Ways to reduce your logistics cost

Logistics cost forms an important part of the overall cost structure in any
organization, whether it is manufactures, distributors or retailers. The
goods manufactured from the factory have to be shipped to warehouses
or depots and from there the goods have to be distributed to retail stores.
It is also possible that freight may be imported from overseas by air/sea
and has to be transported from the ports to door/warehouse. Focus needs
to be on keeping a constant watch on the logistics operations and look for
every opportunity to reduce costs. Transportation is still an unorganized
sector, so one needs to be cautious on the safety aspects as well. There
are six best practices that can be followed by most businesses to reduce
costs.

Periodically check for new carriers: Constant market rate check is a

best practice. Usually, logistics managers get into a comfort zone with the
existing carriers. This leads to cost creep. Market rate check will bring to
light other more economical transporters. New carriers may offer you
better rates than existing carriers and also may have better and newer
vehicles that increase the safety of your goods. People have found cheap,
reliable, low cost new transporters through Opersoft for their regular cargo
movements. Opersoft has more than sixty transporters who offer all kinds
of vehicles to meet your transportation needs. In a recent transaction, a
lubricant distributor from Mumbai was able to find a very good transporter
for their secondary distribution for entire South operations through
Opersoft.

Negotiate for better freight rates: The quotes you receive from
transporters may not always be the lowest rates they can offer. Once you
have a low rate, you can go to those transporters and ask for a lower rate
than that is quoted. You can reduce the rate by a few hundred rupees by
negotiation and then finalize the rates. You can also mention them your
quantity and frequency of shipments so that they may offer a better rate.
Opersoft provides a platform where you can get quotes from multiple
transporters and you can choose to negotiate with couple of transporters
before you accept a rate. Opersoft offers excellent service for comparing
and optimizing freight costs.

Improve shipping and receiving processes: Streamlining shipping

and receiving practices will offer substantial savings. May be multiple
shipments can be consolidated together or receiving can wait until more
material gets accumulated. This way number of shipments can be reduced

and you may even get a better rate. Setting up a warehouse near your
factory or near your large customer base may save you lot of costs in
transportation. Then you can get FTL rates for your shipments and save
big on transportation costs. You may also consolidate some cargo that you
were sending through courier service so that transporters may give you a
better rate.

Technology: There are lots of technological tools available to make life

easier for logistics managers and to reduce the manpower overhead.
Some of the tools may be free or pay per use. You can use tools for
warehouse management, transport system management, inventory
management, customer relationship management etc. You can have tools
that are used by you as well as your customers so that you can share the
same data and updates. You can track your shipments during transit so
that you know where your cargo is at any time. Opersoft is one such
service that provides you a platform to connect with multiple transporters
and get quotes for your shipments. Opersoft also has a preferred partner
network so that you can get your shipments quoted only by a few selected
transporters in a closed market place.

Managing returns: Reverse logistics is an important element of freight

costs. Most companies offer a liberal returns policy. If the customer is not
satisfied with the product, it can be returned in 7, 15 or 30 days
depending on the seller. At times, the seller also arranges to pick it up.
This process of getting the goods back is called reverse logistics. To
minimize costs associated with reverse logistics processes needs to be
streamlined like stringent periodic audit of return materials and freight
costs and use of specialized agencies that provide post payment audit of
freight bills. These agencies are usually paid on a profit sharing basis. The
audits also provide valuable insight into patterns and other cost reduction
opportunities.
Using 3PL: Are you fed up with managing your logistics that you are
losing your sleep over it? Are your operations growing at a fast pace that
it is going out of control? Then you need to call the experts at 3PL
companies to manage your logistics. These are entities who manage your
entire logistics operations. They are experts in logistics so they will handle
optimizing your routes, choosing the transporters and making the pickup
and deliveries. They specialize in supply chain management functions and
provide warehousing, transportation and distribution services based on
pre-determined fees. Opersoft has many 3PLs registered with us as
transporters so that they offer you SCM services like storage and
transportation. Opersoft. also has some 3PLs registered as shippers, so
their transportation portion is managed by Opersoft.

