2009 best practices in transportation part 1
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You are viewing presentations from conferences that I have attended. Please enjoy & if we can help you with any logistics projects in the Americas please contact me at 678.364.3475Bill was also on the Board of Directors for the St.Vincent DePaul Foodbank in Roseville California helping with the fund raising and meals to the poor program. While based in Northern California he was successful in fund raising programs for the Crusade of Mercy and helped Father Dan Madigan at the Sacramento Food Bank also. For 2008, Bill is a member of the Board for WORKTEC on also an Advisory Board Member for Boys and Girls Club for Metro Atlanta-Clayton County Chapter. See www.worktec.biz or www.bgcma.org . Bill is also on the Board of Directors for the Southeastern Warehouse Association & represents Georgia for 2010-2012.Regards,Bill StankiewiczVice President and General ManagerShippers WarehouseEmail: [email protected]://www.linkedin.com/in/billstankiewicz2006http://twitter.com/BillStankiewiczhttp://www.topexecutivesnet.com/index.aspxTRANSCRIPT
© Copyright 2009 Chainalytics, LLC.
Empowering Fact-Based Decisions Across Your Supply Chain
1
Best Practices in Transportation Procurement
Dr. Chris CapliceExecutive Director, MIT-CTL
Gary GirottiVice President, Chainalytics LLC
March 3, 2009
© Copyright 2009 Chainalytics, LLC.
Empowering Fact-Based Decisions Across Your Supply Chain
2
Who is Chainalytics?
• Chainalytics formed in 2001
– HQ in Atlanta, GA, with second office in Bangalore, India
– 50 FTEs in US and India
• Two Practice Areas:
– Supply Chain Strategy
– Transportation Planning
• Recent Accolades
– “Great Supply Chain Partner” Global Logistics and Supply
Chain Strategies
– Named for five years running: 2004-2008
– “10 Coolest Supply Chain Boutiques” ARC Advisory Group in July, 2007
– “Top 100 Innovations” Supply and Demand Chain Executive
– 2006 Award for Model-Based Benchmarking
– “Pros to Know” Supply and Demand Chain Executive
– Gary Girotti (2007), Jeff Metersky (2006), Michael Kilgore (2005)
ContinuousAnalysis
Realize
2
© Copyright 2009 Chainalytics, LLC.
Empowering Fact-Based Decisions Across Your Supply Chain
3
Agenda
• How should shippers procure transportation?
• What impact do policies and practices have on rates?
• How should a shipper handle fuel volatility?
© Copyright 2009 Chainalytics, LLC.
Empowering Fact-Based Decisions Across Your Supply Chain
4
Guiding Principals –Procuring Transportation Services
• Transportation is not a commodity – it is a service
• A transportation procurement event is as much a relationship management process as a pricing event
• Going to market, or market testing your rates, should be a healthy part of the relationship management process
© Copyright 2009 Chainalytics, LLC.
Empowering Fact-Based Decisions Across Your Supply Chain
5
Procurement Best Practices:Procurement Life Cycle
Data
