CUTONTHE FAT

FREIG
 BY BEN CUBITT
ith the downturn in the
W economy and the corre-
sponding pressure on profits,
executives everywhere are
looking for a sign that the economy is
turning around, that consumer confi-
dence is on the rebound or, even, that
the opposite is true.
There are other signs executives
should read and act upon. If the
economy is pulling the top line down,
the only way to save the bottom line is
to attack costs. One of the largest yet
often most under-scrutinized cost areas
in many companies is transportation
operations.
Why do so many companies fail to
attack what is arguably the greatest
potential area of opportunity before
them? Year after year, the annual Council
of Logistics Management (CLM)
shipper surveys show that transportation
is by far the biggest segment of overall
logistics costs. These studies tell us that
companies spend, on average, 10 percent
of their budgets on logistics, and that
transportation, at 6 percent of most
budgets, is by far the largest component
of logistics costs. The best news of all is
that a dollar saved in transportation
costs falls directly to the bottom line.
Companies can use the following 12
transportation best practices as critical
benchmarks to assess their transporta-
tion operations and uncover savings
opportunities. These are grouped in
three major areas—established funda-
mental best practices, leading-edge
tactical practices, and emerging industry
HT
best practices.
Established fundamentals—
the basics of transpor tation
operations
1. Implement a core carrier program
in all areas of your transportation
operations. Core carrier programs have
been around for years and are the most
generally accepted of all transportation
best practices, and for good reason. They
are easy to implement and provide an
immediate payback. Even in the age of
online bidding and excess carrier
capacity, a strong core carrier program
March 2002
continues to prove itself at companies
both small and large. Dealing with fewer
carriers reduces the administrative
burden and cost of carrier management,
while capitalizing on the most basic of
transportation economics—trading
increased volume for lower prices. Do
you have more than a handful of trust-
edpartners handling the bulk of your
loads? Do you have some carriers that
only handle one or a few select lanes?
When it comes to carriers, less is more.
Leverage your total freight buy and turn
your carriers into key partners
committed to improving service and
lowering your total cost of transporta-
tion operations.
2. Solidify your rate/tariff adminis-
tration. Are all your shipments moving
on carriers where you have established
base rates,fuel surcharge programs,and
contracts? This will not only keep you
out of court, but also ensure that you
consistently move your freight at the
lowest possible cost. Well-constructed
and properly managed contracts ensure
you set the terms for your transportation
purchases. Companies that spend
tremendous energy and time negotiating
raw materials purchases on the most
favorable possible terms often enter into
carrier-supplied freight contracts that
are clearly on the carriers’ terms. A good
At-a-Glance
■ One of the largest and most under-
scrutinized cost areas in a company
is transportation operations.
■ Established fundamentals of
maximizing your transportation costs
include implementing a core carrier
program and solidifying rates.
■ Leading-edge tactical practices
include optimizing mode selection,
maximizing equipment use, and
optimizing inbound freight.
■ Emerging industry best practices
call for TMS and extending
optimization to partners throughout
the supply chain.
APICS—The Performance Advantage 43

contract helps you document your costs
and ensures you are paying market
prices. Good contracts also help you
avoid the dangers of inflating your costs
by poorly evaluated and administered
add-on costs like accessorial charges,fuel
surcharges,minimums, and other hard-
to-track critical components of your
total freight budget.
3. Reduce administrative costs. How
many people does your company need
to select, communicate with, pay, and
manage your carriers? Are you following
established best practices in all areas of
freight and carrier administration? Does
it seem like the computer revolution
passed this area by? Do you pay freight
bills by generating, receiving, and
matching manual bills from multiple
carriers ,a ll with different formats,tariffs,
and procedures? Cast a critical eye on this
significant cost center, learn what the
industry leaders are doing, and cut the
fat. Some companies have approached
improvements in this area through auto-
mated load tendering, Web-based
tracking and tracing of shipments,
systems that measure carrier perfor-
mance, invoice-less freight payment,
proactive transit damage programs,and
outsourcing the processing of returns.
