Freight costs reduction is almost
What if I told you this simple strategy can reduce the overall freight costs by over 75%. It will be hard to believe – right? Well, by the end of this article you will see an actual case study analysis proving this to be the case.
If you study that case example seriously enough, you can replicate the strategy in your own company, and see for yourself the enormous benefits it creates.
But, this magnitude of cost reduction needs strategic thinking. I call it a strategic because it is not a tactical (and, certainly not a trick). A trick is something which is impermanent, a sleigh of hand.
For example, I know a trick that can instantly cut your freight bill to zero. But, why would I even talk about this sleigh-of-hand. A trick rarely enriches you – it merely has some entertainment value, and perhaps, ocassionally, a short term monetary value.
For my clients, I focus on things of lasting and real value.
This strategy is so obvious to me that I am constantly surprised that very few companies are doing it. In fact, this is the first thing I look for when I visit a new company.
And, invariably, in every company, I find room for improvement. “Why is it not equally obvious to everyone else?” – that is a constant surprise to me. But then, that is the very definition of “the curse of knowledge.”
Consider the following scenario and see if sounds familiar: you join a new role (in the same company, or in a new company), and suddenly you are now in charge of the freight and shipping costs.
You look at the numbers, and they seem high. But as yet you have no means of saying they are high, so you dig out some benchmarks on google (or from your past experience, or reports) and while nothing definitive can be said because benchmarks never compare apples with apples, your gut feeling is confirmed. The freight costs for your company is in fact higher than the norm.
Even when you can conclusively prove that the freight costs are higher than the norm – what is your next step?
I could go on with another 20 points of activities that could be potentially done to reduce the freight and shipping costs. Each of them would be a legitimate alternative – though not the first thing to be looked at.
At different points in time, during my projects, I have seen all of them being done. Indeed, I have done many of these same things, but only at the right time. As in the rest of life, here too, timing is everything.
We have to do the first things first. And, for that very reason, you should not start with doing any of these things listed above.
Because if you do any of these things before doing the first thing first – your vendors, and even staff, will identify you either as a novice, or as non-serious player. And, they will calibrate their response accordingly.
So, what is the first thing that players will expect you to do?
Let me illustrate with three examples each one getting more and more complex, and see if you can guess the answer.
I and my business partner were standing in the warehouse of a mid-size global player in a nice margin business. On the shipping docks were sitting a number of pallets – each half or more full of goods. I asked about the paperwork for one of the pallets and was surprised to be handed a thick sheaf of papers. Right on that single pallet sat more than 50 shipments, all going from one large city to another. Each was accompanied by a consignment note (and a Con. note fee of $35 each). So I asked why they were not being shipping in a single shipment, and distributed by a local courier? Or alternatively, by a inter-city courier covering the entire shipment. “We have always done the things this way” was the answer. I calculated that – just those 4 pallets were wasting at least $3000 in additional freight costs. That was over $100K a month – the practice was changed and the hole plugged straight away.
After a very thorough and detailed analysis of the inventory holdings, and movements within this company, we created a chart similar to the one shown below:
Because there was no scientific approach to inventory targeting (besides what was built into the ERP system), and because even that was very sloppily implemented, the company suffered from having excess stocks for items that were not required, and shortage of items that customers wanted. Almost every location suffered from this problem.
Even a very generous inventory allowance revealed that over 70% of the inventory was wrongly located.
As a result, the staff were all the time trying to track things in their system and ship the items from where they were located to where they were required.
This third example is a much larger business. It had a global supply chain network, though we were only analysing the national network. Almost all the locations were decided based on factors other than efficiency or effectiveness. Some were just historical decisions, left to continue on without any thought. Others were made because the regional manager preferred to be located there (even though the customers for that region were located somewhere else).
A very thorough analysis of all the locations, and all the movements revealed that current network was the worst possible configuration for cost and customer service. Only the freight vendors benefited with this configuration (which had evolved gradually over several years). Take a took at the figure below:
Your own situation will not be exactly same as any of the three situations above. It would rather be same, same – but different. That is the reason I will not go too much into any of the examples above.
