Last month we got the news we'd all been breathlessly waiting for: The recession was over! Finally, our long national nightmare had come to an end. However, the much anticipated parties and parades never materialized, perhaps because the footnote to the announcement was that the recession actually had ended way back in June 2009, more than a year ago. The feeling that the economy didn't seem to have improved a whole lot over the past year, along with the long lines still queuing up at unemployment offices, led to this post-recession celebration being little more than a shoulder shrug. Whereas we had the “me” decade back in the 1970s, today it seems like we're all part of the “meh” generation.
Attendees at the recent Council of Supply Chain Management Professionals (CSCMP) conference in San Diego got an earful of sobering news. In an update to the CSCMP's annual State of Logistics Report, we heard that the economy isn't likely to get significantly better any time soon, and the “recovery” will be about half the size of typical recoveries from recessions. Unemployment is still high (near the 10% mark nationally), and will probably stay that way indefinitely. The holiday “peak season” has already happened, and retailers are not likely to be restocking shelves in mid-December to accommodate last-minute shoppers. In fact, throughout most industries the process of replenishing inventories has largely been completed. Is it any wonder, then, that pundits are calling this “the recovery-less recovery”?
In just the past few weeks, we've seen several of the national less-than-truckload (LTL) carriers announce rate increases of between 5-6%; we've heard estimates of a predicted shortage of 200,000 or more truck drivers in the coming years; the U.S. Senate is talking about re-regulating the rail industry due to a suspicion that the railroads are charging excessive rates to haul cargo; and the Justice Department has levied fines of $50 million on six freight forwarders who have admitted to price fixing. Sometimes it seems like the only thing worse than a recession is a recovery where everybody seems to be collaborating against you, and not in the “good” way of supply chain collaboration.
I would be remiss, then, if I didn't at least offer some practical advice, and fortunately one of the sessions at the CSCMP show had that goal in mind. Courtesy of Scott Nelson, CEO of consulting firm Trax Technologies, and John Brockwell, VP of the Global Supply Chain Practice with JP-Morgan Global Trade Services, here are five ways to save 2% off your logistics spend in 2011:
- Negotiate all accessorial charges
As Nelson points out, for a company spending $1 million annually in transportation costs, just negotiating a 5% discount in the fuel surcharge rate can equate to an immediate 1%-1.5% savings in total spend. A review of other accessorial charges, such as extended delivery area surcharges or address correction fees, can contribute even more savings.
- Negotiate real-time provisional rates
“List rates for shipments on a non-contracted lane or for a non-contracted weight class can be up to five times greater than average negotiated rates,” Nelson points out.
- Employ overlooked best practices
For instance, Nelson suggests such bread-and-butter ideas as negotiating dimensional weight factors for international shipments; insisting on the current best rate on every individual heavy weight LTL shipment; and reviewing the impact of minimum charges and discounts. While these sorts of best practices take a lot of time, it's important that you show management why it's cost beneficial that you address these items (preferably, by delegating them to a lieutenant).
- Employ third parties for RFQs and RFPs
Some third parties are able to produce RFQ/P results 10-50% better than those produced with in-house resources. The key is focusing on win-win relationships with your providers, which third parties are often better able to accomplish.
- Employ logistics finance solutions
As Brockwell explains, an extension of days payable outstanding can free cash flow. For instance, for every $100 million in supplier spend, a 30-days extension generates $8.2 million in cash flow.
Acknowledging that it's rough out there and only likely to get rougher, Nelson and Brockwell recommend that supply chain managers establish global and detailed visibility to their entire logistics spend. And then approach negotiations with a win-win objective.