In the last blog, I highlighted some of the opportunities that shippers miss out on to save money on freight when they don’t manage their freight spend data effectively. What steps can a shipper take to correct this situation? Here is a partial list.

• Utilize a Transportation Management (TMS) System. TMS systems have changed significantly over the past ten years. Shippers can now buy or lease a TMS system at a reasonable rate. For companies that don’t wish to make this investment, they can reap many of the benefits without making a capital investment by working with a logistics service provider that has a leading edge system.

• Make sure the company’s or LSP’s TMS system is capturing the key data elements on a daily basis that are needed to monitor freight expenditures. This includes complete and accurate commodity descriptions, actual weights and billed weights, capturing the various cost elements of their shipments individually such as the freight rate, fuel surcharge, currency exchange, accessorial charges, carrier name, origin and destination cities, state/province and postal codes/zip codes, ship date and arrival date.

• Sort the data in the following ways to help identify opportunities for improvement:

             By carrier – to reduce the company’s dependency and vulnerability in case of a strike or business failure and to leverage shipping volumes

A company’s freight costs often represents between two and ten percent of total revenues. For many companies in the manufacturing, distribution and retail sectors, their freight spend has a direct impact on their bottom lines. Nine years ago I wrote a blog with the title above. In that blog, I identified one of the consistent problems we encounter in working with shippers on a day to day basis, namely a lack of complete and accurate information on their freight transportation activities.

Nine years later, this problem persists and it is not limited to just small companies. In fact, many companies with freight expenditures of five to fifty million dollars or more face the same problem.

The challenge now is that freight companies have figured out that if they use their scales and dimensioning devices, they can weigh and measure the freight they move more accurately. If shippers have poor practices that hinder the flow of their assets, they can calculate the cost of these deficiencies. They are now charging more aggressively for these additional costs and for the precise cubic space occupied by the freight. As a result, carriers can and are securing revenue that they may have missed in the past.

What is interesting is that some of these shippers have high quality ERP and accounting systems. However, when you try to extract a year’s worth of freight transportation data, you receive a file that is riddled with errors and omissions.

The 2015 Surface Transportation Summit (www.surfacetransportationsummit.com) will be held at the Mississauga Convention Centre on October 14. We are delighted to report that the event has a new partner, the Freight Management Association of Canada. Here is an overview of the day.

Many of us receive information from multiple news sources on a daily basis. You may start your day with the morning newspaper in hard copy or on your iPad or Surface. If you are in the transportation industry, you are likely receiving trade magazines in hard copy and/or digital form, news feeds and white papers from various sources, updates from your LinkedIn groups, Twitter feeds, Facebook updates and of course dozens or even hundreds of e mails and text messages throughout the day.

Of course many of us have interests beyond freight transportation that may include Business, Investing, Sports, Technology and/or a range of other topics. Trying to stay abreast of the news in these areas can often result in another set of publications and news feeds. The management of information can be quite a challenge.

Using software developed by paper.li, Dan’s Transportation Newspaper tries to make life easier for transportation professionals. Published daily, 7 days a week, 52 weeks a year, the primary focus of the paper is Freight Transportation. Stories on truck, rail, air and ocean shipping are included as are stories on supply chain, trucking, warehousing, technology, data and energy management. Since many of us are keen students of Business, Economics, Social Media and Sports, the scope of the newspaper includes important stories in these areas.

The freight sections include articles from the Journal of Commerce, Transport Topics, American Shipper, Inbound Logistics, Truck News, Today’s Trucking, Logistics Management and other American and Canadian sources. The Business section contains features from the Wall Street Journal, Harvard Business Review, The Economist and other leading publications. There are 25 major news feeds that supply articles to the newspaper on a daily basis.

Some companies have strong leaders with good strategies and good systems. Unfortunately, they don’t put the pieces together and therefore deliver less than stellar freight management results. In other words, the execution isn’t there.  Projects are identified but they don’t produce the desired results.

Some companies seem to adopt a “flavour” or “mission” of the month approach. They hire a consultant to adopt lean manufacturing, lean logistics or balanced scorecards. The tools to make these systems work are never put into place properly and before you know it, they criticize the consultant, move on to the next consultant and don’t accomplish much of value.

While these companies may be able to generate pretty reports, the programs were ill conceived in the first place. They don’t produce results. This can lead to the “blame game.”

Achieving operational excellence is not about sexy slogans and programs. It is about teamwork, communication and commitment. There has to be an identification of the root causes of the problems. There has to be a commitment from the leadership to fix the problems. The company leaders must stay the course to fix the problems. They cannot assume that since a program has been put in place, the results will come automatically.