I am also skipping a lot of details about how the above analysis was done, and the changes were implemented.
In reality, it took weeks to conduct the analysis, and months to implement the recomendations. But the resulting benefits ran into millions of dollars in last two cases, and were worthwhile in each of the case. In each case the results prevented another round of dibilitating lay-offs, perhaps even saving the company in the long run. The cost of analysis, and implementation was mere fraction of the savings in every single case.
You will have to think about how to reduce the transportation movements in your business. But if the above businesses had the room to reduce the transportation movements by up to 83%, then your business might have at least some room to reduce transportation movements. You do not need to negotiate with the vendors to do this. You just need to organise your supply chain better.
And, once you do this properly, your vendors will take your business a lot more seriously. I have seen the change.
A word of caution is advisable at this juncture. The results above – over 70% erroneous inventory holdings, over 80% redundant movements due to supply chain misconfiguration, over 50 shipments that could be consolidated into a single shipment – are anything but typical.
In fact, in my over 25 years of hundreds of projects, they stick in memory full of similar cases, only because these cases were so far out on the limb. That is why it was easy to dig out the data for them, and share the facts of the cases (in a disguised form).
Does that mean you will not have these opportunities?
Quite the contrary, you will have these three, and nearly a dozen more, different types of opportunities to minimise the number, size and volume of shipments.
There will be a multitude of different types of unnecessary freight movements. These three were just the most obvious examples that occurred to me as I was writing this article. If I leaf through our past projects folder, I could detect at least a dozen more types of unnecessary freight movements.
But each company is different, and will have its own example of this practice. The trick is to have enough experience to recognise an unnecessary freight movement when you see it. And, then to call it as such you need fortitude and backing.
Finally, you need to come up with a comprehensive model that will replace the current logistics model. And, you need to be able to sell it to all the stakeholders.
And, you have not even started talking to your logistics vendors yet. The truth is that there are so many different ways of reducing freight costs that any blog will not do full justice to it. There are a couple of reports that we have issued covering the matter. Look for them in the footer on our website, or contact me.
On the face of it, the two companies could not be more widely apart. One is the paragon the new paradigm, while other is an old dying breed! I am, of course, talking about Facebook and NewsCorp. That is what all the pundits will tell you. They will also explain the logic of why News Corp bought MySpace in those terms.
Admittedly, NewsCorp business model was broken in 2005 and it had hoped that MySpace would provide the much needed fillip. That never happened, as it could not have happened. NewsCorp let MySpace go after 6 years for $35 million, a fraction of the $580 million it had originally paid. People have their own opinions on what MySpace has become by now, and I have nothing to add to that discussion.
However, Facebook is a company of intense interest at the moment. If you have studied the business networks for as long as I have (in fact I wrote the book ‘The 5-STAR Business Networks) you will also start thinking of it as a company more akin to NewsCorp than to MySpace.
Most people think that Facebook has a minor problem that teens are losing interest in the platform. I think the problem runs deeper – its business model is not sustainable. As explained by 2veritasium in this 7-minute video
(great Australian content – original, thought provoking and myth-shattering) which has already had more than 1.3 million views in nearly 6 weeks, the problem with Facebook is that it is already starting to resemble the old-age companies – almost like “The Curious Case of Benjamin Button“.
As the video hints, companies do resort to desperate measures in desperate times. That is the reason why Facebook’s purchase of WhatsApp reminds me of the deal between News Corp and MySpace. Only time will tell whether Facebook’s decision to start a new chapter with WhatsApp will lead to a bitter “divorce” or not.
