logistics cost improvement with distribution networking
DESCRIPTION
Logistics Cost Improvement - Effective Freight Management through Re-Engineering and Distribution NetworkingTRANSCRIPT
LOGISTICS COST IMPROVEMENTPOTENTIAL RE-ENGINEERING
TECHNIQUES
2
COST of FREIGHT The cost ($) of freight is generally between 4% to
8% of a companies Gross Sales Freight ($) is 5.5%* of Gross Domestic Product
(GDP) in the United States With the largest mode being truckload {2010 - $520Bn**}
Either: Parcel (Ground) Less-than-Truckload (LTL) Truckload Commercial Carriers Private Fleets Dedicated-Contract Carrier Services Inter-modal
TOFC –Trailer on Flatcar COFC –Container on Flatcar
*Source: APICS Module 3, Managing Customer & Supplier Relations ,pg 74**Source: DC Velocity, March 2011, pg 51
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
3
ANNUAL SALES to TRANSPORTATION SPEND to MANAGING FREIGHT
Removed $36MM from $270MM in freight costs through*: Reengineering Stronger Tariffs Better Contract Negotiations Focused Routing Guides
SALES TRAFFIC SPENDPOTENTIAL SAVINGS (4% to 8% of Sales) (13% of Traffic Spend)
$ 50MM $ 2MM to $ 4MM $260K to $520K$ 75MM $ 3MM to $ 6MM $390K to $780K$100MM $ 4MM to $ 8MM $520K to $1.1MM$250MM $10MM to $20MM $1.3MM to $2.6MM$500MM $20MM to $40MM $2.6MM to $5.2MM
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012*Stone Management Corporation
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PERCENTAGE of FREIGHT in the LOGISTICS BUDGET
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
PACKAGING SHIPPING MATERIAL; 6%
MAN-AGEMENT SALARIES;
7%
DC/WARE-HOUSE OPERA-TIONS; 25%
INTER-FACILITY TRANSPORTATION; 22%
OUTBOUND TRANS-PORTA-
TION; 40%
Source: Grocery Manufacturers Association (GMA) Survey 2005
5
CONTROL of FREIGHT COST
THROUGH COMPETITIVE Contracts Tiered Discounts Tariffs Rate sheets
TARGETED ACCESSORIALS ($) RE-ENGNEERING of METHODS COLLABORATIVE TRANSPORTATION
MANAGEMENT (CTM)
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
6
FUEL SURCHARGE
Added in to the line-haul (offset the fluctuation in fuel)
Changes Weekly from DOE published Diesel Prices (cst/gal)
Two Ways to Calculate Cst per miles – Advantage if shipments are less than (<)
500 miles Percentage (%) – Advantage if shipments are more than (>)
750 miles All Carriers are calculating this in their rates
There is no advantage to an All-In Rate
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
7
COST of DIESEL FUEL (US - DOE)
JAN '05 JUN '05 JAN '06 JUN '06 JAN '07 JUN '07 JAN '08 JUN '08 JAN '09 JUN '09 JAN '10 JUN '10 JAN '11 MAR '11$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$1.929
$2.198
$2.412
$2.837
$2.534
$2.764
$3.345
$4.643
$2.272
$2.322
$2.771 $2.904
$3.303
$3.823
PRICE of FUEL
Cost
of
Die
sel per
Gal ($
)
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
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FSC CALCULATIONS
On Average 87% of carriers, usually agree to follow a company-structured index
In the next graph – An aggregate of carrier fuel indices Compared to a Structured one
Cst per mile ($) Percentage (%)
Rates based on a typical cst per mile and Line-haul for 250 miles 500 miles 750 miles 1,000 miles 1,500 miles 3,000 miles (cross-country)
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
9
DIFFERENCE: MARKET vs. STRUCTURED FUEL SURCHARGE SCHEDULE –One Engineering Method
JAN '0
9-25
0 m
iles
JAN '0
7-25
0 m
iles
JAN '1
0-25
0 m
iles
JAN '1
1-25
0 m
iles
JAN '0
9-50
0 m
iles
MAR '1
1-25
0 m
iles
JUN '0
7-50
0 m
iles
JUN '0
8-25
0 m
iles
JUN '1
0-50
0 m
iles
JAN '1
1-50
0 m
iles
JAN '0
8-50
0 m
iles
JUN '0
9-1,
000
mile
s
JAN '1
0-75
0 m
iles
JUN '1
0-75
0 m
iles
JAN '0
7-1,
000
mile
s
JAN '1
1-75
0 m
iles
JAN '1
0-1,
000
mile
s
JUN '0
8-50
0 m
iles
JAN '0
9-1,
500
mile
s
JUN '0
9-1,
500
mile
s
JAN '1
0-1,
200
mile
s
JAN '0
9-1,
750
mile
s
JUN '1
0-1,
200
mile
s
JAN '0
7-1,
500
mile
s
JAN '0
9-2,
000
mile
s
JUN '0
7-1,
500
mile
s
JAN '0
7-1,
750
mile
s
JAN '1
1-1,
200
mile
s
JAN '0
8-1,
200
mile
s
JUN '0
7-1,
750
mile
s
JAN '0