Leading-edge
tactical practices
4. Optimize mode selection. The
smaller the shipment, the greater the
cost—this is the bedrock rule of trans-
44 APICS—The Performance Advantage
portation economics. What do you do
until the day all your customers agree to
buy in full truckload quantity? You pool
orders going the same way at the same
time into the lowest cost possible mode.
Shipment consolidation is the single
biggest opportunity before every shipper.
Small parcel shippers can pool orders for
zone skipping. Less-than-truckload
(LTL) shippers can pool their small ship-
ments through inbound or outbound
cross docks, consolidation hubs, or
combine them into multistop truckload
shipments. Truckload shipments can be
shipped via intermodal carriers or, in
some situations, by railroad. Rationalize
your private fleet operations and deter-
mine if outsourcing is an option.
5. Maximize equipment use. Are you
paying for too much equipment or
compromising for equipment that is
smaller than you really need? This is the
very essence of low-hanging fruit. Are
your carriers supplying 48-foot trailers
because that is what they have available
on that day? Shipping a load from the
East Coast to the West Coast on a 48-
instead of a 53-foot trailer inflates your
shipping costs by well over 10 percent in
most cases. On the flip side of the equa-
tion,are you using 40-foot containers for
your import/export shipments when a
20-foot container generally fits your
orders? One of the quickest and least
complicated ways to take significant cost
out of your transportation operations is
using the right equipment and a good
March 2002
transportation management system
(TMS) or routing system to make sure
the full cube or available weight capacity
is being used. Plan for the right size of
equipment,make sure that is what your
carriers provide, and then fully use the
cube/weight capacity.
6. Bid lanes/freight. Bidding freight
is not out of sync with your core carrier
program goals. A well-conceived and
fairly executed freight bid, whether it is
an annual comprehensive bid or daily
spot bids of excess freight, can actually
complement your existing core carrier
program. Your partners get to see ship-
ment volume they have never been
exposed to before and an improved view
of your total operations. This matching
of your requirements with true carrier
capacity leads to the lowest possible
costs. The Web’s improved communica-
tion and immediate data access capabil-
ities have made freight bids even more
critical and effective.
7. Manage import/export opera-
tions. It truly is a global market, and
today that means most companies are
either major importers, exporters, or
have extensive operations in both areas.
The days of ignoring cross-ocean move-
ments or carrying limited cost penalties
for poorly executed strategies are over
for most companies. It can all seem very
difficult to grasp for firms trying to get
their ocean legs under them. If you don’t
have these skills in-house, find a partner
that can help you learn to navigate these
new waters. Gain control of your global
freight movements—first learn how
much you are truly spending, i.e.,
unbundle freight costs from your mate-
rials import costs—then learn how to
manage and optimize these costs.
8. Optimize your inbound freight.
Take control of this last frontier of your
transportation operations and leverage
your operation to save money, not only
in your inbound shipments, but to lower
rates across all your shipments. Too
many companies fail to recognize how
large their inbound freight bill is, since
these costs are often hidden as part of
the total material cost. Since vendors
often just add the freight on as an addi-
tional charge, or even use freight as a
profit center, they have little or no moti-
vation to control or reduce these costs.
Convert as many of these shipments as
makes sense from prepaid to collect.
Optimize them by consolidating them
from LTL into truckload shipments or
moving them as fleet backhauls on your
private or contract fleet.
Taking control of your inbound ship-
ments can also help relieve congestion at
your distribution centers (DCs), greatly
assist in reducing inventory, and
improve your visibility and control of
inbound materials. Most TMSs are
starting to focus on inbound optimiza-
tion and shippers have more options
than before to assist them in the plan-
ning and execution of a comprehensive
inbound freight management program.