This is the part 2 of my earlier post What I Learnt Fighting Pirates (Not in the Caribbean)! (that post was getting too long, so I had to break it into two parts). I asked bosun to send a repelling party to cut the ladder and the scrambling rope, while I sent two other reconnaissance parties to the stern and starboard side of the ship to make sure there were no other boarding parties in the dark. Continue reading
Optimisation has always been a hot topic for strategists and business transformations executives. Now, as the mantle for leading corporations is moving from strategists to the integrationists and supply chain leaders – optimisation is hotter than ever before. When discussing business transformations, in my workshops, presentations and speeches, in particular I enjoy the audience interaction and questions. It does bring out many critical points that may lie embedded inside people’s minds as assumptions. Everyone is talking about optimisation at these events today. The assumption being, there is just one kind of optimisation. The example I gave in a recent workshop, and in my speech at the Quintiq World Tour, to highlight various levels of optimisation was that when I was a second officer, as a navigation officer of the ship I was in charge of optimisation of the route from a series of loading ports to a series of discharge ports. In most cases this job was relatively simple (if you knew elementary chart work and navigation). When I grew in rank to the chief officer, I was optimising the cargo flow as well to make sure that the loading operations, discharging operations and stowage were carried out optimally to minimise the time taken and maximise the cargo throughput within that time. As a master the job expanded to include optimising the cost of the voyage by minimising the fuel consumption (about 33% of the operational cost) and maximising the charterers’ results. As is self-evident, multiple layers of optimisation are added on top, as the complexity and responsibility grows. From costs of one ship, you can increase it to the cost of the entire fleet, and then add on costs of the land freight to create an end-to-end freight picture, and further add on cost of warehousing and storage to optimise the logistics costs. Further on, you can optimise the entire distribution network by relocating your distribution centres, and then start talking about optimising your inventories and move into the realms of supply chain optimisation. Taking it further, you can include the procurement – order placement, receipt and putaways, demand forecasting and shaping, supply planning – production and fulfilment to essentially optimise the basic supply chain. But now, leading companies are not only optimising basic supply chain, they are also moving into collaborating with finance to optimise budgeting. Many are also collaborating with their suppliers and customers to optimise product development, research and marketing. Yield management and customer behavioural analysis helps optimise the price at the point of sale and targeted coupons and offers. Combining revenue optimisation with the cost optimisation can lead to profit optimisation which can move beyond dynamic pricing to supply chain segmentation of one. The key point of this article would have been clear by now – everyone talks about optimisation. What matters more is WHAT ARE YOU OPTIMISING, AND HOW WELL ARE YOU DOING IT? I have already written article How good is your optimisation? to cover the second part of this question.
CFOs are not the only ones who underestimate the impact of Supply Chains on modern corporations. CMOs, COOS and even CEOs are not fully aware of the full potential of supply chain management. When the potential is not fully known, expectations are too low and results are even lower. This speech and will show you the impact of Supply Chain Management in Modern Corporations. Here is the video of a keynote speech on Impact of Supply Chain Management in Modern Corporations. To know more about Vivek Sood, make sure to visit the website viveksood.com or Global Supply Chain Group. For any questions or comments, feel free to contact us at firstname.lastname@example.org. You can find comments on Why Executives Underestimate the Impact of Supply Chains? article on LinkedIn.
It’s no surprise that customers hate companies with too much internal focus. As organizations free up their inter-departmental planning from rigidities, the communications start to bloom. Efficiency improves considerable and everybody starts running together, faster. However, a higher set of problems emerge due to lack of external focus – on suppliers, customers, and end-consumers. Many times everybody inside the organization is running together, faster, but in the wrong direction.
Businesses are gradually being chained by a number of forces so ubiquitous and accepted by all of us, that we fail to notice their impact on businesses, economies, and people. Today, most organizations become veritable bureaucracies as they grow bigger. Every person sits inside his/her own department and is very careful about making sure that their department doesn’t carry the blame if there is a mix-up. Covering the tracks becomes the norm. The resulting departmental silos create stilted communication.
To combat the symptoms of departmental silos many organizations implement a very rigid Enterprise Resource Planning (ERP) system. This helps run their internal processes and coordinates inter-departmental communication. By their nature, these systems are very formulaic and prescriptive with a one-size fits all approach to planning. Now a different bunch of problems start surfacing as a result. If you’ve ever wondered why you see so much chaos, anxiety, blame game, and other such dysfunctional behaviors in businesses, this is the key reason.
