LOGISTICS Maximizing its Contribution to the Organization Dave Klugman – CEO Simplified Logistics Joe Brady – EVP Simplified Logistics October 13, 2016
Take-Aways from Today • First and foremost - Logistics should be an integral part of your business strategy • Transportation costs, processes, and strategies DO make or break your bottom line • Transportation can be used to: – Improve Profitability (and business valuation) – Differentiate your company from the competition – Drive continuous improvement upstream • Trends, metrics, and other stuff etc. Informal – We need you to share your logistics, challenges, concerns, and how you rank your strategy 2
The Supply Chain Functions Functions • Sales Forecasting • Demand Planning • Product/Material Sourcing • Front-end Supplier Transportation • Order Management • Customer Service • Inter-Facility Transportation • Warehou s ing/Distribution • Customer Transportation • Freight Claims/Payment Back-end • Returns (Transportation) 3
The Supply Chain product, information, and cash Buy Make Move Sell Plan Source Make Deliver Return Manufacturer DC Customer DC Customer Store Consumer Supplier Plant 4
Components of Transportation and Distribution Transportation Distribution Transportation would generally include Items included in management of Physical Distribution the management of: transportation would be: typically includes: Outbound freight (all modes of Selection of carriers Inventory management transportation) Pricing and costing arrangements Inventory transfer and Intra-facility moves replenishment Contracting with carriers Inbound freight (all modes of Receiving and put-away Tendering of shipments (the transportation) process) Warehousing and all related Private / dedicated fleet operations Transportation systems and management technologies Customer service Monitoring of drivers, Monitoring of carrier performance Order processing maintenance, and equipment Freight audit and payment Distribution systems design sourcing (network) Reporting of transportation spend International transportation Distribution administration Claims Customer returns Distribution systems and Oversight of security and legislative technologies regulations Interfaces with procurement, sales, manufacturing, finance, and I.T. Logistics – Where the big guys are capitalizing on opportunities to reduce costs, improve customer service, strengthen supplier relationships, and leap frog the competition 5
The (R)Evolution of Transportation • Regulated Environment Pre 1980 • Price was fixed – little resourced • Vendor-plant-customer • Evolving buying competency 1980-1990 • Market turmoil holds down cost • Vendor-plant-warehouse-customer • Non-Integrated Strategies on price and service 1990-2010 • Technology and outsourcing compete • Suppliers-Outsourced Mfg.-Ocean-Warehouse-Customer • Complex Integrated Supply Chains 2010-Present • Value-add Strategic Competitive Advantages • “C Suite” interest and involvement 6
Where Are You on the “Transportation” Continuum? Best Case Practices Typical Current State Partial awareness with many Understanding and managing the assumed or embedded costs primary cost drivers and business complexities that make-up your transportation spend Best in class strategies and Functional Silo that is typically less processes to maximize the understood by senior management contribution potential of the than other corporate disciplines Logistics function Tomorrow Today 7
Where Are You on the “Transportation” Continuum? Best Case Practices Typical Current state Developing the most relevant Most metrics are % of sales, change metrics that take into account the from period to period, and are variables and choices that lead to limited realized price and service levels. Identifying potential risks in Lack of understanding causes senior defining and implementing your management to avoid risk (or the Logistics strategies and processes topic at all) Tomorrow Today 8
Where Are You on the “Transportation” Continuum? Best Case Practices Typical Current state Steps what steps? The “must - do’s” to identify and quantify potential cost reduction, margin expansion and process improvement opportunities Emerging trends in logistics can Direct to consumer is the future - favorably or unfavorably impact Commitment vs opportunistic daily your master operating plan deals Tomorrow Today 9
The “Must Do’s” to Excellence Know your cost drivers and what you can do about them Develop a freight strategy Stay current with industry trends Metrics should have these characteristics Perform a Network Rationalization Analysis/Freight Evaluation Build Relationships (suppliers, customer, business partners) • Service, Service, Service 10
Must Do #1 Know The Impact of Cost Drivers 11
Primary cost drivers and business complexities making up transportation spend Direct Costs Related Issues • • Outbound Prepaid Shows as a cost of sales • Freight Outbound collect is invisible but is a cost of • Inbound Collect Freight sales to your customer • Warehousing Costs • Prepaid or Collect decision is either global • Inventory Carrying Costs or based upon a sales quantity • Invoicing the customer for this expense is an opportunity 12
An EOQ Example … 13
So what does this Mean? Example Customer A single largest Product example Established terms that were tied to Order value. Optimal Order Quantity Order $ 2000 and freight is prepaid (with a range) Weight 4000 5000 Impact Sale Price $2,000 $2,500 25% Freight Cost $280 $280 0% Net Sale $1,720 $2,220 29% Frt % sales 14.0% 11.2% -20% Profit 12.60% 15.60% 24% Impact 25% increase in average order size Freight Frt as a % of sale reduced by 20% Inc. Margin 3% this change increased the margin on this sale 14
Freight as a Profit Center? Business decision – Freight prepaid, prepaid and add actual freight cost, or, use freight as a profit center Many companies are using freight as a profit center Challenging business conditions can make price increases difficult – Your freight strategy make up the difference Lets assume you have the most competitive freight rates ….. 15
Freight as a Profit Center Anonimized Real world Client Current Projected Next Sample Annualized 12 Mths Months of Data 3.00 12 12 Bills 5,327 21,308 21,308 Current $ Expense 866,890 $ 3,467,559 $ 3,606,262 $ New Cost 690,998 $ 2,763,993 $ 2,763,993 $ Target Savings 175,891 $ 703,566 $ 842,269 Target Savings % 20.3% 20.3% 23.4% 16
Freight as a Profit Center 17
Primary cost drivers and business complexities making up transportation spend Direct Costs Related Issues • • Outbound Prepaid Shows as a cost of raw Freight materials • • Inbound Collect Freight An implied decision was made to pay this • Warehousing Costs expense • Inventory carrying costs • The last frontier of low hanging fruit in most organizations How are you categorizing freight that moves between your facilities?? 18
Inbound - Last Frontiers deserve additional time • How much do you spend on Inbound Freight? • Collect – you control routings and pay direct • How do you route? • How to you manage non-compliance • Prepaid – you pay indirectly in cost of goods • How much freight is implied in the purchase? • Prepaid and Add – you pay directly as a line item in Vendor invoice • How does this compare with your costs if terms were collect? • What is the economic analysis behind these decisions? 19
Inbound - Last Frontiers deserve additional time • How much do you spend on Inbound Freight? • What are the steps to addressing the opportunity? • Create access for all to your direct costs • Change culture to use access in decision making. • Monitor back end results for opportunity 20
Inbound - Last Frontiers deserve additional time If you get one of these you know what’s happening …… 21
Inbound - Last Frontiers deserve additional time 3 Stories that might be of interest • Major Retailer “K” • Major Diversified Conglomerate “W” • Major Industrial Supply Company “S” 22
Primary cost drivers and business complexities making up transportation spend Direct Costs Related Issues • Very visible and have • Outbound Prepaid Freight consequences (Tax) • Inbound Collect Freight beyond a direct expense • Inventory Carrying Costs • Warehousing and • Warehousing Costs Transportation are complimentary and interchangeable • Service is the balance 23
Must Do # 2 Develop a Freight Strategy 24
“Would you please tell me which way I ought to go from here? “ asked Alice. “That depends a good deal on where you want to get to.” “I really don’t know,” replied Alice. “Then it doesn’t matter which way you go,” said the cat. Lewis Carroll Alice's Adventures in Wonderland 25
Recommend
More recommend
