This executive briefing will help purchasing and supply professionals better understand their transportation and 3rd party logistics needs and develop sourcing strategies to fulfill those needs. Part II of two parts.
The session will focus on three topics. First, the terminology and economic basics of transportation and 3rd party logistics will be discussed. Next, alternate transportation/3rd party logistics strategies will be discussed. This topic will include a discussion of the advantages and disadvantages of private and for-hire alternatives. The final topic will identify and discuss alternative sourcing strategies when using for-hire transportation and 3rd party logistics services.
2. Today’s Agenda
Part II
Purchasing T & L Profile and Spend
Freight Modal Analysis and Decision
Impacts
The Four ‘S’s
Define Expectations and Routing Guides
Strategies to Enhance Your T & L ‘Buy’
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3. Purchasing Transportation and
3PL Profile
This is a template that:
Considers
Appreciates
Understands
The following:
Corporate philosophy and culture
Supplier and inbound requirements
Internal/external customer requirements
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4. Supply Chain USA 1
Returns
DC Bremen
•Inspection
•Warehousing
•Shipping
Port
Option 1 Ship
Port
Airport
Airport
Customs
Broker
Option 2 - Air
Shops
FL, LH
DC USA
•Inspection
•Warehousing
•Pick, Pack
•Shipping
Customer
TD
Returns
Timing (days)
Alt 1 A (Sea)
Alt 1 B (Air)
Cost / Week (US)
Min
Max Min
16 d
25 d
2d
2d
2d
2d
Total US
Order Cycle TD
2d
6d
2d
6d
US per LE
Alt 1 B (Air)
8 d 10.5 d
Order Cycle FL/LH
Alt 1 A (Sea)
Available in USA
Max
43,800
71,400
1.87
3.05
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5. Purchasing Transportation and 3PL
Profile Con’t
Map all locations:
Company inbound/outbound locations
Plants
Warehouse/DCs
Supplier locations
Customer locations
Ports and major consolidation points
Major traffic flow lanes
Collect traffic flow data for above
Article description
Alpha and numeric STCC
Bulk or packaged
Quantity or volume per shipment per time period
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8. Purchasing Transportation and 3PL
Profile Con’t
Define expenditures and analyze spend:
Origin/destinations
Carriers and 3PLs
Freight rates-both line haul and accessorial
Warehouse rates-both storage and in/out
Freight and sales terms
Product specification/STCC/NMFC/UFC
Product weight and packaging
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9. Transportation Spend—
Example
FREIGHT
Amount
SUM
ITEM
PCT
Amount
SUM
MISC
PCT
Amount
SUM
Sum
PCT
Vendor Name
SNL DISTRIBUTION INC
$39,345.44
6.6%
$554,802.41
93.4%
CARGILL
$33,806.56
5.7%
$559,368.12
94.1%
$1,560.92
0.3%
$594,735.60
AZTECA
$26,993.57
7.8%
$319,598.24
92.1%
$396.00
0.1%
$346,987.81
GENERAL MILLS
$20,128.26
12.3%
$143,434.59
87.7%
$163,562.85
BEMIS COMPANY
$11,916.56
1.0%
$1,177,949.07
99.0%
$1,189,865.63
ROMAN MEAL
$11,607.23
14.1%
$69,833.37
84.9%
DANISCO USA INC
$10,994.43
5.1%
$204,547.20
94.9%
$9,311.00
6.4%
$134,867.41
92.9%
SUNMAID GROWERS
CATTAN Services Group, Inc.
$594,147.85
$828.98
1.0%
$82,269.58
$215,541.63
$967.60
9
0.7%
$145,146.01
11. Transportation Spend—Example
Destination
Total Costs
Per
Truckload
Mill Owner
Average
Cost
Per Day
Approximate Annual
Transportation Costs
Port Hudson, LA
GP
$
218
$
655
$
229,021
Pineville, LA
IP
$
330
$
330
$
158,217
Bogalusa, LA
I
$
429
$ 1,287
$
486,320
Monticello, MS
GP
$
509
$ 2,035
$
643,277
Vicksburg, MS
IP
$
512
$ 1,024
$
357,051
DeRidder, LA
Boise
$
482
$
965
$
273,429
Hodge, LA
S
$
527
$ 1,055
$
344,929
Bastrop, LA
IP
$
569
$ 1,138
$
475,017
Campti, LA
W
$
526
$ 1,577
$
504,162
Mansfield, LA
GP
$
571
$ 1,142
$
298,676
West Monroe, LA
R
$
568
$ 1,135
$
476,285
Orange, TX
I
$
566
$ 1,133
$
444,378
Crossett, AR
GP
$
631
$ 1,892
$
716,182
Evadale, TX
MW
$
697
$ 2,787
$
884,308
Texarkana, TX
IP
$
837
$ 2,510
$
871,975
Pine Bluff, AR
IP
$
851
$ 1,702
$
653,819
Pine Bluff, AR
Inland
$
851
$
851
$
185,523
Lufkin, TX
A
$
821
$
821
$
214,614
Ashdown, AR
D
$
885
$ 5,312
$
1,697,178
$29,351
$
9,914,359
TOTAL
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12. Don’t Forget…Plan for the Future
Where is your business headed in the
next 12, 24, and 36 months?
