Wednesday, July 7, 2010

10 ways to reduce your environmental footprint and improve profitability.

Many companies talk about reducing greenhouse gas (GHG) emissions, but too often there’s a large gap between words and action. Most companies seem to be holding off on taking any real steps to reduce their environmental footprint because they believe the investment cost is too high.

Leading companies, on the other hand, are way ahead of the curve. They know that being proactive on the environment provides risk mitigation benefits. Why? Because they see that government legislation may soon be brought in to regulate CO2 emissions. They understand that external shocks such as wars, terrorist attacks, natural disasters, and pandemic outbreaks can have enormous impacts on supply chains and energy supply. They recognize that oil prices can only move upward. They believe that good corporate citizenship attracts investors and employees. And they see environment sensitivity as a way to differentiate themselves.

GHG emission reductions must be tackled the same way you achieve safety in the workplace. You need to implement a strategic plan and stick to it.

Greening a company requires commitment and support from the leadership team. Businesses need champions to lead their environmental initiatives… and logisticians may be the best people for the job. Not only are they involved in sourcing, but they make the critical transportation decisions that will contribute to the greening of the company.

Here are just some of the considerations they have to weigh:

1) Sourcing well – preferably as close as possible to the customer. We consistently examine the trade-off between cost of goods and transportation. However minimizing long-term costs may require us to consider other factors. What about flexibility – the ability to react quickly to market changes? What about consumer preferences? Ultimately if off-shore sourcing is the best option, the most energy-efficient transportation will be necessary. That might mean ocean freight rather than air freight – and this will require a thorough understanding of lead time.

2) Making domestic transportation decisions with a clear understanding of the benefits of rail versus truck, and what intermodal shipping makes most sense for the company. And, once again, this means understanding lead time and communicating time constraints to the customer.

3) Finding environmental programs like Fleet Smart/Smartway which certify leading edge trucking companies. Leading shippers are now incorporating this requirement into the Request for Proposals.

4) Sourcing energy-efficient equipment and a transportation management system that will optimize fleet routing and scheduling. Driver training will also have a huge impact in reducing GHG emissions. According to Claude Robert of Robert Transport, there’s a 35% reduction in the fuel consumption by the best drivers, compared to the worst.

5) Eliminating idling trucks at the shipping dock. Monitoring of idling engines can be done while checking that the wheels are chocked.

6) Using electric forklifts to load vehicles rather than propane or diesel.

7) Taking advantage of collaborative transportation. As discussed in this column last year, cooperation with other companies, even competing ones, needs to gain greater acceptance as a means to cut costs. It benefits everyone.

8) Converting large trucks to natural gas. Yes, capital costs are higher but, in the long run, there are tremendous fuel savings to be enjoyed while reducing harmful emissions.

9) Reducing packaging wherever possible. You’ll increase the density of your shipments, put more product on the vehicle, and reduce freight rates.

10) Reducing paper flow. Embrace the electronic transfer of information. It reduces costs both in supplies and labour.

These are just a few ways that logisticians can green the supply chain. Most important is to take a baseline of where you are today and track your progress. I’m sure you’ll find that environmentally friendly business practices definitely improve profitability.

Remember, as PricewaterhouseCoopers points out in its Transportation & Logistics, 2030 study, “He who focuses on carbon footprinting is stepping on the right foot.”

Thursday, April 29, 2010

Collaborative Transportation Management - Sharing the load

With today’s focus on reducing costs and protecting the environment, the time for collaborative transportation management may be here.

Canada, the second largest country in the world – about 5,000 km from Vancouver to Conception Bay – is one of the most challenging, high-cost countries in which to distribute goods.

Forty-two percent of the population inhabit five urban areas where manufacturing and distribution facilities face common transportation challenges. Meanwhile, disproportionate shares of transportation resources are required to service the balance of the population, scattered over 10 million square kilometers. The situation dictates a high use of less-than-truckload delivery, and all-too-frequently, pick-up and delivery trucks simply aren’t full.

On top of this less-than-efficient system, the cost of moving goods across Canada is bound to increase. Fuel prices will inevitably rise. Driver shortages due to an aging population, attrition, and a lack of new entrants is already occurring. When the economy picks up we’re going to feel these pressures even more acutely.
One solution to optimize productivity is collaborative transportation management (CTM) in which the traditional one-to-one relationship between a shipper and receiver, is replaced by a more efficient many-to-many approach. Shippers, receivers, carriers, and third-party logistics companies can gain tremendous efficiencies through cooperative forecasting, order consolidation, optimizing asset utilization, sharing routes, and streamlining carrier payment.