But these areas have the biggest impact on actual savings realized
These areas get all the focus
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Empowering Fact-Based Decisions Across Your Supply Chain
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Procurement Best Practices:Getting Ready – Benchmarking Report Example
Origin State
Origin Region
Dest State Dest Region
Distance (miles)
Annual Volume
Service Type
Movement
Contract Type
Actual RPM
Actual CPL
Actual Annual Cost
Est. RPM Est. CPL
Est. Annual Cost Diff. CPL
Diff. Percent Status
FL FL_TAM GA GA_ATL 474 12 S OB CC 0.71$ 336$ 4,032$ 0.77$ 367$ 4,399$ ($31) -8% BELOW
FL FL_TAM NC NC_RAL 662 8 S OB CC 0.83$ 549$ 4,390$ 0.93$ 617$ 4,935$ ($68) -11% BELOW
MO MO_SPR MN MN_RCH 566 6 S OB CC 1.39$ 786$ 4,717$ 1.44$ 813$ 4,879$ ($27) -3% BELOW
OK OK_TUL TX TX_HOU 485 6 S OB CC 1.85$ 899$ 5,396$ 1.58$ 765$ 4,587$ $135 18% ABOVE
OK OK_TUL IA IA_DES 462 8 S OB CC 1.47$ 680$ 5,443$ 1.36$ 629$ 5,028$ $52 8% ABOVE
IN IN_IND MI MI_RAP 299 11 S OB CC 1.80$ 538$ 5,914$ 1.79$ 534$ 5,878$ $3 1% AT
OK OK_TUL MO MO_STL 403 13 S OB CC 1.53$ 616$ 8,008$ 1.44$ 580$ 7,542$ $36 6% ABOVE
OK OK_TUL IL IL_CHI 701 8 S OB CC 1.46$ 1,023$ 8,184$ 1.28$ 894$ 7,152$ $129 14% ABOVE
MO MO_SPR TX TX_HOU 660 8 S OB CC 1.65$ 1,088$ 8,700$ 1.57$ 1,038$ 8,304$ $50 5% ABOVE
FL FL_TAM TN TN_MEM 823 16 S OB CC 0.78$ 644$ 10,304$ 0.86$ 711$ 11,370$ ($67) -9% BELOW
CA CA_SAC CA CA_SDI 542 17 S OB CC 1.22$ 660$ 11,220$ 1.43$ 774$ 13,162$ ($114) -15% BELOW
CA CA_SAC AZ AZ_TUC 918 8 S OB CC 1.58$ 1,450$ 11,603$ 1.50$ 1,374$ 10,990$ $77 6% ABOVE
IN IN_IND OH OH_CLE 321 21 S OB CC 1.78$ 571$ 11,995$ 1.81$ 580$ 12,178$ ($9) -2% AT
MO MO_SPR CO CO_DEN 759 8 S OB CC 2.04$ 1,550$ 12,404$ 1.85$ 1,404$ 11,234$ $146 10% ABOVE
CA CA_SAC NV NV_VEG 613 13 S OB CC 1.61$ 989$ 12,856$ 1.75$ 1,072$ 13,932$ ($83) -8% BELOW
FL FL_TAM AL AL_BIR 608 30 S OB CC 0.72$ 440$ 13,200$ 0.83$ 507$ 15,203$ ($67) -13% BELOW
FL FL_TAM LA LA_ALE 823 19 S OB CC 0.91$ 750$ 14,258$ 0.93$ 764$ 14,507$ ($13) -2% AT
IN IN_IND MN MN_RCH 617 19 S OB CC 1.29$ 799$ 15,173$ 1.31$ 808$ 15,356$ ($10) -1% AT
OK OK_TUL TX TX_ANT 426 19 S OB CC 1.99$ 849$ 16,124$ 1.76$ 748$ 14,207$ $101 13% ABOVE
CA CA_BAK OR OR_POR 978 10 S OB CC 1.76$ 1,723$ 17,233$ 1.61$ 1,579$ 15,791$ $144 9% ABOVE
PA PA_HAR WI WI_MIL 817 21 S OB CC 1.03$ 842$ 17,687$ 0.99$ 805$ 16,912$ $37 5% ABOVE
CA CA_SAC UT UT_SLC 683 11 S OB CC 2.37$ 1,621$ 17,829$ 1.72$ 1,177$ 12,949$ $444 38% ABOVE
OK OK_TUL CA CA_SAC 1,825 8 S OB CC 1.31$ 2,390$ 19,118$ 1.19$ 2,172$ 17,380$ $217 10% ABOVE
CA CA_SAC AZ AZ_FLA 813 13 S OB CC 1.84$ 1,494$ 19,427$ 1.58$ 1,286$ 16,724$ $208 16% ABOVE
PA PA_PHI NC NC_RAL 456 40 S OB CC 1.09$ 496$ 19,860$ 1.16$ 529$ 21,146$ ($32) -6% BELOW
MO MO_SPR IL IL_CHI 512 30 S OB CC 1.41$ 722$ 21,672$ 1.50$ 767$ 23,020$ ($45) -6% BELOW
CA CA_BAK UT UT_SLC 751 17 S OB CC 1.84$ 1,383$ 23,514$ 1.81$ 1,356$ 23,054$ $27 2% AT
Rate Benchmarking:• Look at lanes that are both over market and below market
– Why?
