The supply chain functions with the biggest financial impact are inventory and transportation management. Logistics managers tend to focus on transportation decisions as one of their major responsibilities. It is important, however, that all managers in the supply chain have a good understanding of inventory policy. The attached is a brief synopsis of Inventory Management from the textbook Supply Chain Logistics Management .

INVENTORY MANAGEMENT

The motor carrier and air freight industries are extremely competitive, giving shippers an advantage in carrier selection and negotiations. A  common mistake made by shippers is failing to prepare before meeting with carrier representatives. Another mistake is focusing on price. A better strategy is to emphasize value in your discussions with carriers. If you determine that they have the capabilities to provide  quality services, then you can move the discussion to price. Consider: if simply asking for lower rates can result in transportation savings, how much better would the result be with a little preparation? Here are some suggestions from someone who has spent many years on the carrier side of the table.

Determine your specific transportation needs and goals ….for example

• Price- compare net rates (not % off because base rates differ), minimums
• Transit Times/Reliability- including pick up and delivery, terminal services, linehaul
• Inventory Costs- reduced transit time = reduced inventory costs… how transportation adds value
• Product Differentiation- faster, better service as a marketing tool
• Capability/Access- carrier has right equipment in right place at right time
• Security- carriers claim ratio and loss/damage experience
• Relationship- responsiveness and problem solving protocols

Analysis Prior to Negotiation

There is not much advantage to withholding your shipping profile from carriers. Because the industry is so competitive you will get a better deal if transportation providers know what volume they are bidding on and any specific service requirements. If this information is not available to them they will hedge their bets and be less aggressive in their offers. Gather some data and present it. This will give you professional status in the eyes of your carriers. Here is some minimum information needed. Most of it can be found in bill of lading or invoice files.

• Volume/Frequency- # of shipments per day, week, or month
• Weight- average weight per shipment
• Dimensions- standard dimensions, if any… palletized or non palletized…pictures are helpful
• Heaviest Shipping lanes- domestic and international
• Services- priority or economy, express or deferred
• Density- pounds per cubic foot ( for motor carriers)
• Classification- NMFC item numbers (for motor carriers)
• Dimensional Weight or Dim Factor (for air freight forwarders)
• Packaging type- transportation only, display, labeling
• Freight Payment Terms- prepaid, collect, third party
• Control- Who has authority to sign an agreement?  Who makes routing decisions?

Request for Proposal/Request for Quotation

A formal RFP or RFQ is an effective way to both reduce transportation costs and gain the value that you need from your carriers. Ad Hoc Logistics can prepare your RFP/ RFQ, get it to the appropriate transportation providers, and even negotiate on your behalf. Get started by contacting Ad Hoc Logistics.

According to CBP Customs and Border Protection passing rates for the customs brokers exam average only 3-11% nationwide. The test is given twice per year in April and October. It consists of 80 multiple choice questions and a passing grade is 75%. The exam is open book which makes it seem easy. However, the books consist of  the HTUS Harmonized Tariff of the United States and CFR 19 Code of Federal Regulations, totaling hundreds of pages. The difficulty is in being able to quickly access the right section for each question. It is a four hour exam so three minutes per question is not much time.

I took a prep course in Boston taught by  Atty. Mary Wright. The class met two nights per week for 6 weeks prior to the exam. Mary explained the material very thoroughly from her background as a customs attorney and prior experience as an import specialist for CBP. We also reviewed previous exams in class. As good as this class was, I would not have been able to pass the exam without additional study. I estimate that I spent about 40-50 hours on weekends leading up to the exam. I used 6 previous exams and a 3 step process. In step 1 I took each test for accuracy, ignoring the clock. In step 2 I took the tests again in the same order, while timing myself to make sure I could finish within 4 hours. I believe that step 3 was the key to my success. For this phase I circled all the questions I had missed in steps 1 and 2 and created a separate mini exam which I took several times until I answered all the questions correctly. I had many years of transportation experience but no customs brokerage background before taking Mary’s course. This actually proved to be an advantage for me. Most of the others in the class were working for brokers and may have felt overconfident.

Day to day logistics is a function of supply chain management. Logistics consists of planning, organizing, executing, controlling, and problem solving. While supply chain is strategic in nature, logistics is more tactical. The goal is to solve problems so that they stay solved leaving more time for planning, organizing, executing, and controlling. Here is a simple model that managers and front line supervisors can use in solving basic logistics problems:

Problem Solving (Tactical)

This model is for small to medium sized tactical problem solving. To use this model you must “own” the problem and have the power to solve it. Your goal is simplified planning and immediate implementation. More complex problems will require a more detailed solution.

Step #1  Problem Statement/Impact

Write one or two sentences which clearly describe the problem and the pain points. If you can’t be definite about this you have very little chance of solving the problem.