Transport Fleet Size and Mix Design

Working from the bottom up, our fleet consultants can determine the
optimum transport fleet requirements, whether for an in house or
outsourced fleet. Our transport experience has covered high street
deliveries to bulk coal transport fleets.
Key aspects of this work can include:
1. Quantifying the transport task.
2. Understanding the range of equipment that could be applied to the
task.
3. Building capacity and utilisation models.
4. Developing detailed cost models including, equipment costs,
overhead costs, labour costs, fuel costs, maintenance costs etc.
5. Providing options with cost / benefit and risk analysis.
6. Developing ownership options.
For all modes of transportation (truck, air, rail, ocean, parcel), most pricing
is negotiable.
How your company approaches carrier negotiations may make a great
difference in your bottom line.
The two basic approaches are:
1. Negotiating with individual carriers
2. Using an RFP (bid) process
Advantages of an RFP
Negotiating with individual carriers may be desirable in certain situations,
such as when marketplace choices are extremely limited, or when an
incumbent carrier has been providing such outstanding specialized
services that your company doesn't want to consider other options.
An increasing number of companies, however, are learning that the RFP
process is often the best strategy for obtaining the most competitive
pricing. Here are some of the key advantages of an RFP:

It's an efficient way to learn what price the market will bear. One
RFP can be sent to as many carriers as you choose.

The transportation business is extremely competitive.

Your
company's shipping clerks and traffic manager are constantly being
contacted by persistent carriers who want their business. When
those carriers receive RFP's, they know they finally have the chance
theyve wanted, and they will naturally propose aggressive pricing
to take advantage of the opportunity. Carriers you have been doing
business with will understand that they could lose your account if
they don't make a competitive proposal. The positive effect on your
company's bottom line is obvious.

The organized approach needed to prepare an RFP encourages

your company to review its transportation requirements, so that
pricing is obtained for the services that will truly meet your needs.

The RFP process enables you to maximize the opportunity

presented to carriers. For example, all RFP's should include some
corporate-wide transportation activity data. Incumbent carriers will
see data concerning shipments that other carriers have been
handling, but which they may be capable of and interested in
handling. The result will be more attractive proposals.

Carriers in most modes are expanding their coverage and service

capabilities, in order to gain market share. Most companies utilizing
RFP's find that they dont need as many carriers as they've been
using. When you offer more freight to fewer carriers, your pricing
leverage will naturally increase.

What's your savings potential?

If your company has never used an RFP to solicit transportation proposals,
your annual savings potential is probably in the range of 10 25%.
Variables affecting your actual freight cost reduction include:

The effectiveness of your companys previous negotiations.

Mode of transportation - for example, LTL motor carrier price
improvements tend to be greater than truckload improvements.

The centralization or decentralization of transportation purchasing

(centralized purchasing will leverage improved pricing).

Recent and projected changes in: average shipment size, weight,

and frequency; total shipping volume; origin and destination
locations; commodities shipped; carrier service requirements, etc.

Your freights susceptibility to loss or damage

How to develop an RFP

Determine whether you have the expertise and time in-house. If not, you
can hire an experienced transportation consulting firm. Either way the
process is similar.
1. Identify requirements - Meet with the appropriate staff, companywide, to review and clarify transportation requirements, obtain
feedback about current carrier performance, etc.
2. Gather data Compile or obtain reports illustrating recent (6 12
months) transportation activity. Preferable details for both outbound
and inbound traffic include origins, destinations, and weight. Totals
and averages should be provided. Never include information about
which carriers have hauled which shipment or the amounts youve
paid. If your company outsources the freight bill auditing function,
such reporting should be available. If not, a transportation
consulting firm can generate suitable reports by entering data from
your past freight bills into a reporting template.
3. You should also obtain information concerning your company's
recent and projected growth, prevalent commodities, packaging,
etc. The idea is to give carriers all the information they will need to
make their most competitive proposal.
4.
Determine your preferred pricing and contract formats Carriers vary in
the pricing and contract formats they prefer. Naturally, they tailor them to their
advantage. In order to allow "apples to apples" comparisons of the proposals
you'll receive, and in order to protect your companys interests, require all
carriers to use the pricing and contract formats you prefer. Tell carriers that any
accessorial charges (e.g. trailer detention, etc.) must be indicated in the proposal
and the contract, rather than included by reference to the carriers Rules Tariff. If
your company doesnt have its own standard transportation contract, a
transportation consultant can draft one for you.