As we all know, freight capacity throughout North America is tightening. A shortage of drivers, new government regulations and rising fleet costs are making it increasingly challenging for trucking companies to operate their fleets. As a result, carriers are being selective in terms of the shippers for whom they will offer their fleet capacity.

Smart carriers are ranking their customers on the basis of profitability and ease of serving. Shippers must now make their companies and their freight attractive to their carriers to secure the capacity they need. These are some things they can do.

Run a Clean Operation

Simply put, shippers need to be organized. As carriers enter their customers’ yards, they want to find an available dock door and they want the freight and paperwork to be ready for pick-up. They don’t want to have to wait as other carriers to block their way. They also don’t want their customers to call them back 30 minutes after they left the yard to pick up an extra skid or two. In other words, trucking companies want consistency, reliability and predictability. They want to work with shippers that are efficient and keep their costs down.

Throughout this series of blogs, the focus has been on how Best in Class shippers ensure their freight is delivered at the right place, at the right time and intact. The beauty of freight management is that so much about transportation is measurable. Over the years we have observed how Best in Class shippers pull away from mediocre performers and industry laggards in the area of measuring performance. They tend to have better data and more robust and relevant tools and reports. These are some of the Key Performance Indicators (KPIs) and Reports that they utilize.

Macro Financial Indicators

The first set of financial ratios helps identify trends in supply chain costs and their impact on the business over time. Key ratios include:

Supply chain costs as a % of Revenue

Success in business comes from crafting and executing effective business strategies. The attainment of strong financial performance comes from integrating and aligning the various strategies of the business into a cohesive force. A company’s supply chain strategy, of which transportation strategy is a key component, is often a critical piece of the company’s business strategy. We often observe that the freight strategies of our clients are not well aligned with their business strategies. In fact, they often inhibit these companies from achieving the bottom line results that they are so desperately seeking. Here are some of the things that we commonly observe.

A Failure to Recruit and Train Top Quality Talent

As noted in an earlier blog (http://www.dantranscon.com/index.php/blog/entry/becoming-a-best-in-class-shipper-3-organization), it takes leadership and management skill to be an effective supply chain executive. By not hiring and training top quality management talent to this position, the company receives mediocre leadership and weak performance.

Some companies don’t fully appreciate the scope of knowledge (http://www.dantranscon.com/index.php/blog/entry/becoming-a-best-in-class-shipper-2-knowledge) that is needed to be a Best in Class Transportation operation. While companies will go out and hire top notch sales and engineering professionals, they will “force fit” unqualified individuals into the role of Transportation Manager. Without the knowledge, skills and resources, the company gets what it deserves - - poor performance.

The previous blog focused on some of the core freight management processes that are part of a company’s supply chain. For many years, prior to the age of computers and tablets, these processes were performed with manual procedures, calculators and spreadsheets. Some companies still use spreadsheets to manage a few or all of these processes. The good news is that there are some excellent technology-based tools that shippers can acquire or outsource to manage freight transportation. They include:

Transportation Management Systems (TMS)

A good TMS system can perform many of the activities outlined in the previous blog (http://www.dantranscon.com/index.php/blog?view=entry&id=202). These include shipment planning, shipment consolidations, mode and carrier selection, carrier performance management, exception reporting and a host of other functions. When linked with a strong Warehouse Management System (WMS), they provide a powerful integrated system to perform “end to end” supply chain management.

Shipment Loading

One can view a supply chain as a series of processes. From inbound freight management, the process of picking up raw materials, to last mile delivery, freight management is a group of practices and procedures that, when performed well, are seamlessly integrated to ensure a company’s goods, arrive on time, at the right place, damage free. Best in Class shippers have tight processes that perform each of the following activities in a highly effective manner.

• Inbound Freight Management

Often overlooked and underappreciated, strong inbound freight management processes allow shippers to leverage the full volume of their shipping activities in their carrier rate negotiations. They ensure shippers treat this as effective means of expense management rather than as a profit center for their vendors. When done well, inbound freight management permits shippers to create round trips and continuous moves to improve network optimization and reduce costs. They ensure inbound materials arrive in the right qualities at the right time at the lowest cost possible.

• Shipment Planning

In many firms, freight costs can be in the millions or tens of millions of dollars. This large expense can represent a significant percent of a company’s revenue. As a large expense item, it needs to be managed very skillfully.

The first blog in this series (http://www.dantranscon.com/index.php/blog/entry/becoming-a-best-in-class-shipper-1-freight-data-management) looked at the need for detailed, accurate, freight spend data. One of the benefits of having this type of quality data is that it allows the transportation leaders of an organization to create a quality freight budget. The budget should be tied directly to the company’s business plan and supply chain strategy. Every manufacturer or distributor must make certain assumptions about how it plans to transport its inbound raw materials and deliver its finished goods. These assumptions outline the modes and expected costs.