I vaguely recall reading a research paper on human courtship by a US professor, where he hypothesised a 13 stage courtship process starting with eye-lock to for-ever-after. He had studied several human societies – ranging from primitive isolated tribes to modern urban tribes and concluded that the process was uniformly similar, irrespective of the locale. Sure, it was based on previous studies of animal courtships, and an animalistic view of humanity – but the basic premises was that this process, if short-circuited, generally led to dissatisfaction with the relationship in the long run.
What triggered this thought was news item on Tinder titled – Research: Estimated 750,000 Tinder users have pubic lice, and I started thinking about how Tinder is changing the game of human courtship by re-engineering the courtship process. By making it easier to connect, and taking away the awkward moments at the start of the process, the entire process can be made easier, faster, and more efficient.
But is it more effective?
I have no personal experience, but the research from the professor quoted above, indicates that the free-agent society may turn out to less happier in the end.
Is this the case of process efficiency sacrificing overall goal of the process? Efficiency killing the effectiveness?
When thinking about the business implications of the process, I will not go into the societal impact of the free-agent society, or economic impact of the free-lance economy. Rather, I will limit my current thinking to a discussion I was have over the last 2-3 weeks.
One of our clients had been sitting on a project proposal for months even though he knew that the project was essential to survival of his company. This large project involves a fairly large team, and is expected to generate significant levitra online prescription net savings. Yet, for some reason or other, he was not signing off the project. This is not unusual in our game.
Then suddenly 2 weeks ago he wanted to arrange a meeting and short-circuit the project work and complete the project in nearly half the time. I explained to him that the quality of the data, and the analysis would not be robust enough for the purpose of the overall project. In fact, it could be counterproductive.
Unless he is strategically withholding information on his reasons, the outcomes will not be in his best interest, and hence not in ours either.
Is this another case of efficiency killing the overall purpose. Sacrificing effectiveness for the sake of efficiency?
How many times have seen this happen?
Note: Stuart Emmett co-operated with our very own Vivek Sood to co-write the book GREEN SUPPLY CHAINS – AN ACTION MANIFESTO. This book was one of the first books in the world on the topic of Green Supply Chains, and as such is used in Universities around the world for executive training and research purposes.
Wherever we turn these days all kinds of “e” are quickly growing and developing around us. Now as my surname begins with an “e”, then I better be careful what I say. But this does mean that I do appreciate that “e” is only the fifth letter in the alphabet. Therefore, to use our full and diverse vocabulary, then many other letters are available to be used. “E” is only one part of many other parts, whether it is “e” commerce, “e” shopping, or “e” learning. The whole has to be looked at and with “e” learning, it seems to me that this whole, has at least five main aspects:
Please, read on for a brief consideration of each of these five main aspects.
1.0. It suits some types of learning better than it suits some others. In looking at “e” learning, then we need to consider which of the two general types of learning we are involved with – “puzzle solving” learning or “making possibilities” learning. These are fundamentally different, and require different learning methods 1.1. “Puzzle solving learning” uses programmed knowledge, which is applied to solve a current puzzle. Puzzles are those things that have a “best” solution and often a “right” answer.
1.2. “Making possibilities” learning involves more insight, critical reflection and thought being applied to solve a problem, which maybe more future orientated in its outcome.
Clearly these two levels of learning are fundamentally different and preventing confusion is critical. The following may help to bring this clarity when having to decide upon an appropriate learning methodology: Is learning required:
“E” learning would seem to be much better for individual based, programmed puzzle solving learning, and also for, the more technical “hard” stuff. Both of these have more black and white answers with clear outcomes and expected standards. The learner needs to find “the right answer”. But “e” learning is perhaps of less use for the “touchy/feely” soft stuff and also less use for, the non pre-programmed, making possibilities learning. This type of learning needs more reflection, more innovation and challenge and finding out “just what is the question/problem!” It can involve team/group learning situations, where it can include those many types of interaction that are lost on the keyboard/screen.
2.0. It is a means to an end and not an end in itself For some people, technology becomes an end in itself. These people get a “technology fix” that becomes the “answer” to all known problems. As with all good sales pitches, “E” learning is often sold as a “Need” rather than a “Want”. Here, “E” learning is seen as having all the answers and that anything new will be automatically better. Tony Harris (Training Consultant) says “we must always retain control of the process and whilst change is a constant, we must not be constantly changing”. This is true, but how often are things changed because of “flavours of the month”, “everyone is going to be doing it”, and it is “new and nice to have”.