• Investigate by facility
– Are inbound and outbound lanes above market?
• Estimate the saving expectations
– ‘Above market’ lanes move to ‘Market’, ‘Below market’ lanes increase ½ way to ‘Market’
© Copyright 2009 Chainalytics, LLC.
Empowering Fact-Based Decisions Across Your Supply Chain
7
Procurement Best Practices:Getting Ready – Partner Carrier Criteria
Criteria Description
Categorization:
- Scope of Service
Is the carrier currently providing a service that, if disrupted, could have a significant impact on service or cost?
Example:
• Is the carrier currently handling a significant portion of freight such that a substantial change would be an implementation risk?
• Is the carrier providing a critical service that is in or out of the scope of the negotiation?
– Store support, customer support, dedicated support, on-site personnel
Risk Assessment:
- Organizational Strength
Does the carrier have the capability to support you over the long term?
• Planning, Operations, Technology
Risk Assessment:
- Financial Strength
Is the carrier financially sound?
Is the carrier too financially dependent on your company?
“Partner carriers: the 1 – 4 carriers that you need to be successful”
After you release the negotiation package, meet individually with partner carriers, re-iterate what you are trying to accomplish and get an understanding of their objectives.
Segment your carrier base into Partners, Core Carrier and others. This segmentation is not about pricing leverage, its about security and risk mitigation.
© Copyright 2009 Chainalytics, LLC.
Empowering Fact-Based Decisions Across Your Supply Chain
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57 Venders3,712 Loads
2 Venders1,956 Loads
4 Venders746 Loads
55 Venders7,054 Loads
13 Venders4,640 Loads
Procurement Best Practices:Getting Ready – Capacity Problem Areas Example
© Copyright 2009 Chainalytics, LLC.
Empowering Fact-Based Decisions Across Your Supply Chain
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Procurement Best Practices:Procurement Life Cycle
Data
© Copyright 2009 Chainalytics, LLC.
Empowering Fact-Based Decisions Across Your Supply Chain
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Procurement Best Practices:Collecting Rates
Rate Collection and Communication:
1. After you release the negotiation package, meet individually with partner carriers, re-iterate what you are trying to accomplish and get an understanding of their objectives
2. Think through the optimization scenarios you want to see before the carriers submit their pricing• Carrier constraints: Limits on volume to brokers, minority carriers,
Smartway carriers, etc.
• Geographic constraints: Number of carriers per region, per DC, etc.
• The objective is to understand how the cost curve will behave
3. Check, Check, and Re-check carrier inputs• Carriers complete 100s to 1,000s of bids a year
• There is a lot of turnover in their pricing groups
• They make errors
© Copyright 2009 Chainalytics, LLC.
Empowering Fact-Based Decisions Across Your Supply Chain
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Procurement Best Practices:Procurement Life Cycle
Data
© Copyright 2009 Chainalytics, LLC.
Empowering Fact-Based Decisions Across Your Supply Chain
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Procurement Best Practices:Scenario Analysis
Scenario Analysis:
1. Review initial results to get a lay of the land• Who bid aggressively and who did not?
• Does this make sense?
• How sensitive are the results to the number of carriers, to particular carriers, etc.
2. Begin the process of engineering the results• How balanced are the flows in and out of different DCs and regions?
• Meet with the partner carriers and begin pressure testing the results– Before the meeting, run some analyses to develop an understanding of what
would and would not be costly to adjust
– Do not chase the pennies
3. Be prepared to be stick to your published schedule• Nothing aggravates a carrier more than an awarding process that drags
out for several months
© Copyright 2009 Chainalytics, LLC.
Empowering Fact-Based Decisions Across Your Supply Chain
13
Procurement Best Practices:Procurement Life Cycle
Data
© Copyright 2009 Chainalytics, LLC.