The budget should detail on at least a monthly basis, the projected revenues and freight costs. Since many companies utilize multiple modes (e.g. small parcel, LTL , intermodal, etc.) and multiple service options (e.g. next day by 9:00 AM, regular ground, air freight etc.), it is important to capture this type of granular data since the costs will vary based on the mode and service chosen. Similarly, projections should be made concerning fuel surcharges and any other extra cost that can be a significant component of the freight budget.

The company should also produce a monthly transportation expense variance report. The report should be granular and provide variances on expenses by mode and cost item. It should highlight percentage changes in modal utilization and carrier collaboration.

It takes leadership and management skill to become a Best in Class shipper. One question many companies face is where should Transportation fit within the company’s organization structure? Clearly one size does not fit all since manufacturers may have freight budgets ranging from a few hundred thousand dollars to tens of millions of dollars. The Transportation leader in a small enterprise doesn’t need the skill set of an individual who manages a multi-modal, multi-division, multi-million dollar freight budget.

This is not to say that a manufacturer with a small freight spend can be managed by an individual with limited or no freight transportation expertise. In smaller enterprises, we often observe an individual in a small office in the warehouse who has been there for many years, reporting to the controller or operations manager. These people often have a rudimentary understanding of freight and have been doing things the same way for many years.

Even small manufacturers and distributors should ask the question, do their transportation managers have the data (blog 1 in this series, knowledge (blog 2 in this series) and management skill to lead this function effectively. In addition do they have the processes and technology in place to be effective? Supply chain management is rapidly changing. If your freight leaders are lacking in many of the areas outlined in these blogs, it is important for their supervisors to ensure that they are receiving the necessary training. Their lack of expertise may be costing the firm large sums of money (in missed cost saving opportunities). For companies where Transportation is not a core competence, consideration should be given to outsourcing these functions to a logistics services provider that is better equipped to manage transportation.

In larger firms, there are other issues to address. Does the leader of Transportation function have input to the strategies of the business; does the company have a well-conceived supply chain strategy and does this individual have a seat at the decision-making table? Is supply chain management one of the core functions of the company or is Transportation viewed as an end-of-the line execution process? In other words, does the company consider alternate supply chains, alternate modes and transit times, consolidating and deconsolidating freight, where financially attractive and beneficial to its customers? Alternatively, is the transportation department expected to expedite the orders made by Sales or find a way to move partial or full truckload shipments that come off the production line after the truckers have left the building? These are telltale signals that Transportation is not properly valued in the company.

 Best in Class shippers possess an understanding of the following subjects.

 Modal options and trade-offs (e.g. Air, Road, Rail, Marine)

 Carrier selection and management in each mode of transport

 Routing guide preparation and compliance tracking

Best in Class shippers have high quality, granular, historical freight data. They capture clean, accurate, complete data on all of their inbound, outbound and inter-branch transfers, across all modes. The most fundamental building blocks are the individual boxes, parcels, envelopes, cartons, drums or pallets.

Capturing this data correctly and completely allows a shipper to address such fundamental issues as the type of container to be used, space occupied, loading plan etc. This data is also critical when conducting an RFP as a means of selecting the appropriate modes and carriers. The data that each shipper maintains must contain certain data elements in order to be useful for analysis and planning purposes. The following data fields are essential.

 Shipment number

 Pick up date

Many manufacturers and retailers throughout North America spend millions of dollars a year on freight transportation. Freight costs can represent between 1 and 10 percent of a company’s operating revenue, one of the largest cost items.  They are often treated as a necessary evil. From time to time a shipper may try out a new mode of transport, a new carrier or conduct a freight bid. Other than that, freight programs tend to remain fairly static from year to year.

During our years of consulting with shippers all over North America, we have observed a pattern of Best Practices that elevate certain shippers and companies above their peers. Employing these Best Practices allows these companies to reduce freight costs and improve profitability. One of the best ways to find out where a company stands in the area of Freight Management is to conduct a Transportation Audit. It is our view that shippers with a freight budget in excess of $1 million should periodically conduct an independent audit of their freight programs. Just as businesses audit their accounting practices, looking for opportunities for improvement, Transportation departments should do so as well. You might be amazed at what you find.

Freight bid projects have become one of the most commonly used methods of sourcing freight transportation services over the past two decades. They have become popular with shippers for obvious reasons. When done well, they produce good results. Manufacturers and distributors can strengthen their supply chains by selecting a dedicated group of professional transportation companies and save money on freight costs.

The carrier perspective on freight bids is often quite different from that of most shippers. They tend to dislike them for several reasons.

