Best Practices in Transportation Procurement Bringing the Paper Savings to Reality. Moderator: Speakers:
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1 Best Practices in Transportation Procurement Bringing the Paper Savings to Reality Moderator: Paul Page Editorial Director, The Journal of Commerce Speakers: Gary Girotti - Vice President, Transportation Practice, CHAINalytics LLC Joe Lombardo - Group Manager, Transportation, Nestle USA Paul Bacon - Product Manager, Transportation Bid Collaboration, i2 Technologies
2 Who is Chainalytics? Chainalytics formed in 2001 (HQ in Atlanta, GA) 50 FTEs in US and India Experience of over 400 engagements Supply Chain Analysis Focused In: Supply Chain Design Transportation Sourcing & Operations Improvement Inventory & Portfolio Planning Transportation Sourcing Inventory Planning Transportation Operations Supply Chain Analytics Transportation Planning Portfolio Management Transportation Procurement Experience 100+ Transportation bids over the past 7 years All industries, All modes Technology Expertise Chainalytics has experts on staff for all the major technology vendors Access to our proprietary TL Benchmarking product (MBBC) Infrastructure Planning Current MBBC model includes $12B in freight spend refreshed every 6 months Much more the just rate comparison. MBBC determines the cost drivers that determine rates 2
3 Guiding Principals to Transportation Procurement Transportation is not a commodity it is a service The subjective aspect of the quality of the service needs to be included in the analysis Shippers should consider all costs (direct and indirect) when trading-off soft aspects A transportation procurement event is as much a relationship management process as a pricing event The outcome of a typical event is a non-binding agreement Shippers do not guarantee volume and carriers do not guarantee they will take the volume tendered As such, the procurement event must be looked at as part of a continual process of relationship management with your service providers Going to market, or market testing your rates, should be a healthy part of the relationship management process Carriers networks change as much, if not more than, the average shippers networks These events should be well communicated, regularly scheduled, and fair 3
4 Procurement Best Practices: Procurement Life Cycle Data 4
5 Procurement Best Practices: Procurement Life Cycle These areas get all the focus Data 5
6 Procurement Best Practices: Procurement Life Cycle These areas get all the focus Data But these areas have the biggest impact on actual savings realized 6
7 LHD Capacity Predictions 12% Balanced 12% Balanced 7% 7% 18% Somewhat Tight 25% 7% 11% 15% Very Tight Somewhat Tight 28% 7% 43% 2% 9% Balanced 11% Balanced 6% Somewhat Available 82% 4% 30% Somewhat Available 2% 9% 2% 37% 16% 46% Somewhat Available 11% 17% 15% 13% 2% 7% 20% Somewhat Available 2% Easily Available 52% Easily Available 11% Easily Available 2% Easily Available Jun 2009 Dec 2009 Jun 2010 Dec 2010 Survey responses from 46 for LHD transportation procurement directors managing over $10B in spend 7
8 Procurement Savings % 30% Average 15% savings 25% 20% 15% 10% 5% 0% Year Retail 2008Retail 2008 Beverage 2008CPG Mfg2008 Packaging 2008 Packaging 2008Food Mfg 2008Food Mfg 2008Food Mfg 2009Food Mfg 2009 Food Mfg 2009 Food Mfg 2009 Pharma 2009 Mode TL TL/IM Mfg TL Ref TL/IM MfgTL MfgLTL LTL TL TL Ref TL/IM TL/IM TL Ref LTL Spend ($MM) $ 38 $ 75 $ 40 $ 230 $ 19 $ 10 $ 0.6 $ 38 $ 54 $ 160 $ 49 $ 176 $ 8 Individual procurement events have yielded significantly greater rate reductions than the average 8
9 Number of Carriers Percentage Savings Rate Savings and Fewer Carriers Carrier Rationalization & Savings in Recent Procurement Events % % 14% 12% 10% 8% 6% 4% 2% 0 0% Food Mfg Food Mfg Food Mfg Retailer Food Mfg Food Mfg Baseline Carriers Awarded Carriers Savings % Given the unprecedented level of change in carrier and shipper networks, now is the time realign carrier relationships 9
10
11 NUSA Transportation Overview Logistics Planning for ~300 Facilities Nestle Factories Nestle Distribution Centers 3 rd Party Warehouses Co Pack and Co Manufacturing Vendors Supplier Vendors (Inbound) Divisions Confection & Snacks Beverage Emerging Markets Healthcare Infant Nutrition Prepared Foods Professional Refrigerated Pasta & Cookie Dough 11
12 NUSA Transportation Overview Temperatures Ambient (Dry) Temperature Controlled (Cool) Refrigerated Frozen Modes Truckload/Stop Truck Less Than Truckload (LTL) Rail Intermodal Parcel Air Tanker Ocean Pool 12
13 What does Nestle look for in a Carrier and 3PL? Reliability Repeatable excellence Value and cost savings Expertise and knowledge base Problem solving ability Continuous improvement Support Positive culture Strong management Technology focus Global capabilities 13
14 2009 RFP Goals Reduce carrier base Move to larger asset based carriers Grow business with a diversity supplier (3PL) Move to SmartWay carriers Increase EDI carriers Savings Incumbent focus - only 1 new carrier added Eliminate protective service charge Temperature based FSC program 14