Empowering Fact-Based Decisions Across Your Supply Chain
14
Procurement Best Practices:Post Awarding
Post Awarding:1. Have a documented and well supported transition plan in place
• Communicate the plan internally• Document information flows and communication protocols with the carriers• Be prepared to visit your sites with the carrier and introduce the operations
personnel to the local carrier reps
2. Track performance to plan• Loads tendered to carriers other than the awarded carrier, by lane• Carrier tender acceptance / decline rate, by lane• Variances in volume of freight flows vs. the projection• Loads executed in a way that resulted in a post-tender carrier change (e.g. missing
an Inter-modal cut time)
3. Establish and communicate a regular market testing schedule• Go to market regularly• Carrier networks change more than shippers• A bid does not mean you have to change carriers but as a responsible procurement
manager you should test the market regularly
© Copyright 2009 Chainalytics, LLC.
Empowering Fact-Based Decisions Across Your Supply Chain
1515
Bid Leakage
Theoretical Savings Target
Carrier FailureImplementation
Failure
Bid rate result assuming perfect execution
New carrier not working out or carriers not accepting tenders
Incorrect tendering be that by mode or carrier or lane definition, etc.
Base Costs
Historical average costs per lane prior to procurement event
Procurement Events Savings Leakage
UncontrollableTypically 3-5% of savings potential
Typically a function of laps in
relationship mgmtCan be 25%-50% of potential savings
Where Leakage Occurs
Savings “leakage” typically occurs as a result of poor carrier relationship management or errors in new rate implementation
Operational Reality
Expedites and outliner events that need to be cleaned out of the saving potential
Starting pointNot real
Easy to correct but tough to find
Can be 5%-10% of potential savings
© Copyright 2009 Chainalytics, LLC.
Empowering Fact-Based Decisions Across Your Supply Chain
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The PVA Story- Accomplishments to Date
Comparison of actual post bid analysis of expected saving to real savings
• Study #1 and #2 post bid analysis shows that roughly half the potential (or theoretic) bid savings was lost
• Through rigorous carrier management and communication during the bid process and systematic monitoring and action planning post bid, the PVA client retained that vast majority of the bid potential
47.5%
58.5%
3.1% 2.7% 2.5% 1.6% 0.6%0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
Study #1 Study #2 M1 M2 M3 M4 M5
Percentage "Leakage"
Attributed to strong carrier relationship management and active cost vs service analysis during bid awards
Attributed to rigorous and systematic post-bid analysis and management
By month saving leakage for PVA client
© Copyright 2009 Chainalytics, LLC.
Empowering Fact-Based Decisions Across Your Supply Chain
17
Integrated Carrier/Transportation Management Deliverables
Procurement Best Practices:Post Awarding – Process Overview
Network Bid
Mini Bid Mini Bid Mini Bid
Plan Audit Plan Audit
Score cards
Cycle
Annual
Per Event (Seasonal, etc)
Quarterly/ Monthly
Monthly/Weekly
Procurement Functions
Score cards
Score cards
Score cards
Score cards
Score cards
Score cards
Score cards
Score cards
Score cards
Score cards
Score cards
Fore cast
Fore cast
Fore cast
Fore cast
Fore cast
Fore cast
Fore cast
Fore cast
Fore cast
Fore cast
Fore cast
Fore cast
A continuous integrated process of sourcing, carrier management and analysis
BenchmarkBenchmark
Plan Audit Plan Audit
Semi-Annually
Months 2 3 4 5 6 7 8 9 10 11 121
© Copyright 2009 Chainalytics, LLC.
Empowering Fact-Based Decisions Across Your Supply Chain
18
Summary
• Transportation is not a commodity – it is a service– The subjective aspect of the quality of the service needs to be included in the
analysis– Shippers need to consider all costs (direct and indirect) when trading-off of
these soft aspects
• A transportation procurement event is as much a relationship management process as pricing event– The outcome of a typical transportation procurement event is a non-binding
agreement on both sides§ Shippers do not contractually guarantee volume and carriers do not contractually
guarantee they will take the volume tendered
– As such, the procurement event must be looked at as part of a continual process of relationship management with your service providers
• Going to market, or market testing your rates, should be a healthy part of the relationship management process– Carriers’ networks change as much, if not more than the average shippers’– These events should be well communicated, regularly scheduled, and fair
© Copyright 2009 Chainalytics, LLC.
Empowering Fact-Based Decisions Across Your Supply Chain
19
Agenda
• How should shippers procure transportation?
• What impact do policies and practices have on rates?
• How should a shipper handle fuel volatility?