Pooling resources improves the supply chain, reduces mileage, eliminates unnecessary trips, and increases load factors – all of which reduces costs. At the same time, energy consumption is substantially reduced, resulting in huge benefits to the environment in the form of reduced carbon expenditure, pollution, and congestion.
Need an example of where this is already working? The Canadian Pharmaceutical Distribution Network involves 21 manufacturers who distribute their products to hospitals across Canada through a sophisticated collaboration system. Hospitals order and receive the products they need from multiple suppliers through a single order system managed by a third party.

In order for CTM to work, some key interactions need to develop between consignors, carriers, and consignees, as well as any intermediaries that are involved in managing the process. Collaboration eliminates inefficiencies and improves supply chain performances for all, but a degree of transparency is absolutely critical.
CTM is not a new concept but it has not been widely adopted. Senior decision makers are too caught up in gaining competitive advantage, focusing on marketing and sales, to set up a collaborative system that will benefit them in the long term. When orders need to be delivered they not to think about the bigger picture. Typically they can’t see past individual corporate objectives.

That’s why logisticians really have to drive CTM. Their involvement ensures that key operations and procedures will be analyzed for hidden efficiencies. Information sharing between organizations is critical and must be conducted with absolute honesty and openness – without crossing legal boundaries, of course. The process will require continual monitoring by committed champions who will solve problems jointly, rather than individually. The technology employed must not only be effective but must allow seamless information interchange. The billing process must be simple, with costing methods that ensure all participants pay their fair share. And most importantly, tangible benefits must be realized by all parties.
Change management is going to be critical here, as companies negotiate roadblocks and move from single-minded self interest (with the associated attitudes and practices) to a more cooperative approach.

So how can all of this be accomplished? Again, logistics will have to lead the way, organizing from within, meeting with company stakeholders, educating them on the threats on the horizon and the potential benefits of collaboration. Analysis will be helpful – particularly of the current ordering process, size, and cycle, and the efficiency of the shipping and receiving functions. And a list needs to be generated of companies that would provide synergy in collaboration. For this it’s always good to reach outside your organization, gleaning what you can from discussions at industry functions. Networking is excellent way to discuss collaboration with like-minded colleagues. Search the internet for buying groups coordinating on potential logistics efficiencies.

Third-party logistics providers who have embraced collaboration are in a great position to educate manufacturers, distributors, wholesalers, retailers, shippers, and receivers on the advantages of CTM. They can also get the ball rolling, providing essential services and distributing the savings.
Collaborated distribution is an opportunity whose time has come. We will all win with cost reductions and a better environment.

Friday, March 26, 2010

Affordable Transportation Management Systems

Transportation Management Systems over the internet
Transportation Management Systems (TMS) over the internet allows any company, regardless of size, to obtain the benefits of a good transportation management system.

Not long ago the high cost of Transportation Management Systems meant they were used almost exclusively by large shippers and carriers. Well, things have certainly changed - especially with the advent of "software as a service" or SaaS as it is commonly called. These days, companies of all sizes can pay a relatively low subscription cost to enjoy the benefits of a powerful TMS which will help them manage their transportation strategies - whether it is by road, rail, air or ocean.

With SaaS, software is not installed on a company-domiciled computer or server, but is accessed through the Internet. Companies
log on to a web-based program that is used simultaneously by many other companies. Hundreds or even thousands of users can work with a single program. Users are plugged into an instant network of shippers, carriers, freight brokers, third party
logistics providers, suppliers, consignees, and trading partners executing millions of transactions through a single system. The system is very secure, allowing each subscriber's personnel to be in control of their own transactions and managing logistics relationships through a common network.

Subscribing to a SaaS to manage your transportation functions allows a company to handle all the operations management processes. Not only can customer orders be converted instantly into optimized shipments, but the system stores and retrieves costs for all modes and types of movements, performing carrier selection, best rate, and most efficient routing based on shipment size and destination.

Subscribers can also tender freight through electronic data interchange (EDI) and monitor performance through electronic track and trace. Bill creation, bills of lading, manifests, and carrier audits are all part of the process. Report generation provides key performance indicators, visibility to costs by lane, customer activities and allows for claims management.

Benefits to using a SaaS system provider are many. Companies enjoy a return on investment without the start up cost, capital investment, or ongoing maintenance fees. Training is minimal and user friendly. SaaS providers are constantly upgrading their technology so you get the latest and greatest, without the hassle of having to develop it yourself.

You can also choose only the modules you need. And in most cases what you choose can be integrated seamlessly into your existing business processes, providing end-to-end workflow. Ultimately, you can have total visibility of your entire transportation operations.