What are the major initiatives that will
have an impact on what you expect
from your carriers and/or third parties?
What risk and costs factors may affect
your transportation and 3PL budget
forecasts?
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13. Purchasing Freight Modal Profile by # of Shipments—
Based on Weight of Shipment and Distance Shipped
Distance
miles
<1,000 lbs
1,0001,999 lbs
10,00029,999 lbs
30,00059,999 lbs
60,00089,999 lbs
<100
100-199
200-499
500-750
750-1,000
1,000-1,499
1,500 or
more
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90,000-or
more lbs
15. Performance Comparison for Selected Freight Modes
Vehicle
Capacity
Truck Equivalency
Barge
1500 Tons
52,500 Bushels
453,600 Gallons
57.7
(865.4 for 15 barges in tow)
Hopper Car
100 Tons
3,500 Bushels
30,240 Gallons
3.8
100 Car Train Unit
Semi-Trailer truck
Post-Panamax containership
VLCC
747-400F
10,000 Tons
350,000 Bushels
3,024,000 Gallons
26 Tons; 910 Bushels
7,865 Gallons
9,000 for a tanker truck
5,000 TEU
384.6
1
2,116
300,000 tons
2 million barrels of oil
9,330
124 tons
5
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16. Purchasing Transportation Profile—
Affect Modal Decisions
Rail generally competes with truck on freight
movements of more than 750 miles.
About 15-25% of rail movement business is
truck competitive.
Rail transit times for most bulk and break-bulk
cargo are roughly equal to barge transit times
within 750 miles and are days shorter beyond
1000 miles.
High-value goods and time-sensitive goods are
likely to move through faster, more expensive
modes of transportation like air.
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17. Purchasing Transportation Profile—
Affect Modal Decisions
Potential to convert TL to intermodal when
distance in excess of 1,000 miles and not time
sensitive.
Competition for long-haul highway shipments in
particular are becoming noticeably more
intermodal as trucking companies have shifted
line haul movement legs to railroad TOFC or
COFC movements.
About 90% of intermodal container traffic is
potentially rail vs. truck competitive
Much of the international intermodal business
through the ports lends itself more practically to
rail moves and possibly barge.
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18. Purchasing Transportation Profile—
Affect Modal Decisions
If you have to ship over 1,000 miles, you may
want to consider a national LTL carrier over a
regional LTL carrier. These firms offer the
advantage of not having to interline freight
traveling long distances.
Private internal fleets are expanding to take on
shorter distance LTL or TL moves.
Don’t assume that air means “you hear the roar
of jet engines” ; if the carrier can move your
freight on what it calls an ‘expedited truck’ and
get it to your destination in the timeframe you
specified---it may never see the tarmac. Also
don’t expect any great cost savings to result.
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20. Purchasing Transportation Profile—
Affect Modal Decisions
Review your shipping profile statistics and
understand where the economic shift
points are in your:
Parcel or Air/LTL mix
LTL/TL mix
TL/Rail mix
Air/Ocean mix
Over 90% of all organizations are either
receiving and/or shipping internationally
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21. Comparison of Distribution Costs and Time from National Warehouses—
Example
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22. Thoughts About Choices
Bottom Line:
A company should define a
lane, process, operation, or
function that can be
improved, then make these
carriers and 3PL providers
compete for it.
