In a tight capacity crunch that we are seeing now and as the manufacturing renaissance surges, in part thanks to reshoring, but mostly to the recovering economy and improvements by manufacturers to stay lean and mean, North American shippers, in order to sustain and scale their logistics’ departments, are needing to evolve and employ transportation best practices and a LTL shipping strategy. In this story of a shipper company of Cerasis, we want to show that sometimes it’s possible to teach an old shipper new tricks. Our shipper company, is a 92-year-old food service equipment and supply company.
Through our partnership with the food service supply industry, we have learned that we have allowed many of those shippers to grow effectively as restaurants are now upping orders and demand surges. However, just because revenues are increasing, it’s just as easy to remain unprofitable if you are not managing the costs associate with increased orders….and freight and transportation costs are those that can get out of control if you do not evolve as a shipper to manage those costs. You see, the more effective at freight management you are, the more you put back into the bottom line.
The great Wayne Dyer once said: “Abundance is not something we acquire. It is something we tune into.” Essentially, what Dyer is saying is that scaling and creating wealth means staying aware of how you manage that incoming money.
Our food service and supply company operates nationwide from its six full-service distribution centers (DCs) using its own fleet plus a network of national LTL carriers. And although it stocks over 12,000 items in its DCs, the company sources 50,000 items from a network of over 3,000 suppliers. Often, the logistics operation will instruct suppliers to ship direct to the customer, bypassing their DCs to expedite delivery and to save handling and transportation costs.
However, just few years ago the company’s efficiency was being challenged by a series of logistics issues and cause for pause as they evaluated their transportation best practices documents and LTL strategy. The food service supply company’s competitive bid process was skewered, complex, and not always data driven. The company’s corporate traffic manager, recalls negotiating rates separately with a series of LTL trucking partners, but was unsure that the she was always securing the best rate. When there were problems, it was difficult to ascertain the cause because carriers rarely were held accountable.
For shipments direct from vendor to customers, the process was even more uneven. Vendors were not always encouraged to seek out the most favorable trucking rates, and there was no single set of guidelines for securing trucking partners, making compliance haphazard. And when exceptions to normal delivery times occurred, there was very little recourse.
The solution came in the form of a thorough self-examination. The traffic manager and the logistics team discovered that they had to change the way the company procured logistics. However, what began as an attempt to realize savings on its LTL freight bill actually expanded into a fully functional logistics solution.
Back in 2007, the company was already using a program under our freight logistics services to handle its freight bill-payment. But under the Cerasis Account Manger’s and Traffic Manager’s direction and with the support of upper management, the company expanded its use of the logistics services in order to take full advantage of its LTL procurement, carrier relations, and freight management capabilities to follow more holistic transportation best practices (NOTE: we no longer offer our services as silos but rather as a complete holistic logistics solution).
“We had been managing our own LTL carrier contracts forever,” recalls the Traffic Manager. “We didn’t ship a lot of outbound LTL to customers, most of our freight spend was inbound, but we do a lot of drop shipments. I thought we had a good handle on things, but we started to look at whole pie, not just a piece of it.”
Like a lot of shippers and corporate traffic managers, the food service equipment & supply Traffic Manager decided to delve deeper into her company’s operations. She wanted to know exactly how carriers were hired, their strengths and weakness, and, perhaps most importantly, in which geographic areas special carriers offered the strongest chance of rate savings (we call this pricing by lane, or multi-tariff logistics).
Her story, and how she and the company achieved sustainable freight spending efficiencies over the past six years by employing the simple LTL strategy of handing off the entirety of the logistics and freight management to a third party, is a terrific example of how a shipper with complex distribution needs can partner with a third-party in an effort to put the latest technologies. These amazing technologies include such technologies as a Transportation Management System offered as web-based, customized with the company’s own business logic, or integrated to an ERP, to work to achieve new savings in transport operations by employing transportation best practices.
In 2007, the Traffic Manager at this nearly century old food service equipment company decided that it was time to take a top-to-bottom look at the company’s logistics needs. She dove deeper into how much the company was spending on transportation, the various freight movements, as well as it half-dozen distribution centers and the carriers the company was using in it’s current transportation best practices footprint.
Having already enlisted Cerasis for its freight payment services, the Traffic Manager and the company decided to let that partner take over management of its entire transportation network, which included outbound LTL to its customers and inbound LTL from manufacturers.
“It was a full outbound and inbound program, and the promise was over 10 percent in savings,” says the Traffic Manager. “How could we pass this up?”
The decision was made in early 2008 to alter the existing transportation best practices and LTL strategy. The shipper first chose to change the master tariff covering all its carriers, a move that involved collaboration with its carrier partners. All of its LTL carrier representatives were invited to Eagan, MN for three days of meetings to explain the changes.
“It was all or nothing,” recalls the Traffic Manager.
The carriers’ national sales reps then met with their local sales team and representatives of Cerasis and the shippers’ six DCs to get input from that critical level. “That was extremely important,” says Amy Cook of Cerasis. “The shipper managed tariffs from the corporate level, but the day-to-day problems are handled at the DC level. We wanted those people to still own that part of the operation with their local reps.”