1. Many bids are not well done.

2. The process of responding to these bids is a lot of work and they often don’t produce any business.

Monitoring carrier performance is an ongoing process. Some trucking companies will track performance for new shippers with a heightened level of intensity for a designated period of time and then revert back to old habits or standard service levels when the shipper’s focus is no longer there.

Every shipper should understand that there is no start or finish date to monitoring carrier performance. During the bid process, shippers need to outline the service performance that they expect and set up processes and reports to receive actual performance data on an ongoing basis. A web-based dashboard can allow shippers to monitor key KPIs (e.g. missed pick-ups, on-time deliveries) in real time. Monthly scorecards can provide the shipper with detailed reports and highlight any service failures that may have occurred. For new carriers, weekly reports and meetings may be necessary to ensure a smooth implementation.

As the carriers come up the learning and performance curves, these meetings can be cut back to monthly, quarterly or semi-annual, as needed. Success from freight bids is a result of a high level of attention to detail. Dashboards and scorecards that provide information on service, billing accuracy, missing or lost freight, are invaluable tools. These tools coupled with ongoing meetings will help keep the carriers’ “feet to the fire” and maintain the levels of savings achieved.

Some shippers operate under the misconception that once the bid awards have been made, the RFP process has been completed. This is not the case. There is another critical step that can “make or break” the bid process. It is absolutely essential, particularly in multi-plant companies, to have a process in place, immediately upon implementation, to monitor routing guide compliance.

There is an old adage in business that you cannot manage what you cannot measure. This fully applies to the implementation of freight bids.

Never underestimate the power of human relationships. Tickets to sporting events, golf outings, annual fishing trips or vacations at a carrier’s summer or winter residence can do wonders to dismantle the work of a freight bid. In our work we have seen companies use low ranked carriers, or even carriers not listed in the routing guide, to move their freight. To maintain certain long standing carrier relationships, some shippers can and will find reasons to make a switch back to the incumbents.

We would recommend that you not conduct a freight bid until your company is able to put in place some form of reliable compliance tracking. Even a weekly spreadsheet that displays by lane, the carriers moving the freight that week and the reasons for replacing a carrier in the routing guide, would be a helpful tool.

If your company provides hundreds of thousands or millions of dollars in revenue to certain carriers, they are a critical part of your success, or failure and vice versa. While a rate quote may be a suitable form of agreement between shipper and carrier, for low volume service providers, it is not adequate for larger bid awards. There are several reasons for this.

First, a written agreement between the parties can spell out the nature of the business relationship (e.g. parties to the agreement, governing law of which country, state or province, services expected, etc.). Second, in this era of tight capacity, there is a requirement to obtain written commitments from transport providers on various elements of service performance (e.g. on-time pick-up, transit times, billing accuracy etc.).  These can be detailed in a set of SLAs or Service Level Agreements that can be attached to the core agreement.

Third, the full set of rates, accessorial charges and terms and conditions should be attached so there is no disputing the costs the shipper will incur over the agreed contract period.  Fourth, there should be a written understanding concerning the length of the bid award and a mechanism or formula (e.g. CPI increase) for rate increases in subsequent years. Fifth, there should be a written understanding as to what measures can be taken in the event of non-performance.

The intent is not to create legalistic, adversarial relationships with a company’s core carriers; rather signing written agreements will establish a framework for service performance and communication that can promote understanding and co-operation. In other words, the document will provide clarity with respect to expectations, performance and costs that can be quite beneficial to both parties.  

As the freight bid process comes to conclusion, there is an urgency to award the business so the shipper can begin enjoying  the cost savings that were achieved. While this is understandable, it is important to keep several things in mind.

First, if business is being awarded to new carriers, they need to come up a learning curve before they are as experienced as the incumbents. Second, some new carriers may have over committed during the bid process and are not able to perform at the expected level. For example, they may only serve certain lanes on particular days of the week or they may not have enough head haul or back haul traffic to bring their equipment back as quickly as expected.

Sometimes the shipper is at fault by not identifying the full scope of their requirements during the bid process. The company may have forgotten to disclose or incorrectly assumed that every carrier can make an 8:00 AM pickup or delivery every day. When informed, the carrier may determine that the best they can do, with their network, is effect a 10:00 AM or 11:00 AM delivery but no earlier. This may not be satisfactory for the shipper since they may need the freight early in the morning so they can dispatch their delivery vans at 8:00 AM to provide the service demanded by their clients.

We suggest that you test market at least some of the new carriers while keeping the existing carriers in place on those blocks of business. In other words, share the freight until such time that the new carriers have demonstrated that they can meet the service requirements. Guide the new carriers through the transition in order to increase their odds of success. Remember that this will create a win/win situation. This is also a good test of the professionalism of your incumbents.