Logistics Cost Improvement with Distribution Networking

POTENTIAL RE-ENGINEERING
TECHNIQUES

 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

2
SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012

 Removed $36MM from $270MM in freight costs
through*:
 Reengineering
 Stronger Tariffs
 Better Contract Negotiations
 Focused Routing Guides
SALES TRAFFIC SPEND POTENTIAL 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
*Stone Management Corporation
3

PACKAGING
MANAGEMENT
SHIPPING
SALARIES, 7%
MATERIAL, 6%

OUTBOUND
TRANSPORTATION, 40
%
DC/WAREHOUSE
OPERATIONS, 25%

INTER-FACILITY
TRANSPORTATION, 22
%

Source: Grocery Manufacturers Association (GMA) Survey 2005

4

 THROUGH COMPETITIVE
 Contracts
 Tiered Discounts
 Tariffs
 Rate sheets
 TARGETED ACCESSORIALS ($)
 RE-ENGNEERING of METHODS
 COLLABORATIVE TRANSPORTATION
MANAGEMENT (CTM)

5

 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

6

PRICE of FUEL
$5.00

$4.643
$4.50

$4.00
$3.823

$3.50
Cost of Diesel per Gal ($)

$3.345 $3.303

$3.00
$2.904
$2.837
$2.764 $2.771

$2.50 $2.534
$2.412
$2.322
$2.198
$2.272
$2.00
$1.929

$1.50

$1.00

$0.50

$0.00
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

7

 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 8

$2,500

$2,000
COST ($) of FSC APPLIED to SHIPMENT

$1,500

$1,000

$500

$0

MARKET PLACE STRUCTURED FSC INDEX ($ per mi) STRUCTURED FSC INDEX (% of L/H)
PRICE of FUEL- DISTANCE TRAVELED

9

 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

10

 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

11

 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

12

$6,000

$5,000
TOTAL CHARGE FOR SHIPMENT

$4,000

$3,000

$2,000

$1,000

$0
SHIPMENT III
SHIPMENT I

SHIPMENT IV

SHIPMENT VI

SHIPMENT VIII
SHIPMENT II

SHIPMENT V

SHIPMENT VII

SHIPMENT IX
TOTAL COMBINED LTL RATES TRUCKLOAD RATE with Intermediary Stop-Off


L/H with Fuel VIII
LTL $1,541.17
T/L w/Stops  $1,421.98
TOTAL WEIGHT – 19,814 lbs
TOTAL PALLETS – 25
Six Intermediary Deliveries plus Final

14

L/H with Fuel
LTL $3,025.99
T/L w/Stops  $2,483.97
Five Intermediary Stops plus Final
15

L/H with Fuel VI
LTL $780.14
T/L w/Stops  $404.66
Two Intermediary Stops Plus Final

16

 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

17

MILES SHIPPED {BILLED vs. OPTIMIZED}

BILLED MILES, 540.9

OPTIMIZED MILES , 489.4
460

470

480

490

500

510

520

530

540

550
Thousands
MILES


 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

19

ANNUAL WGHT of PRODUCT SHIPPED (lbs) ANNUAL WEIGHT of PALLETS SHIPPED (lbs)

2,183,800.0

643,141.3
19,847,200.0
859,452.0

11,256,757.4
7,601,088.0

STUDY I STUDY II STUDY III

20

 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
21

 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

22

23

24

25

26

# of MILES COST $ COST $
SERVICE % of SERVICE
SITES (Visits) VIOLATIONS VIOLATIONS
(Weight) (Visit)

12 108,000 48 3.69% $540,000 $668,900
(Current)

8 78,000 15 1.15% $446,800 $534,200

9 76,000 11 0.85% $442,300 $523,000
(Optimized)

27

COST EFFECTS of INCREASING NUMBER of
WAREHOUSES

$9,000.00

$8,000.00

$7,000.00

$6,000.00

$5,000.00

$4,000.00

$3,000.00

$2,000.00

$1,000.00

$-
8 9 10 11 12 13 14 15 16

INVENTORY COST
NUMBER ofTRANSPORTATION COSTS COST of LOST SALES
WARESHOUSES
WAREHOUSING COSTS TOTAL COSTS

SRM Logistics, Inc (Stephen R
McCleary, Pres) ©2012 28

 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
29

REGIONAL PARCEL CARRIERS STATES COVERED
TransTek  CO, WY
OnTrac  WA, OR, CA, NV, UT, AZ
LoneStar Overnight  TX, NM, OK, LA, AR
SpeeDee Delivery Service  MN, IA, KS, MO, NE, WI, IL
US Cargo Packaging  WV, OH, KY, TN, IN, MI
Eastern Connection  VA, MA, NJ, NY, VT, MD, DE, ME, CT, VT, RI, PA, NH
Skyline Messenger  GA, AL

30

 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
($)

31

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

32

 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 system

33

Logistics Cost Improvement with Distribution Networking

More Related Content

What's hot (13)

Similar to Logistics Cost Improvement with Distribution Networking (20)

Recently uploaded (20)

Logistics Cost Improvement with Distribution Networking