7-2,
000
mile
s
MAR '1
1-1,
200
mile
s
JUN '0
7-2,
000
mile
s
JAN '0
8-1,
500
mile
s
JAN '0
9-3,
000
mile
s
JUN '0
9-3,
000
mile
s
JAN '0
8-1,
750
mile
s
JUN '0
8-1,
200
mile
s
JAN '0
7-3,
000
mile
s
MAR '1
1-1,
750
mile
s
JAN '1
0-3,
000
mile
s
MAR '1
1-2,
000
mile
s
JUN '0
8-1,
750
mile
s
JAN '0
8-3,
000
mile
s
MAR '1
1-3,
000
mile
s$0
$500
$1,000
$1,500
$2,000
$2,500
MARKET PLACE STRUCTURED FSC INDEX ($ per mi)
PRICE of FUEL- DISTANCE TRAVELED
CO
ST (
$)
of
FS
C A
PP
LIE
D t
o
SH
IPM
EN
T
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
10
RESULTS
Reduced transportation costs by 29.6% by implementing a standardized Fuel Surcharge (FSC) index amongst all LTL Transportation Providers along with a single base rate
Reduced transportation costs by 21.9% through the implementation of a standardized Fuel Surcharge (FSC) index amongst all Transportation Providers along with a single base rate
Created a 12.8% decrease in freight costs with the implementation of a structured Fuel Surcharge (FSC) Index
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
11
FREIGHT CONSOLIDATION
DELIVERIES (ORDERS) NOTHING LESS THAN 250lbs (One-Ways) –
Minimum $65 COMBINED ORDERS SHIPPED OVER A 2-
DAY PERIOD Average Weight per Shipment 826.8 lbs Average Pallets per Shipment 4 pallets
REC HOURS 8am–2pm (Unless Specified)
MAXIMUM 7 SHIPMENTS per TRAILER MAXIMUM 24 PALLETS per TRAILER
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
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FREIGHT CONSOLIDATION
UNLOAD RATE 35 PALLETS per HOUR MINIMUM TIME per STOP 25 MINUTES
MAXIMUM WEIGHT 45,000 lbs per TRAILER FOLLOW ‘HOURS OF SERVICE’ DRIVING
REGULATIONS USED ROUTING SOFTWARE TO DEVELOP
POTENTIAL LOAD CONFIGURATIONS COMPARED CURRENT LTL COST TO
PROPOSED TRUCKLOAD w/INTERMEDIARY STOP-OFFS
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
13
COMPARISON of LTL RATES {Rates w/FSC -Disc Applied} vs. TRUCKLOAD RATE {w/Stop-Off & FSC}
Another Engineering Method
SH
IPM
EN
T I
SH
IPM
EN
T II
SH
IPM
EN
T III
SH
IPM
EN
T IV
SH
IPM
EN
T V
SH
IPM
EN
T V
I
SH
IPM
EN
T V
II
SH
IPM
EN
T V
III
SH
IPM
EN
T IX
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
TOTAL COMBINED LTL RATES TRUCKLOAD RATE with Intermediary Stop-Off
TO
TA
L C
HA
RG
E F
OR
SH
IPM
EN
T
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
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L/H with Fuel VIIILTL $1,541.17T/L w/Stops $1,421.98 TOTAL WEIGHT – 19,814 lbsTOTAL PALLETS – 25Six Intermediary Deliveries plus Final
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
15
L/H with Fuel LTL $3,025.99T/L w/Stops $2,483.97 TOTAL WEIGHT – 23,605 lbsTOTAL PALLETS – 20Five Intermediary Stops plus Final
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
16
L/H with Fuel VILTL $780.14T/L w/Stops $404.66TOTAL WEIGHT – 34,358 lbsTOTAL PALLETS – 20Two Intermediary Stops Plus Final
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
17
RESULTS
Reduced freight costs $147,304 annually (20.2%) with the implementation of a freight consolidation program moving LTL shipments to Truckload with intermediary stops-off shipments
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
18
BILLED MILES vs OPTIMIZED MILES – Another Engineering Method
460,0
00
470,0
00
480,0
00
490,0
00
500,0
00
510,0
00
520,0
00
530,0
00
540,0
00
550,0
00
BILLED MILES, 540,930.9
OPTIMIZED MILES , 489,440.3
MILES SHIPPED {BILLED vs. OPTIMIZED}
MILES
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
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RESULTS
Saved $313,474 annually by utilizing a routing program along with the PC Miler software where miles were determined for multi-stop shipments and invoices paid from this data, this produced a 37.6% of that portion of the freight spend
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
20
LTL – Shipped Product Weight and Pallet Weight
Another Engineering Method
STUDY I STUDY II STUDY III
7,601,088.0
19,847,200.0
11,256,757.4
859,452.0
2,183,800.0
643,141.3