So often, what is really happening here is change for the sake of change and for technology “fixing”. But different learning methods are often about supporting the learner better. Certainly here, technology can be a useful means as a part of the learning process and “E” has some positive benefits to offer here. The Open University is actively embracing e-mail support to students, as does David Granville’s Scilnet “e” learning system. As David comments, “students now tell us that it is the most friendly and personal way to learn of any method they have experienced. We now have 85% of students on or ahead of schedule compared with less than 20% on the traditional methods. It proves that e- learning is not just about content, it is very much still about support”.
3.0 Some people prefer the “e” screen and environment however some people do not-and some people, like a mixture of “old” and “e”. When considering “e” learning, then we should never forget the user, the client, and the learner. Are not trainers, especially, all about making it easier for learners to learn-by whatever method? If “e” does this, then fine. If it does not, then let us use the learning method that will assist learning better. The “horses for courses” viewpoint must prevail.
“Some people are best suited to traditional classrooms; some people are best suited to competency based programms whilst a growing number are turning to the virtual classroom” (Tony Harris- Training Consultant). We should always be looking to improve the way people can learn better. Whilst some say, “if it is not broken, then why fix it”, the answer to this saying should always be, “but can we can improve it?” With any “e” learning, then any change or any improvement must be customer, user, client, learner focussed. If there are other gains to be had then good-but customer focus first please.
4.0. It has already, replaced some types of learning “E” learning methods have already replaced some former types of learning and in so doing, has replaced trainers. I know this personally though having some training work replaced by “e” learning. Changes pushed by technology have happened to everyone, and trainers should not think they are in an immune and unique position here. But then, are not problems, opportunities? The material still needs to be developed. The content is the critical part of “e” learning, the “bells and whistles” are useful but they will not sustain a poor content. After all-rubbish in, then rubbish out and recycling on poor existing material will not work.
Great opportunities exist with “e” to use more attractive and moving visuals, and checklist feedback questioning including sounds. Simulations, interactions can all add to make a more interesting, challenging and useful learning experience. The Internet is not after all a replacement of Teletext- the Internet is different and presents new communication opportunities .For example; a new market can be developed. This maybe on a potential world wide basis with the availability of 24/7 learning experiences that are instant, on demand and satisfy those who “want it now”.
5.0. It is, a valuable option in the tool-bag of learning Learning for me, is, any method and process which uses, personal-power, knowledge and experience to: a) Makes sense of things, (by thinking), b) Make things happen, (by doing), c) Bring about change, (by moving from one position to another). The method and process can be classroom, simulation, activity, seminars, workbooks, conferences, exams, projects, assignments, one to one coaching etc. as well as “e” learning.
“E” is not the only answer but it is one part- a growing, and therefore important, part- of the tool-bag. A strategic question to us all is “what new inventions and developments are around, that will take us into the next three years”. “E” learning is one of these new developments. It will be ignored at peril, but needs to be looked at with maturity-a maturity that uses it, where and when it is feasible and is capable of being used to its best extent. No “technology fixes” and ends in themselves please! As Tony Harris notes well “e-learning has its own life cycle, it is up to each individual to decide when to climb aboard and start peddling”
Acknowledgements With especial thanks for “skeleton fleshing out” via “e” mail, face to face/telephone chats, and Internet discussion groups, to the following people:
This article is the full version of a shorter version published in Open Learning Today, BAOL, January 2001 with title “A growing part of the trainers tool-bag”
All written by Stuart Emmett, after spending over 30 years in commercial private sector service industries, working in the UK and in Nigeria, I then moved into Training. This was associated with the, then, Institute of Logistics and Distribution Management (now the Chartered Institute of Logistics and Transport). After being a Director of Training for nine years, I then chose to become a freelance independent mentor/coach, trainer, and consultant. This built on my past operational and strategic experience and my particular interest in the “people issues” of management processes. Link for the blog: http://www.learnandchange.com/freestuff_23.html