15 i2 Transportation Bid Collaboration
16 Who is i2? A leading provider of next-generation best-ofbreed supply chain management solutions Visibility Collaboration Planning Execution/Control A proven track record to solve the most complex supply chain problems Industry-focused solution domain expertise Transportation Retail Consumer industries AAIM (Automotive, Aerospace and Defense, Industrial, and Metals) High Technology i2 has the advanced and mature intellectual properties for supply chain management i2 s supply-chain business process platform is based on service-oriented architecture (SOA) i2 Technologies Corporate Offices Dallas, Texas 16
17 17 i2 Transportation Customers
18 Transportation Bid Collaboration Overview Engagement Management Flexible modeling capabilities allow different modes to be handled through one unified application Carrier Management & Bidding Bid spreadsheet download/upload Combinatorial bidding & conditional discounts Bid validation Visibility into carrier progress Automated and ad hoc messaging capabilities Optimization & Analysis Most powerful constraint based optimization engine available Constraints (awarding, selection, price, capacity, etc.) Speed & scalability (largest to date 65K lanes & 1.8 million bids) 18
19 i2 Solution: Transportation Bid Collaboration Process Overview Opportunity Assessment Review Bid Package Close Bidding & Review Bids Evaluate Carriers Invite Carriers & Open Bidding Create Bids Optimization & Analysis Complete Negotiations Create Bid Package Review Results Select Target Rates or Awards 2 4 weeks 2 weeks 1 st round/ 1 week additional rounds 1 week each round 2 weeks 19
20 TBC Engagement Management Provides Flexibility and Control One Application for All Engagements Flexible Service Hierarchy 20
21 TBC Carrier Bidding Saves Time & Money Conditional Discounts Bid Validation 21
22 TBC Optimization & Analysis Achieves Accurate and Executable Results Scenario Builder Scenario Reports 22
23 Analyzing Transportation Costs Reducing costs during the freight procurement process 23 Source: META Group
24 Why Transportation Bid Collaboration? Web-based solution Supports multiple modes Truckload, Intermodal, Less-Than-Truckload, Ocean, and Air Industry leading solution provider Active client participation in product roadmap 15 plus years supporting transportation industry Supporting Consumer Goods, Hi-Tech, Food/Beverage, Manufacturing, Grocery, Retail, Healthcare & Auto 40 plus TBC customers Over $1B in transportation spend bid for 2009 Average savings of 15.9% in
25 Nestlé USA Bid Results
26 Dry Truckload Savings exceeded targets 35 carriers invited 18 carriers awarded, 19 with Nestlé Fleet New Carriers - 0 Brokers - 3 EDI - 8 SmartWay Scenarios run 2009 Nestlé USA Bid Results The process took about 16 weeks from beginning of data collection until new awards went into effect 26 Temp Control TL/IM Savings met expectation 70 carriers invited 37 carriers awarded, 38 including Nestlé Fleet New Carriers - 1 Brokers 4 Intermodal - 5 EDI - 26 SmartWay scenarios run
27 Best Practices and Learnings The central tenant of carrier relationships, is treat your carriers fairly If you negotiate an 18 month rate agreement - stick to it Two rounds of bidding is fine as long as you give the carrier some information between rounds Communicate as much as you can to the carriers: About your problem areas About what you are looking for as far as services About how your operations behave The carrier market is very soft, so carriers are willing to be aggressive on price - but also look for other value added services Reporting, trailer pool management, EDI communication Make a credible case to support your FSC program and stick to it The escalator should be relative to the fuel efficiency of the average truck plus allowance for empty miles Do not assume, look at the numbers This is where the optimization engine is very powerful in helping you understand the cost of the operation constraints you impose 27
28 Achieving the Projected Savings The keys to obtaining the projected savings are: 1. If the rate is too good to be true, it likely is not true Benchmark so you know where the market is, and what is true If you do not know the carrier, be very careful in counting savings Chainalytics typically estimates A carrier new to the network needs to beat the incumbents by 3-4% to make the switch worthwhile A carrier new to the lane or locations needs to beat the incumbents by 2-3% to make the switch worthwhile 2. Monitor to the plan The results of a bid is just a plan of what you expect to do Have a process that monthly/quarterly monitors actual activity to the plan Ensure plan changes are tracked for carrier failures, implementation errors, network changes, new lanes, etc. 3. Maintain regular and structured communications with suppliers Regular performance reviews, promotional forecasts, new lane awards, etc. 28
29 Q&A
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