Emer ging industry
best practices
9. Use TMS to optimize mode and
carrier selection. Transportation
management systems (TMS) have been
implemented for many years among the
larger, more leading-edge shippers .S ti ll ,
TMS implementation rates fall well below
that of other advanced decision support
systems like warehouse management
systems (WMS), advanced planning
systems (APS), and even enterprise
resources planning (ERP) systems. Due to
this hard-to-explain, slow implementa-
tion rate, TMS falls under emerging best
practices for far too many companies.
Despite the fact that TMS has perhaps
the quickest implementation time,fastest
return on investment, and lowest capital
investment of the various supply chain
optimization packages, companies both
large and small continue to lag in imple-
menting these critical systems. And those
companies that have implemented a
TMS often fail to implement all the
modules or suboptimize the full capabil-
ities of these systems by only employing
them for outbound shipments, or at only
a few large plants, DCs, or divisions. This
is hard to believe, when TMS systems
have consistently shown they can lower
transportation costs by as much as 10 to
15 percent of annual freight budgets.
10. Leverage partners’ capabilities.
You’ve beat down rates as low as you can
and still the pressure is on from above to
keep taking cost out of the budget. Stop
treating your carriers like the competition
and start viewing them as the critical
supply chain partners they are. Talk to
your core carriers, find out how they can
help you achieve your most important
goals, challenge them to work with you to
overcome constraints, and make them a
critical strong link in your supply chain.
You’ll be amazed to find how that same
LTL company you take for granted now
THE DAYS OF IGNORING CROSS-OCEAN
MOVEMENTS OR CARRYING LIMITED
COST PENALTIES FOR POORLY
EXECUTED STRATEGIES ARE OVER
FOR MOST COMPANIES.
can help you take advantage of the Web,
reduce your administrative burden ,a n d
yes, lower costs. Some companies even
find there is so much potential there that
it makes sense to have a permanent
member of their best carriers’ staff on-site
to help them exploit these opportunities.
11. Manage freight globally across
all plants and divisions. Freight opti-
mization is based on viewing as much of
your freight as you can and consoli-
dating shipments wherever possible.
This means across all existing plants,
DCs, and divisions. This maximizes your
ability to consolidate shipments, use
continuous moves, and match inbound
and outbound lanes. This emerging
strategy has been greatly accelerated by
the tremendous increase in mergers and
acquisitions. You have spent years opti-
mizing all your transportation opera-
tions and solidifying your supply chain,
when your company announces that it
has just purchased its major domestic
competitor. Now you are back at square
one. You need to merge your core
carriers, decide what TMS will survive
and employ it across the entire opera-
tion, identify ways to eliminate redun-
March 2002
dant costs, and view your global freight
opportunities and optimize across your
new supply chain.
12. Synthesize your operations with
supply chain partners. This extends
optimization outside your organization
to your partners up and down the
supply chain. Many companies have
started by working with their suppliers,
as they perceive this is where they have
the greatest leverage and best opportu-
nity for a quick payback. Those compa-
nies that want to truly bring added value
to their customers are reaching out to
them and seeking ways to lower costs
across the chain and use these savings to
either compete more effectively or
increase margins. The most leading-edge
companies have reached outside their
own supply chain to create a community
of shippers. This community can share
core carriers, pool shipments to elimi-
nate costly under-utilized cube on
domestic trailers and ocean containers,
and in other ways leverage their
combined networks and freight budgets
to dramatically lower costs. This is one
area where new Web-based companies
actually offer services that do not
currently exist and are ahead of most of
their potential customers in identifying a
need and creating a system to fill it.
Taking advantage of the Web to synthe-
size your supply chain is the new frontier
of freight optimization. u
Ben Cubitt is a principal with Tompkins
Association, which provides expertise in
the area of logistics, warehousing, manu-
facturing, information technology, and
material handling. He can be reached at
(800) 789-1257 or via e-mail at
bcubitt@tompkinsinc.com
APICS—The Performance Advantage 45