From SCDigest's On-Target E-Magazine
- Sept. 7, 2015-
Supply Chain News: Try the SCDigest Logistics Challenge!
Guest Columnist David Schneider Provides Interesting Scenario; Prize to Best Entry
SCDigest Editorial Staff
Last week, guest First Thoughts columnist David Schneider took an unusual approach, using a real life situation at one of this manufacturing sector clients that was spending an awful lot on transportation. Schneider is president of David K. Schneider & Associates and former logistics executive in the retail industry.
In Harvard Business Review style, after presenting the scenario Schneider then asked SCDigest readers to submit what their answer to the problem would be - promising he would publish what he recommended to company's president very soon. We promised a prize - probably a nice SCDigest shirt - to the best submission. We've had quite a few already.
SCDigest Says: |
 Now, if you are reading this article and have gotten this far, you are likely to have formed your own set of answers. |
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What Do You Say?
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We repeat the text of the challenge below - you can submit your answer at the Feedback button at the bottom of the page.
By David Schneider
Not long ago I worked with a client that had a problem. Well, they had a lot of problems, but the one that we will talk about had to do with their freight costs. $31 million in freight costs, far above what expectations. The company freight manager had recently quit, and the role landed on the lap of another manager. The manager with the new responsibility did not want the job, but it was his. Moving with swift efficiency, he declared the freight rates too high and started to call the carriers to talk about rate reductions.
You can imagine how much success he got from those calls. Oh, the carriers came to the meetings, politely listened to the manager's requests, and then told him that, unfortunately, there would be rate increases, not decreases, given the driver shortage and the tight capacity in the market. When the manager said he would put the business out to bid, each carrier told him good luck.
The rates went up. That is when the company president called.
One of the first things I did was sit down at the desk of the departed freight manager. His desk was clear, but all of the papers and files were there. His computer was too, and I could see his email. I spent a day looking at everything, and constructed a tale of frustration, woe and despair. The poor guy was qualified, smart, and knew what he was doing. I found the material he used to conduct the last rate bids; it was all there. He got fair rates, for the way the company shipped. The problems were not the rates, but the way the company behaved, the way it managed shipping.
Actually, the way the company did not manage shipping was the real problem. The freight manager knew it too. He attempted to change things, having meetings and sending emails, trying to get the people in the different branches to plan their shipment better, not use expedited serves so much. He got a few people to comply, but most people dismissed him, saying that they had to use the expedited service because that was the nature of the company, they often had to expedite to fill orders on-time.
One of the last messages in the freight manager's inbox came from one of the branch managers, telling the freight manager that he should stop bugging them about expedited freight and work harder on finding lower rates. Ten minutes after that the freight manager tendered his resignation, by email.
 The next day I looked at the data. This freight manager did a good job pulling together the shipments, using data from his freight audit service to pull together aggregated volumes he used for his bid process. Digging around in the hard drive I found the raw data, and looked at the shipments. There were lots of under 500-pound shipments, sometimes as frequent as every day, between branch plants. Some lanes stood out, with many expedited shipments using Forward Air and not the usual LTL carrier. One lane used Forward Air for over 40% of the shipments, at a premium rate.
Something struck me about that lane. The two plants were only 300 miles apart. Why Forward Air? I looked at the LTL transit time between the two facilities and it was next day service, for about 70% of the cost. Why Forward Air? I dug into the shipment detail, learning that on some days the shipping branch plant used both the LTL carrier and Forward Air in the same day. Looking to the data, the LTL shipments picked up about the same time as Forward Air, but consistently arrived before the Forward Air shipments delivered.
Why Forward Air, indeed!
(Transportation Management Article Continued Below)
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The company had 26 locations around the country. All of the branches distributed the same core products, but custom mixed ingredients based on customer orders. If a plant ran low on one of the additives, the production planners called a few neighboring plants and scrounged what they needed to make a production run, so there was a lot of inventory trading and transferring. Looking at the intercompany transfers, and the shipment lanes, branches did not cross-country transfer, with 90% of the transfers moved less than 750 miles.