ANNUAL WGHT of PRODUCT SHIPPED (lbs) ANNUAL WEIGHT of PALLETS SHIPPED (lbs)
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
21
RESULTS
Reduced the Annual LTL Freight Spend by 9.2% with removal of the pallet weight from the rate calculation of the shipment
Saved $242,000 (11.8%) in Annual Freight Costs by negotiating a stronger tariff amongst the LTL carriers with better discounts and waiver of pallet weight with the product shipment
Eliminated 5.2% of calculated rating with the removal of the pallet weight from the shipment calculation
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
22
CROSS DOCKING 3-Month Period
1,300 Shipments Pure Customer Deliveries
5.4MM lbs 550 mile Delivery Radius
COST (Line haul + Fuel Surcharge + Accessorial) Two Equations
cost ($)/pounds shipped (weight)/delivery miles radius $0.0004
cost ($)/visit (deliveries)/delivery miles radius $1.9411
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
23
CURRENT DELIVERY LOCATIONS
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
24
ALL 12 – CURRENT 3PLs
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
25
8 – 3PLs from CURRENT
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
26
9 – 3PL LOCATIONS OPTIMIZED
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
27
DATA COMPARISON CURRENT to OPTIMIZED
# of SITES
MILES (Visits) SERVICE
VIOLATIONS
% of SERVICE
VIOLATIONS
COST $ (Weight)
COST $ (Visit)
12 (Current)
108,000
48 3.69%$540,0
00$668,9
00
8 78,000
15 1.15%$446,8
00$534,2
00
9 (Optimized
)
76,000
11 0.85%$442,3
00$523,0
00
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
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LOCATIONS to COST
8 9 10 11 12 13 14 15 16 $-
$1,000.00
$2,000.00
$3,000.00
$4,000.00
$5,000.00
$6,000.00
$7,000.00
$8,000.00
$9,000.00
COST EFFECTS of INCREASING NUMBER of WAREHOUSES
INVENTORY COST WAREHOUSING COSTS TRANSPORTATION COSTS COST of LOST SALES TOTAL COSTSNUMBER of WARESHOUSES
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RESULTS
Created an 18.3% cost reduction in Annual Freight Spend by designing a Distribution Network where Cross-Docking of Product at selected 3PLs throughput throughout the Continental United States was streamlined and became more efficient
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
30
REGIONAL PARCEL CARRIERS - Another Engineering Method
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
REGIONAL PARCEL CARRIERS STATES COVEREDTransTek CO, WYOnTrac WA, OR, CA, NV, UT, AZLoneStar Overnight TX, NM, OK, LA, ARSpeeDee Delivery Service MN, IA, KS, MO, NE, WI, ILUS Cargo Packaging WV, OH, KY, TN, IN, MIEastern Connection VA, MA, NJ, NY, VT, MD, DE, ME, CT, VT, RI, PA, NHSkyline Messenger GA, AL
31
RESULTS
If 30% of Shipments are within 600 miles (zones 2 thru 4) of Specified Regions One can utilize a Regional Parcel Carrier in
place of the National Ones Negotiate More Aggressive Discounts Waiver of Assessorial(s) Higher Tiered Savings Discounts Better Dim Qualifications Over-Night Service Guaranteed with no
additional cost ($)
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
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COLLABORATIVE TRANSPORTATION
MANAGEMENT (CTM)*
A holistic approach that brings together supply chain partners and service providers to drive inefficiencies out of the transport planning and execution process
*-Source: APICS Dictionary 12th Edition; Advanced Supply Chain Management –’Managing Customer and Supplier Relationship’ Module 3, Section B
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
33
COLLABORATIVE TRANSPORTATION MANAGEMENT (CTM)
Breakdown Pricing: Drive Time (Ideal Hours) Back-Hauls with Customer or Suppliers Continuous Moves Co-Loading Insurance Fuel Reduction of carriers' wait time for loading and unloading Optimization of weight and volume capacity of network resources Route Optimization Load Optimization Preferred Carrier Rating Off Hours Loading/Unloading Drop & Hook Etc…
All which help to drive down costs in the systemSRM Logistics, Inc (Stephen R McCleary, Pres) ©2012