SaaS also gives you better handle on carrier selection, performance, and payment.

The main drawback is that because a subscriber isn't purchasing the software, it cannot be customized. However most companies that have subscriptions believe this is unnecessary and the benefits far outweigh the concern. This becomes a platform for logistics benchmarking and continuous improvement.

Cost savings touted by SaaS vendor case studies indicate a 15% to 40% transportation spend reduction. Even at the low end of that scale, a company with an annual freight bill of $500,000 would save $75,000. This money flows directly to the bottom line. Think of the number of new sales dollars that companies need to gain for this kind of net profit!

SaaS is an important logistics tool for companies looking to reduce costs and optimize service.

Thursday, October 15, 2009

Fuel needs to be a flow-through consumption-based charge – a system that would fair for everyone.

Fuel costs are the largest ongoing financial concern for both carriers and shippers. Fluctuating fuel costs create challenges for companies to remain on budget, which ultimately impacts bottom lines.

The current recession has tempered the volatility we’ve seen creating chaos in previous years. Rack fuel prices this year have been trending between $0.692/litre and $0.792/litre, according to Freight Carriers Association (FCA) data. The truckload rate for fuel surcharges ranges from 16% to a recent high of 21.4%. Compare this to July 2008 when fuel peaked at a rack price of $1.33/litre with the truckloads surcharged at 49.9%.

The recession has reduced the demand for fuel, and that has provided relatively stable pricing. Fuel consumption will inevitably pick up again, once the economy begins to recover, and many of the issues that existed prior to the recession to create fuel shortages (and drive prices up) are still in force. This will leave Canadian consumers paying considerably more for fuel. Carriers will be forced to increase the fuel surcharge… and transportation service purchasers will have to pay.
The logistics community needs to start reviewing how it deals with the cost of fuel. The current method of surcharge using a percentage doesn’t account for how fuel is consumed. Percentage based fuel surcharges have no real bearing on how much fuel is required to haul a particular load. It creates an unequal cost for fuel for the shipper paying a higher freight rate than a shipper with a lower rate for a move for a similar lane.

Take, for example, “Shipper A,” rated at $1,200, and “Shipper B,” rated at $1,000. The extra cost of the fuel surcharge at 21.4%, once the rate differential is removed, is $42.80 more for “Shipper A,” who has not consumed any more fuel to move his load.

The original concept for fuel surcharges was cost recovery, according to the FCA’s fuel bulletin of August 13, 1999. The idea was to compensate carriers for incremental fuel costs that were occurring at any given time. But when fuel is charged on a percentage basis, a portion of the rates is compounded into the total freight costs, causing a hidden increase. How many rate increases have carriers submitted over the past 10 years since the original percentage based fuel surcharge of 1999?

The best way to change this is to use a distance formula based on average vehicle consumption of fuel. Therefore the formula would be the rack price per litre use the current $0.792, less the $0.39 litre cost that was embedded in the original freight rate when fuel surcharges were implemented, equals $0.402. Divide this by the average kilometres per litres providing a cost kilometre travelled. A good conservative benchmark for a tandem tractor is 2.3 kilometres/litre. This provides a fuel surcharge of $0.175/km. On the $1000 rate for a recent trip of 842 kilometres, the percentage fuel based on 21.4% was $214 but as cost per kilometre it is $147, a difference of $67. For the low volume shipper the fuel reduction difference was $110.
Opponents of this method will indicate trucks pulling heavier loads use more fuel versus lighter loads. Then there’s the question of what to do with LTL. When I look at the Freight Carrier Association fuel charges there are three classifications LTL, TL, and Heavy TL. This could be easily adapted into a distance based formula. With the LTL being the most complicated to develop. However nothing is insurmountable, a cost per cube kilometre could be developed similar to how the FCA developed the LTL percentage surcharge.

The other issue opponents have against using a per-mile fuel formula is empty miles, summer versus winter utilization. Trucking companies benchmark fuel consumption on an ongoing basis. The number of 2.3 kilometres/litre was for a tandem fleet of 150 tractors that operated over a number years. It has everything embedded in it: summer, winter, empty, full, city and highway travel.
Fuel needs to be a flow-through consumption-based charge – fair for everyone, based on the original intention.

Monday, August 24, 2009

Freight Negotiations - Finding the win-win deal

Finding the win-win deal

Freight negotiations don’t need to be like poker games, where only one side can win the pot.

By Sam Kopytowski

Negotiation is something logistics professionals will be called upon to conduct many times throughout their careers. It comes with the territory. Successful negotiation is essential in business – especially when the economy is struggling. Everyone strives for the best value and the lowest costs when obtaining the best service possible.