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24. The Four S’s: Source
Identify Logistics and
Transportation
requirements:
Review and clarify
req’mts
Obtain feedback on
3PLs and carriers
Review KPIs, KRAs,
and analyze gaps
Establish which gaps
are most critical
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26. The Four S’s: Source
Gather data and manipulate information:
Compile or obtain 6-12 months of
history/activity req’mts
Obtain details: inbound and outbound;
origins and destinations; weight, cube
and # of pieces; traffic lanes, supply
chain streams, and demand chain
streams; types of equipment; volatility
and performance req’mts
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27. The Four S’s: Source
Create a RFI:
Review 3PLs’ and carriers’ company and
public profiles
Invite both current and new sources
Get: completed profile questionnaires,
financials, insurance and safety certificates,
authority or operating documents, and
references
• Perform site visit when applicable. Talk with
local management.
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29. The Four S’s: Solicit
Develop a RFB/RFP:
Decide which 3PLs and carriers receive
solicitation based on RFI results
Determine your preferred pricing and
contract formats
Specify whether bid/proposal by lane
allocation, region or complete scope
Include TCA/NITL Voluntary Guidelines
to Good Business Relations
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30. The Four S’s: Solicit
Send bid/proposal package to qualified sources:
Prepare a template with details of info
gathered
Provide clear instructions concerning info you
want included
Attach a copy of anticipated contract and
T&Cs upfront
Provide sample performance reports to be
used as measures of agreed performance
Establish what is a responsive bid/proposal
and adequate submission date
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32. The question is:
A carrier or 3PL can perform services which an
organization is either unwilling or unable to perform
itself, but are they as good as advertised?
First we need to determine who they
are and what they offer.
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33. The Seven Most Important Considerations
To Include When Choosing Carriers
• Financial Performance and Health
• Staffing
• Assets and Facilities
• Internal and External Programs
• Pricing Methods, Utilization, Periodic Review
• Measures of Agreed Performance
• Operations
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34. The Five Most Important Considerations To Include
When Choosing A Contract Logistics Firm
1. FINANCIAL STRENGTH
1. FINANCIAL STRENGTH
2. BUSINESS EXPERIENCE
2. BUSINESS EXPERIENCE
3. BUSINESS DEVELOPMENT
3. BUSINESS DEVELOPMENT
4. SUPPORT SERVICES
4. SUPPORT SERVICES
5. BUSINESS ARRANGEMENTS AND PRICING
5. BUSINESS ARRANGEMENTS AND PRICING
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35. The Four S’s: Solicit
Hold a Pre-Bid/Proposal Conference:
Invite qualified bidders and proposers
Discuss expectations
Hold Q&A
Provide feedback and answers to all:
During
conference
After conference
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36. The Four S’s: Select
Verify documentation submitted
Establish T&Cs that may require adjustment,
compromise or negotiation
Analyze bid or proposal submissions
Develop selection criteria or negotiation strategy
Use analytical tools to select. Do industry
comparisons for the type of customers, facilities,
regional, coverage, management and cultural
attitudes, cost model, etc.
Select or conduct negotiation
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37. Bid or Proposal Analysis—Example
Truckload
CHRW
Origin
Equipment
Rated
Per mile/
Trailer
State
Zip
Required
Miles
Flat Fee
Size
Moncks Corner
SC
29461
DRY
1101
$
1.40
Cairo
GA
31728
DRY
830
$
Lithia
FL
33547
DRY
1112
Brooksville
FL
34609
DRY
Groveland
FL
34736
Loxley
AL
36551
City
FSC
Extension
1/29/2007
TOTAL
48/53
$ 1,541.40
252.23
$
1,793.63
1.15
48/53
$
954.50
190.15
$
1,144.65
$
1.05
48/53
$ 1,167.60
254.75
$
1,422.35
1074
$
1.05
48/53
$ 1,127.70
246.04
$
1,373.74
DRY
1069
$
1.05
48/53
$ 1,122.45
244.90
$
1,367.35
DRY
614
$
1.79
48/53
$ 1,099.06
140.66
$
1,239.72
Red indicates low bidder on traffic lane
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38. Thoughts About Choices
Which is a more important category to your
company: Warehousing, Transportation, IT, other?
Choose a firm that has its
roots in that category.
Do they have a local or regional office nearby your
facility or headquarters.
A local or regional office
lends more control to you.
Meet with the actual operations personnel, not just
sales, to determine their personal chemistry with
you and their fit with your corporate culture.
Your comfort level is an
important key to success.
Know your costs for comparison to theirs.
Remember, you are
paying for their profit
margin too.
Agree upon measurement criteria in advance.
