notify”, and realistic carrier appointment scheduling, can all free up docks and yards. These also allow better scheduling of receiving personnel and equipment, as well as help carriers better utilize their drivers’ limited on duty time.
The economic downturn has sparked greater interest in consolidation at origin. Consolidating, for example, inventory overseas, rather than sending multiple separate shipments from each supplier to a DC in the United States can lower overall costs. With transportation costs mounting and environmental sustainability becoming an area of concern, internationally you will see increased collaboration on freight consolidation options, and domestically you will see more strategic loading and multi-vendor consolidation to create full truckloads.
3. Outbound Freight: One of the largest expense items that is a primary target for cost reduction is outbound freight. With rate increases (depending on the transportation mode) ranging from 3% to 5%, this should be the first area to be challenged with: “What can we do to reduce our shipping costs?” Truly understanding the freight marketplace requires segmentation of rail, ocean, barge, intermodal, and air freight, which are for the most part very uniform modal markets. However, when you examine motor carriage you find a mixed bag of sub-segmented markets comprised of parcel, small LTL, large LTL, and Truckload. Outbound freight asset utilization is maximized by building larger, more economical loads within any one of these modes, or shifting to more economical modes.
4. CSA 2010: The availability of transportation capacity is critical to efficient and effective logistics operations. When capacity is constrained it is difficult for shippers to move product to customers in a cost-effective and timely manner. When the effects of the new Comprehensive Safety Analysis (CSA) 2010 initiative are felt, trucking prices will rise as carrier capacity is reduced below what shippers demand. What many don’t realize is CSA 2010 will shrink the pool of qualified drivers where a shortfall already exists, and therefore reduce overall truck capacity.
5. HOS Rules: In addition to CSA 2010, the new Hours Of Service Rules may result in shipment declination by carriers because of your facilities’ excessive unloading/loading times, yard congestion, and/or missed dock appointment waiting time. Why? Because drivers’ working hours are limited. When they arrive they are still ‘on-duty’, so even when trucks are not moving their drivers are burning hours they cannot recapture. Consequently, drivers and carriers are under increased financial and operational stress to “not run out of hours.” Therefore, when a declination occurs, pickup and delivery appointments will have to be moved for lack of truck capacity, and delayed deliveries will be the result.
So, knowing these issues and their consequences, what are you doing to avoid being the first to be slain?
This article is part of the monthly series authored by ISM’s Logistics & Transportation Group Board Members, who are current practitioners, consultants and educators. In future columns they will be sharing their views on a number of Supply Chain topics.
Thomas L. Tanel, CTL, C.P.M., CISCM, is the President and CEO of CATTAN Services Group, Inc., specializing in Logistics and Supply Chain issues. He is also the Chair of ISM’s Logistics & Transportation Group and can be reached at tanel@cattan.com or (979) 260-7200. Membership in the Group is open to all ISM members who are responsible for or have an interest in the Logistics & Transportation fields.