Unfortunately, however, when it comes to freight negotiations, many companies specialize in the “win-lose” approach – a positional or distributive negotiation whereby one party’s gain is another party’s loss.

In win-lose bargaining, both parties are in direct competition and there can be only one winner.

Understandably, many people look at win-lose as a kind of game. Indeed, it can be compared to poker in that it is adversarial in nature, with both side trying to win the pot through keen observance of an opponent’s weaknesses, and a strategic use of bargaining chips. The big difference, of course, is that win-lose negotiations are not a game. And the stakes are very real.

Poker players like to play their cards “close to the vest,” careful not to share information or reveal too much to their opponent. The same is true in win-lose negotiations, where there is minimal disclosures to the other party. Furthermore, buyers avoid giving any clues (or “tells”) that would reveal their true position. In fact, good negotiators are known for their poker faces. They ‘hold’ and ‘raise’ as necessary with pressure tactics and they pressure their opponents through delays, walkouts, and threats.

How effective is this approach to negotiations? Not very. In fact, it is often counterproductive and does not have any long-term sustainability.

Even when you win in this confrontational style of business, you still lose because the relationship with your counterpart is irreparably damaged. If you win enough your opponent will eventually stop playing the game. No one likes to lose, and they certainly don’t appreciate being bullied. As the relationship deteriorates, the winner can expect the tables to turn when their opponent gets even by providing substandard service at lower cost in an effort to recoup losses.

In win-lose negotiations, logistic professionals are taking a short-term view, potentially locking their companies into a narrow range of positive outcomes. Win-lose does not serve the long-term interests of the winner, even in if short-term objectives are achieved.

“Win-win” negotiations, on the other hand, involve integrative bargaining or interest-based bargaining, where the parties collaborate to find a mutually beneficial solution.

In the win-win approach to freight negotiations, both the shipper and carrier are engaged in finding the best solutions to move freight economically. It yields a freight agreement that each party is willing to fulfill.

Successful logistics buyers looking to achieve best outcomes use win-win techniques where both parties in the negotiation walk away with the sense they have accomplished their objectives. Relationships are developed that have a foundation of trust because they are mutually beneficial. At the heart of the negotiation is true cooperative problem solving, cost cutting, customer service, and mutual profit.

This kind of collaborative takes additional work on the part of the logistics buyer.

1. Preparation

This is the most important element in achieving an agreement… and it starts long before you sit down at the table. It involves a lot of data gathering.

First, understand the shipment. What is the size? The weight? The average cube per shipment? What kind of commodity is it? Is it dangerous? Does it have special requirements? Will it need temperature controls? Additional security? Dunnage?

Next, you have to know your customer’s requirements. How much will be shipped? How often? What are the delivery locations? What about the dock-side requirements? Unloading equipment at consignee? Dock? Tailgate? Pallet? Hand bomb?

Now, what kind of equipment will be required? Dry van? Reefer? Heated service? Flat bed? Tridem? Tandem?

And finally, what is the service cycle time? What is the best mode of transportation?

Proper preparation will help you understand the implicit costs. Use benchmarking, historical data, industry associations, and the Internet to map out what you need. Based on this information, the shipper can set flexible objectives. They’ll consider what would be the ideal situation, the very best that can be achieved. They’ll also get a sense of the biggest challenges they’ll face.

Preparation also involves finding the right transportation suppliers to negotiate with. Research and qualify the carriers that can provide the services you required. Find out as much about the companies as you can, the lanes they service, their service objectives, their response to damages, their reputation in the market place, the corporate culture they have fostered… anything that will help with the discussion.

2. Exchanging Information

At preliminary meetings with potential partners, a frank and open discussion is the best way to meet objectives. Shipment data is shared and service requirements are discussed. Where the sides differ, their expertise will be needed to improve the cost and service.

3. Making a Deal

When you’re close to an agreement, have the carrier provide the full cost and service proposal electronically in advance of the meeting. This allows you to prepare for the meeting. Analyze the quote against current shipping data to understand the value proposition. The meeting agenda should consist of a discussion to understand services, rates, fuel surcharges and ancillary charges, and process improvements.

There is no room now for misconceptions. Don’t be afraid to ask the carrier representative how rates can be lowered. Talk about what needs to be done. Never assume the amount quoted is the final price. Most carriers’ rates have some “wiggle” room.

The steps you take to improve the transportation deal are important blocks to building a solid relationship. Some concessions may have to be provided, to get lower costs, but it is worth it. Problem solving must be done jointly.