5. Prepare a booklet including all the information you have gathered,

and include clear instructions to carriers concerning information you
want them to include with their proposals (insurance certificate,
terminal/equipment lists, references, financial information, etc.)
6. Decide which carriers should receive the RFP. If your company has
several shipping and receiving locations, be sure to obtain input
from all locations concerning this decision
Analyzing carrier proposals
You should confirm that each proposal uses the standard pricing format
you requested. Then select finalists based on criteria including price,
service capability, financial stability, and any other factors which are
important to your company.
What about next year?
Some companies send out RFPs annually, but most do not. The RFP
serves its purpose by bringing your pricing for a given transportation
mode down to the competitive market level. For many companies, that
means bottom-line savings of hundreds of thousands of dollars annually.
Once thats done, your objectives will shift. You will want to monitor the
performance of all contract carriers, keep abreast of new options in the
marketplace, and respond carefully to future carrier requests for price
increases. If your business changes dramatically, due to acquisitions or
growth; if contract carriers pressure you for price increases which dont
seem justified; or if one or more carriers service performance is
unacceptable (e.g. excessive frequency of loss or damage), you may want
to initiate another RFP process.
But if no such changes occur, you will want to maintain a close working
relationship with your contract carriers, in order to ensure optimal service
for you and your customers and a competitive price for your bottom line.
Scott Rattet is Senior Logistics Consultant at Williams &
Associates, Inc., a transportation consulting and freight bill
auditing firm based in Bloomington, MN.
Williams and
Associates has assisted dozens of firms, in a wide variety of
industries, with carrier RFP'S and contract negotiations.

MANAGEMENT REPORTS
PURPOSE

After freight bills have been audited, any or all of the following freight bill information from a shippers
freight bills are keyed into our database:
Process Date
Pieces
Date to be Paid

Weight

Batch Control Number

Freight Bill Amount Billed

Carrier Name

Freight Bill Reduction Amount

Shipment Date

Reason for Reduction

Freight Bill Number

Accessorial Charge

Shipper/Bill of Lading Number

Accessorial Service

Customer/Vendor Name

GL Code

Inbound/Outbound

Freight Class

Origin City, State and Zip Code

Discount

Destination City, State and Zip Code

Invoice Amount

Our data entry program immediately detects duplicate freight bills.

It provides for the complete validation of carrier name, vendor/customer name, origin/destination city,
state and zip code, GL or account code and accessorial service.
Our program runs in a Window NT environment and is Y2K compliant.
After keying, any or all of the following freight management reports can be produced on a
weekly, monthly or annual basis:
Remittance Advice: This report is a listing of the freight bills processed. It shows the carrier's
payment address, payment date, pro number, pro date, gross (billed) charges, reduction
amount, net charges and the reason for the reduction.
Carrier Summary Report: This report shows the number of shipments, weight, charges and
cost per cwt. for each carrier with a grand total for all carriers.
Freight Expense Report: This report lists all shipments by carrier and shows the carrier name,
pro number, pro date, origin, destination customer/vendor, weight and freight charges. The
total number of shipments, weight and charges are shown for each carrier. There is a grand
total for the number of shipments, weight and charges.

Outbound Freight Report: This report shows the shipping facility, destination, customer carrier,
ship date, number of pieces, weight and freight charges. There is a subtotal for each
destination state and a subtotal for each shipping facility with a grand total for all shipping
facilities.

Customer Shipment Report: This report shows the customer name, ship date, destination,
carrier, pieces, weight and charges which are all subtotaled by customer with a grand total for
all customers.

