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Logistics Cost Improvement with Distribution Networking

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Logistics Cost Improvement - Effective Freight Management through Re-Engineering and Distribution Networking

Logistics Cost Improvement - Effective Freight Management through Re-Engineering and Distribution Networking

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  • 1. POTENTIAL RE-ENGINEERING TECHNIQUES
  • 2.  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
  • 3.  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 $5.2MM*Stone Management Corporation SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012 3
  • 4. PACKAGING MANAGEMENT SHIPPING SALARIES, 7% MATERIAL, 6% OUTBOUND TRANSPORTATION, 40 % DC/WAREHOUSE OPERATIONS, 25% INTER-FACILITY TRANSPORTATION, 22 %Source: Grocery Manufacturers Association (GMA) Survey 2005 SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012 4
  • 5.  THROUGH COMPETITIVE  Contracts  Tiered Discounts  Tariffs  Rate sheets TARGETED ACCESSORIALS ($) RE-ENGNEERING of METHODS COLLABORATIVE TRANSPORTATION MANAGEMENT (CTM) SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012 5
  • 6.  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 6
  • 7. PRICE of FUEL $5.00 $4.643 $4.50 $4.00 $3.823 $3.50Cost of Diesel per Gal ($) $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 $0.00 JAN 05 JUN 05 JAN 06 JUN 06 JAN 07 JUN 07 JAN 08 JUN 08 JAN 09 JUN 09 JAN 10 JUN 10 JAN 11 MAR 11 7 SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
  • 8.  On Average 87% of carriers, usually agree to follow a company-structured index In the next graph –  An aggregate of carrier fuel indices  Compared to a Structured one  Cst per mile ($)  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
  • 9. $2,500 $2,000COST ($) 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 SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
  • 10.  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 SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
  • 11.  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 11
  • 12.  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 SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
  • 13. $6,000 $5,000TOTAL 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 SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012 13
  • 14. L/H with Fuel VIIILTL $1,541.17T/L w/Stops  $1,421.98TOTAL WEIGHT – 19,814 lbsTOTAL PALLETS – 25Six Intermediary Deliveries plus Final 14SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
  • 15. L/H with FuelLTL $3,025.99T/L w/Stops  $2,483.97TOTAL WEIGHT – 23,605 lbsTOTAL PALLETS – 20Five Intermediary Stops plus Final 15 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 16
  • 17.  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 17
  • 18. MILES SHIPPED {BILLED vs. OPTIMIZED} BILLED MILES, 540.9 OPTIMIZED MILES , 489.4460 470 480 490 500 510 520 530 540 550 Thousands MILES SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012 18
  • 19.  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 19
  • 20. 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 7,601,088.0STUDY I STUDY II STUDY III SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012 20
  • 21.  Reduced the Annual LTL Freight Spend by 9.2% with removal of the pallet weight from the rate calculation of the shipment Saved $242,000 (11.8%) in Annual Freight Costs by negotiating a stronger tariff amongst the LTL carriers with better discounts and waiver of pallet weight with the product shipment Eliminated 5.2% of calculated rating with the removal of the pallet weight from the shipment calculation 21 SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
  • 22.  3-Month Period  1,300 Shipments  Pure Customer Deliveries  5.4MM lbs  550 mile Delivery Radius  COST (Line haul + Fuel Surcharge + Accessorial)  Two Equations  cost ($)/pounds shipped (weight)/delivery miles radius  $0.0004  cost ($)/visit (deliveries)/delivery miles radius  $1.9411 22 SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
  • 23. 23SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
  • 24. SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012 24
  • 25. SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012 25
  • 26. 26SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
  • 27. # 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) SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012 27
  • 28. 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 $- 8 9 10 11 12 13 14 15 16 INVENTORY COST NUMBER ofTRANSPORTATION COSTS COST of LOST SALES WARESHOUSES WAREHOUSING COSTS TOTAL COSTS SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012 28
  • 29.  Created an 18.3% cost reduction in Annual Freight Spend by designing a Distribution Network where Cross-Docking of Product at selected 3PLs throughput throughout the Continental United States was streamlined and became more efficient SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012 29
  • 30. REGIONAL PARCEL CARRIERS STATES COVERED TransTek  CO, WY OnTrac  WA, OR, CA, NV, UT, AZ LoneStar Overnight  TX, NM, OK, LA, AR SpeeDee Delivery Service  MN, IA, KS, MO, NE, WI, IL US Cargo Packaging  WV, OH, KY, TN, IN, MI Eastern Connection  VA, MA, NJ, NY, VT, MD, DE, ME, CT, VT, RI, PA, NH Skyline Messenger  GA, AL 30 SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012
  • 31.  If 30% of Shipments are within 600 miles (zones 2 thru 4) of Specified Regions  One can utilize a Regional Parcel Carrier in place of the National Ones  Negotiate More Aggressive Discounts  Waiver of Assessorial(s)  Higher Tiered Savings Discounts  Better Dim Qualifications  Over-Night Service Guaranteed with no additional cost ($) SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012 31
  • 32. 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 32
  • 33.  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 SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012 33