Focus on the issues at hand, don’t take positions, and be flexible, using fair business practices. Most important, use reason not control, pressure, or power. Listen to what is being said. Find ways to make your freight attractive to the carrier.

This is true win-win negotiating, and it ensures that in the long run, everyone wins.

Sam Kopytowski is the principal at XCD Logistics Solutions Ltd. in Toronto. You can reach him at
Request for Proposals
Requests for proposals and quotations show suppliers that you’re organized, impartial… and growing.

By Sam Kopytowski

Generally speaking, logisticians at small- to mid-size logistics firms make too little use of standard Requests For Proposals (RFPs) and Requests For Quotations RFQs).

Both are important parts of the logistics buying process, allowing potential suppliers to join the competition to provide a business with goods or services. The issuer makes available the specifications and requirements to several candidates, and then waits for the competitive responses to be submitted.

But while RFPs and RFQs have similar structures, they are used in slightly differently ways.

The objective of RFQs is to set pricing, terms and conditions for a well-defined and quantifiable service or goods. For example, companies may be invited to bid on specific lane transportation services, or the leasing or purchases of equipment.

RFPs, on the other hand, are issued when there is complexity to the business requirement, such as in constraint-based complicated distributions requiring various services or in the total outsourcing of services to a third party. The RFP process is more time consuming, from preparation, through final selection, to the signing of a contract. It should be used for longer term relationships, beginning with a strategy, incorporating a needs assessment, and ending with a deliverable. Effective RFPs reflect long-term business objectives, and provide detailed insight into a business.

Both RFPs and RFQs are excellent methods for leveraging a company’s negotiating ability and purchasing power with suppliers, no matter how large the purchase or size of company issuing them. There are many key benefits to issuing them.

They provide you with a template to fully map out your requirements and specifications, so crucial in the preplanning process. They bring structure to the logistics buying decision. And they generate a healthy “buzz” about you in the industry.

They also let potential candidates know you’re serious, so they’ll provide their best pricing and solutions. Furthermore, it reassures them that you’ve set a structured response analysis and selection procedure demonstrating your impartiality. This is absolutely crucial in today’s business environment for corporate governance and credibility.

There are many templates available out there to develop a proper RFP or RFQ. All should begin with a letter that invites responses and spells out the objectives. You’ll also want to include a statement of confidentiality that needs to be returned by candidates within a specified time.

Make sure there’s no misunderstanding about the process. Instructions for responding to the proposal (including number of copies, who to direct the response to, and the deadline date) should be clearly stated, and the ramifications of missing the deadline should be set out in this section. Typically, all responses are accepted at the discretion of the analysis team.

Once the process is underway, candidate questions should be directed to all participants, with a cut-off date for further questions.

The detailed services requirement – including data or specifications of the equipment – must be part of the information provided. The better the quality of information provided or the more complete the specifications, the better the chances that the proposal will have a proper response.

When it comes to the information you get back from respondents, of course you’ll want things like company history, company financials (including bank references), insurances and guarantees, their business continuance plan, a detailed implementation plan, and references.

One of the most important parts of the process is candidate qualification. RFPs and RFQs should be sent only to companies that can provide the services and equipment required. Find your targets using the Internet, and through discussions with colleagues and your own business network. Remember, if you spread the word, candidates will find you. Have frank discussions with potential suppliers. Candidates will let you know if they’re able to fulfill the requirements, as the effort to respond is very time consuming.

Once the responses are in, it is up to you to analyze them in a consistent manner, to ensure the right outcome.

RFQs are easier to analyze, as they tend to be price- and terms-oriented. A simple Excel spreadsheet will suffice with a matrix of respondents down one side and pricing and terms on the other.

RFPs, on the other hand, are challenging to evaluate. You’ll want to set up the criteria in advance, as part of the process, and then review the services portion separate from pricing. Use a weighted point system to compare the candidate offering against specific service requirement criteria.

When it comes time to review the short-list candidates, invite them to make a presentation to your response analysis team in a boardroom session. A one-hour presentation, with a half hour question-and-answer period, ought to suffice. Limit the number of people from the respondents, typically three. Who attends the meeting is crucial. I know of at least one respondent in a recent session who did not bring the senior operations person. That demonstrated a clear lack of understanding of the requirements.

RFQs and RFPs are an excellent way to acquire the services and equipment that are so important in the logistics process. Large companies use them on an ongoing basis. And small- to mid-size companies can definitely benefit from learning the process.

Sam Kopytowski is the principal at XCD Logistics Solutions Ltd. in Toronto. You can reach him at