Previously, the shipper had been using about eight LTL carriers. Those incumbent carriers were invited to resubmit bids using the Cerasis carrier relationship management program. The Traffic Manager stated that one of the principal benefits for the carriers was the ability to receive accurate and complete information up front. First, and now with every shipper currently at Cerasis or any shipper who is interested in Cerasis’s services, the Cerasis carrier relations department analyzed the shipper’s own freight history to determine shipping lanes, volumes, and carriers employed. After this process Cerasis then develops a unique “freight profile” by examining the type of freight shipped.
The program then models the potential savings for the shipper and develops a request for procurement/pricing (RFP) before choosing the most efficient mode and carrier. After conducting that review, the eight incumbent LTL carriers the shippers had been using were retained after they submitted new bids. “They were retained, but on different levels,” said Cook.
Following the process, about three or four new LTL carriers were added to the shipper’s network. From a systems operations standpoint, said the Traffic Manager, the change was pretty smooth. “But bringing on new carriers was a learning curve,” she admits. “We understand that change is hard for everyone, and here are nuances to our business. Our customers are restaurants, schools, hospitals and institutions, and they often require specialized delivery services, such as inside delivery and lift gates. It’s not standard freight.”
Operationally, carriers had to be told exactly what was expected—and vice versa. The traffic manager went on to say that “getting to each other from operational standpoint” was the biggest hurdle. That was overcome through the diligence of the shipper’s DC personnel becoming open to working with new carriers, and their new ways of conducting business and operations.
According to the traffic manager, the savings were significant. Last year, after implementing these new transportation best practices and LTL strategy, company officials reported that they saved 7 percent on their LTL freight spend, while its savings over five years have been nearly 12 percent on a sustained basis. “I’m really not surprised by the results, but I’m definitely pleased by it,” says the Traffic Manager.
(NOTE: Not all direct savings are the complete savings realized. Both time, energy, and resources need for LTL freight shipping were decreased, providing a combination of both soft and hard cost savings. That is the long term sustainable value of a employing an LTL shipping strategy with a third-party partner.)
Besides creating efficiencies on the inbound and manufacturing end, the shipper’s use of Cerasis’s holistic LTL freight services has offered other cash saving advantages. The company has put other tools furnished with the Cerasis Rater, the logistics company’s TMS, to work to shorten its order-to-cash cycle as well as monitor both carrier and supplier performance-to-plan.
The rating tool helped the shipper determine the most efficient weight rating of shipments. It can also provide accurate transit times. The web-based rating/routing engine identifies the preferred mode and carriers to use for a given shipment—both cost and service comparisons are available. The information can also be extended to other customers within, or external to, the shipper’s operation.
According to the shipper’s Traffic Manager, the company also employs the Cerasis Rater TMS for vendors when using drop shipments. And since supplier-direct shipment is a common occurrence, the company extended the use of the rating software to its suppliers so they could route direct shipments to customers and employ the company’s preferred carriers and enjoy their preferential rates.
Instead of those vendors getting rates from just one carrier, it uses the new freight rating tool to get their own freight estimates. With these new transportation best practices in place, value is definitely being shown to the shipper. “Our accounting group then uses it to apply freight charges to vendor invoices,” says the Traffic Manager.
Yet another tool in the program, invoices online, keeps a rolling history of freight invoices. The shipper uses it as an analytical tool, pulling all pertinent information to analyze vendors to see if they’re using the most efficient carriers. “This simply allows us to work with vendors to use the most efficient carrier,” adds the Traffic Manager.
In this delicate area, the Traffic Manager says she uses a “three strikes and you’re out” approach. If she discovers vendors are not using the carrier with the best freight rate, she gives them one strike. “If you do it three times in a row, three strikes and you’re out and you get penalized.”
For example, the company can take its rating information and compare it with SAP information through integration. For instance, vendors who don’t fulfill an entire purchase order with one shipment can be highlighted through use of the data analysis. “This particular feature has been extremely beneficial,” says the Traffic Manager.
Vendors who had been shipping one item in a shipment were also asked to combine into larger volumes. This resulted in hard savings because the shipper worked with so many different vendors.
Having complete access to data was useful in other ways as well. The Traffic Manager found that it was a complete analytical tool, not just a freight payment mechanism. Through her carrier partners, the Traffic Manager was able to analyze and improve the companys’ supply chain network on an ongoing basis, creating new efficiencies in her network—and new savings for the budget.
To accelerate its order-to-cash cycle, the shipper extended use of the rating methodology to its accounting department. Accounting employs the tool on supplier-direct shipments to determine what the pre-paid shipment cost for the invoice should be, and that amount is added to the invoice.
If the shipper waited for the carrier freight bill to arrive before it produced the invoice for the product there would be a substantial delay. Now it has the ability to receive the freight bill, match it to the order, and transcribe the shipment costs before the invoice could be completed and sent.
Employing these tools to pre-determine shipping costs allows the company to invoice the customer immediately. According to traffic manager, the reporting system has been particularly important to the company during the past several years when staff reductions occurred.
“I think it makes my job easier, but it’s opened our eyes to some other things,” the Traffic Manager adds. “I used to make more work for myself, but now the work I’m doing is improving our company’s performance overall.”
If you would like to evaluate your transportation best practices and your current LTL shipping strategy, contact Cerasis for a free freight logistics consultation.
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