Inbound Freight Report: This report shows the receiving location, origin, vendor, ship date,
carrier, pieces, weight and charges subtotaled by each origin state with a subtotal for each
receiving location with a grand total for all receiving locations.

Vendor Report: This report shows the vendor name, ship date, origin, carrier, pieces, weight
and charges which are all subtotaled by vendor with a grand total for all vendors.

General ledger Report: This report shows the GL code and name, pro number, carrier,
customer/vendor, ship date, carrier, pieces, weight and charges subtotaled by each GL code
grand total for all GL codes.

Pro Number Report: This report lists all shipments by carrier and shows the carrier name, pro
number, pro date, weight, freight charges, date processed, batch number and check number.

The total number of shipments, weight and charges are shown for each carrier. There is a
grand total for the number of shipments, weight and charges.

Accessorial Charges Report: This report shows the accessorial service, pro number, carrier,
pro date, weight, charges and accessorial charge subtotaled by each accessorial service with
a grand total for all accessorial services.

Freight Class Report: This report shows the freight class, pro number, carrier,
vendor/customer, pro date, pieces, weight and freight charges grouped by each class.

Freight Discount Report: This report shows the discount, pro number, carrier,
vendor/customer, pro date, pieces, weight and freight charges grouped by each discount
amount.

Mode Report: This report shows the carriers grouped by mode with the carrier name, number
of shipments, weight, charges and cost per cwt for each mode.

Carrier Ranking Report: This report shows the carrier name, number of shipments, weight,
charges, cost per shipment and the percentage of the totals for each carrier. This report can
be printed ranking the carriers by carrier name, number of shipments, weight or charges.
We also have the capability to produce graphs of a shippers freight bill data.
We can either provide a file of the data which could be used in a spreadsheet program such as
Microsoft Excel or produce the graphs for you.

1. Rate Analysis

Before we can expect you to determine whether a partnership with Transportation Impact is
right for your company, we have to determine what savings opportunities exist within your
current parcel agreement. To accomplish this, Transportation Impact offers a free analysis of
your parcel spend. By examining your historical shipping data via our proprietary software,
our team will dissect your unique characteristics and identify service levels in which your
company is overpaying.
In as little as three business days, Transportation Impact can return a percentage-based
savings projection along with a preliminary outline of how the savings can be obtained. Upon
completion of the negotiation process, Transportation Impact is only paid a portion of the
demonstrated, measurable savings it helps generate.
2. Strategic Development

The key to a successful negotiation is preparation and strategic planning. Utilizing the
information gleaned from your companys rate analysis, Transportation Impact will meet with
your personnel to discern your companys current climate. With a better understanding of
your business, our team will recommend a strategy for your review and advise your staff of
the most effective approach.
Our company gained more than 200 years combined experience during respective careers
with FedEx and UPS and leverages its unparalleled background to help companies develop
blueprints for successful small package negotiations.

3. Contract Negotiation

Acting as an extension of your business, Transportation Impact will provide your team
with substantiated recommendations relative to the proper positioning and timeline for each
step of the negotiation process.
A typical contract negotiation requires a time commitment of just 4-6 hours from a designated
point person within your organization during a 6-8 week negotiation period. Throughout the
process, all decisions are approved by your staff.
4. Measurement

Once your newly negotiated contract has been implemented with the carrier, Transportation
Impact will provide a weekly invoice that contains a breakdown of carrier charges by service
level.
This weekly Report Card will compare the discounts of your current agreement with those
you were receiving prior to the negotiation of your new contract. The difference will give you
a concrete measurement of the demonstrated savings on a per-week basis and will serve to
provide insight into where the cost drivers lie within your parcel supply chain.
5. Carrier Compliance

For the duration of your newly negotiated agreement, Transportation Impact will ensure that
your carrier is in compliance with the terms set forth in that agreement and that you are billed
accurately and accordingly.
Each week, you will receive a breakdown of your charges that illustrates the bottom-line
impact of the demonstrated savings Transportation Impact helped your company obtain.