Know when to fix things
or to leave them alone.
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39. The Four S’s: Secure
Provide contracts to selected providers
Emphasize L ong T erm R elationship
Monitor 3PLs’ and/or carriers’ performance,
costs and commitments—use scorecard
Issue company routing guide
Seek continuous improvement and
incorporate feedback to and from
Hold IPRs and provide a performance
report card on a regular interval
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40. Define Expectations
In the wonderful world of expectations we have a
problem:
The buyers/shippers want everything
The Carriers or 3PLs want the business
The suppliers and customers want things also
In theory, everything is possible
In reality, there are constraints
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41. Why Use Routing Guides?
Are used to provide guidance and rules for
any transportation and logistics scenarios
Are part of contractual obligations for
suppliers and internal/external customers
Are used identify each carrier and 3PL
that you dictate by price/service for use by
any suppliers and customers
Are used to identify the shipment size,
volume, and weight for each carrier and
3PL to be used
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43. Carrier Selection—Oracle
Example
Rule
Criteria
• Weight
• Volume
• Geographic
Regions
Inputs
Carrier
Selection
Process
Selection
Results
Results
• Carrier
• Service Type
• Mode
• Payment
Terms
Rules Based
Selection Process
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45. Domestic Ground Routing Guide—
Example
Shipment Weight and Transit Days
201 – 9000 pounds
Origin States
Small Package
Transit
1 Day
2 Days
3 Days
4–6 Days
Truck Load
MD, DC (Local)
1 Day
EXCEL
EXCEL
N/A
N/A
N/A
CT, MA, MD, NH,
NJ, NY, PA,
RI, VT
2-3 Days
New Penn
New Penn
N/A
N/A
CFI or Schneider
ME
3 Days
New Penn
New Penn
New Penn
N/A
CFI or Schneider
AR, IA, KS, LA,
MN, MS,
ND, NE, OK,
SD, TX
5-7 Days
FedEx 1 Day
FedEx 2Day
FedEx 2Day
Yellow Freight
CFI or Schneider
AZ, CA, CO,
ID,MT, NM,
NV, OR, UT,
WA, WY
5-7 Days
FedEx 1 Day
FedEx 2Day
FedEx 2Day
Yellow Freight
CFI or Schneider
AK, HI
N/A
FedEx 1 Day
FedEx 2 Day
N/A
N/A
N/A
For shipments over 9000 pounds, truck load movements, shipments requiring special handling, or shipments between suppliers, contact your buyer for special instructions.
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46. International Routing Guide—Example
INTERNATIONAL ROUTINGS
ORIGIN COUNTRY/REGION
AIR FORWARDER
OCEAN FORWARDER
Europe/Ukraine
Expeditors
Expeditors
Africa
Expeditors
Expeditors
India
Expeditors
Expeditors
Japan
Expeditors
Expeditors
Hong Kong
Expeditors
Expeditors
Taiwan
Expeditors
Expeditors
Shanghai
Expeditors
Expeditors
Malaysia
Expeditors
Expeditors
Singapore
Expeditors
Expeditors
Central and S. America
Expeditors
Expeditors
Canada and Mexico
Emery/Menlo
N/A
All Other Origins
Expeditors
Expeditors
Shipments in excess of 500 pounds or 227 Kg need authorization to ship via Air.
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49. Air Routing Guide—Example
DOMESTIC AIR SHIPMENTS
Note: Second Day Service if PO delivery date permits;
Overnight Air Express if PO delivery requires.
1-150 lb.
< 68 kg
Small package shipments requiring overnight service
purchased FOB freight collect within the 50 states
DHL ® Priority overnight
service
150-500 lb.
> 68 kg
Small package shipments requiring overnight service
purchased FOB freight collect within the 50 states
EGL Eagle Global
Logistics
> 501 lb.