Step #2  Cause/Effect

Managers often jump from problem identification to solutions. This is especially true in logistics, which is action oriented. However by taking the time to analyze cause and effect you are more likely to solve the problem. What are the root causes of the problem? What are the impacts on costs, productivity, sales, etc?  What else happens as a result of this problem? This step helps you make sure that you are solving the right problem.

Step #3  What Info Is Needed?

Determine the data, reports, or evidence you need to analyze the problem. This will help you prove to yourself  and others that the problem needs to be solved.

Step #4  Where Will I get It?

Identifying where the info can be located speeds up the process.

Step #5  List Solutions Steps/Implement

If you have completed Steps 1 thru 4 the solutions should be obvious. If still unsure about solutions re visit  Steps 1 and 2. Prioritize the tasks and give yourself deadlines. You may opt for a trial solution as long as you are not devoting big resources during the test period. Implement, don’t agonize.

Step #6 How Will I Measure and Manage in the Future?

To avoid a recurrence of your problem decide how you will monitor and manage the issue going forward. Communicate the changes and why you are making them. Create a checklist or dashboard.

Supply chain strategy is often designed to eliminate or reduce warehousing. While this trend will no doubt continue as a means to lower total costs and improve efficiency, warehousing can still play an important role and add value. Here are some key areas for managers to consider in improving warehouse operations:

SUPPLY CHAIN STRATEGY:

A major factor in supply chain strategy is inventory turnover. Warehouses enable effective positioning of inventory to support supply chain strategy. This includes raw materials, components for manufacturing, and finished goods inventory. Sound location theory is needed to determine the best warehouse site.

BRIDGE BETWEEN 20^TH AND 21^ST CENTURY MODELS:

Old model characterized by use of intermediaries (middlemen) and staging of inventory throughout the supply chain. Newer model eliminates some nodes and reduces inventory. Faster cycle times put more pressure on logistics systems. This means that positioning of inventory is more important in the newer model.

VALUE ADD:

Old logistics models focused only on efficiency and cost control. The challenge for whse mgrs is to achieve efficiency, control costs, and add value. This is done through improving cycle time and managing fulfillment operations.

CONTRIBUTION TO PROFIT  +/- :

Bulky commodities tend to occupy the most space in a warehouse and require labor to handle. These commodities usually carry lower value per pound and therefore lower profit margins. They may also be in the mature or declining product life cycles. Warehousing of these products must be efficient to avoid profit drain.

FINANCIAL CONSIDERATIONS:

Big factor in warehouse decision making is price of real estate. High tech distribution centers with automated handling systems are capital intensive. Labor markets are important to the location decisions. These are examples of strategic decisions made at higher levels of management.

PROFESSIONALISM:

While training does exist, there are very few college courses in warehousing. Some literature exists but few text books. Therefore opportunities exist to professionalize the field.

MANAGEMENT:

Most warehouses are labor intensive and variable costs are critical. The whse can be used to provide good front line management experience for new managers. Mid level managers may also be assigned to the whse because of reorganizations and downsizing and their experience can be valuable. The whse should not be used as a dumping ground for problem employees. This will result in lower professionalism.

LOGISTICS IMPROVEMENTS:

Logistics improvements can be high level supply chain integrations, mid level coordination between manufacturing, marketing, and other intra company functions, or basic improvements in functions. In most companies the warehouse can benefit from some basic improvements. Small changes can have a big impact and can be implemented easily.

According to Logistics Management magazine many over the road trucking companies are considering or in process of converting operations to intermodal.  There is no question that more traditional truckload and LTL traffic, especially longer haul, is moving on the rails. While these changes can result in significant cost savings and efficiencies, the barriers to conversion are formidable.

Elements of Intermodal

• TOFC/COFC   piggyback
• Landbridge
• Efficiencies compared to OTR
• Changing OTR role to more regional service
• 3PL’s to coordinate movement via multiple modes
• Mode choice function of total cost, accessibility, speed, capabilities

KPI’s for both OTR and Intermodal

• Correct Invoicing
• On Time Delivery
• % damaged shipments
• Equipment availability
• Turndown ratio

OTR Issues

• Driver shortages
• Tight capacity
• Fuel costs
• Rationalize demand/supply

OTR Advantages

• Flexibility/accessibility
• Speed
• Best option up to 600-700 miles

Trends in OTR

• TL carriers getting into Intermodal business
• Shortening length of haul to best use assets (trucks and drivers) and reduce fuel costs
• Comparison w/Intermodal measured by miles (600-700) or “1 driver, 1 day”

Contact Ad Hoc Logistics for details about:

• Intermodal and OTR Customer Requirements for all companies and specific requirements for small, medium, and large shippers
• Barriers to conversion from OTR to Intermodal