> 1105 kg
Contact Traffic Administrator, provide the weight,
dimensions, freight description and PO Number
(618) 7xx-1220 Phone
(618) 5xx-3677 Fax
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50. Truck Routing Guide—Example
ST
ORIGIN
STATE
Zip
Code
Less Than
Truckload (LTL)
LTL to TL transition
(Pounds)
Use 'TL' If shipment is over 1/2 the visible capacity of a 48"
vehicle or exceeds pounds
AL
Alabama
All
FedEx Freight
10 Pallets or 10,000 Lbs
Navajo, Prime, Priority, May
AZ
Arizona
All
FedEx Freight
10 Pallets or 10,000 Lbs
Navajo, May
CA
California
All
FedEx Freight
10 Pallets or 10,000 Lbs
Navajo, May
DE
Delaware
All
FedEx Freight
10 Pallets or 10,000 Lbs
Navajo, Priority, May
FL
Florida
All
FedEx Freight
10 Pallets or 10,000 Lbs
Navajo, Priority, May, Prime
GA
Georgia
All
FedEx Freight
10 Pallets or 10,000 Lbs
Navajo, Prime, Priority, May
IA
Iowa
All
FedEx Freight
10 Pallets or 10,000 Lbs
Navajo, Prime, Priority, May
ID
Idaho
All
FedEx Freight
10 Pallets or 10,000 Lbs
May, Navajo, Prime
KS
Kansas
All
FedEx Freight
10 Pallets or 10,000 Lbs
Navajo, M. Bruenger, Prime
KY
Kentucky
All
FedEx Freight
10 Pallets or 10,000 Lbs
Navajo, Prime, Priority, May
LA
Louisiana
All
FedEx Freight
10 Pallets or 10,000 Lbs
Navajo, Prime, Priority, May
MD
Maryland
All
FedEx Freight
10 Pallets or 10,000 Lbs
Navajo, Priority, May
ME
Maine
All
FedEx Freight
10 Pallets or 10,000 Lbs
Navajo, Priority, May
MI
Michigan
All
FedEx Freight
10 Pallets or 10,000 Lbs
Navajo, Prime, Priority, May
MN
Minnesota
All
FedEx Freight
10 Pallets or 10,000 Lbs
Navajo, Prime, Priority
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51. Truck Routing Guide—Example
LTL Common Carrier
LTL (Less Than Truckload) Routing
Shipments under 10,000 lbs.
In Order of Preference
State
Preferred Carrier
2nd Preferred Carrier
Alabama
Yellow Freight
UPS Freight
Arizona
UPS Freight
Yellow Freight
Arkansas
UPS Freight
Yellow Freight
California
UPS Freight
Yellow Freight
Colorado
Yellow Freight
UPS Freight
Connecticut
UPS Freight
Yellow Freight
Delaware
Yellow Freight
UPS Freight
Washington D.C.
UPS Freight
Yellow Freight
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52. Strategies to Enhance Your
Transportation and Logistics ‘Buy’
Extend the processes beyond the walls of
purchasing, traffic, and logistics
Create strategies to buffer yourself
against:
Capacity Shortages
Reliability Issues
Rate or Price Hikes
Possible strategies for consideration follow
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53. Strategies to Create Greater
Capacity
Adding consolidation/de-consolidation centers to global distribution
networks so freight gets moved as FCL and FTL
Looking for ways to extract more capacity from private fleets and
facilities by:
Improving cube utilization of fleet equipment
Improving facility cube and storage capacity
Eliminating empty truck miles and ‘dead heads’
Consolidating orders to same destination or customer
Using a carrier appointment scheduling or “order notify” system
Rethinking your transportation and logistics network design and
inbound/outbound flow of shipments
Making your freight traffic or warehouse operations attractive to the
service providers
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54. Strategies to Create Greater Reliability
Forging close collaborative ties with their carriers and 3PL
providers
Establishing preferred customer status or dedicated contract
carriage and/or contract warehousing
Consolidating multiple carrier and 3PL provider relationships by
traffic lane, region, or geographic area
Increasing volume with premium operators where service is a
differentiating factor---not the low price or discounted
carriers/providers
Treat carriers and 3PLs as partners in the commitment to 100%
on-time performance
Identifying root causes of service failures and cost overruns by
using scorecards and measures of agreed perofrmance
55
CATTAN Services Group, Inc.
55. Strategies to Create Greater Price
Stability
Update the granularity and accuracy of your systems to:
Create efficient freight lanes and facility networks
Leverage aggregated spend to negotiate better prices, rates, and
charges on a contract basis
Know when to bundle or unbundle goods and transportation costs for
freight auditing purposes and checking supplier costs
Help calculate costs per supplier, per customer, per product or SKU, per
geographic area or business unit, per facility or site, etc.
Employ total delivered or landed cost analysis and optimization
Use shipment optimization and electronic tendering software
Monitor sources of transportation and logistics data for trends and
forecasts
Enforce compliance with your routing guide to avoid transportation
and logistics exceptions
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