Aug 22

The importance of supporting training programs

Yesterday I was privileged to visit the Greater West Town Training Program (GWTP). They are located at 500 North Sacramento in Chicago near the west end of the coach yards of the Union Pacific and Humbolt Park.  It is modern facility in an older building. Their website is http://www.gwtp.edu/

This program trains at no charge to the adult students warehousing skills including running machinery such as forklifts and computers for inventory purposes. I was impressed and pleased that the course work starts with safety training. They also train on wood working skills and a have high school for those students 18 to 21 who have not previously completed a high school degree. While the courses are free to the students, they are not working during the time of training, loosing potential income, for a better life in the future.

I was most interested in their warehouse training programs. Their program is supported by federal, state, and local grants.  And what those the government and the taxpayers get for their money? GWTP reports nearly 85% of their warehouse trained students find jobs upon graduation.  There is a shortage of good qualified warehouse workers and it is field of high turnover.  Indeed.com reports that average forklift driver wages in Chicago is $27,000, far above the minimum wage, most retail jobs wages, and certainly burger flipper wages. Wages like that go along way to lifting people out of dire poverty.  The area becomes more economically viable.  People who were in need of government services now will be paying taxes.

There is an effort among some so called tea party related organizations to eliminate money for job training programs. Were they to be successful, the country’s economic growth rate would be hurt and American’s businesses would not have enough potential employees they need to be successful. Let’s invest in our people for success.

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Aug 15

LTL pricing So what is a small shipper to do?

If you wanted to create a pricing system that is confusing, Less Than Truckload ( LTL )  pricing probably would be it.   So let’s decode the complexity, lets use a little history. After that, let’s discuss what is coming down the pike in LTL pricing.

Since commercial trucking began to take a hold, a tariff was developed based on a similar railroad tariff that broke all commodities into various classification. That classification was based not only the product size and density but also its relative value to other items. Thus it would cost more to ship an equal weight of televisions than salt, because televisions have a higher market value. The current book which is the standard LTL classification book is the National Motor Freight Classification tariff. Prior to deregulation, there were regional rate groups who built joint mileages tariffs based on those classifications. Added an another level of complexity

It was complicated enough to figure out the the correct LTL classification, then in 1980 it got harder.   Trucking rate deregulation took hold. The LTL carriers, comfortable with the classification did not want to change that. But to compete, discounts were given to the larger customers some ranging into the upper 80% rate for the largest shippers. Small shippers received discounts but at a lower amount. Soon organizations such as Southern Motor Carriers (SMC) were offering a mileage tariff to cover the country, which changed year to year. So if your firm used SMC tariff base, your firm would have a x discount based on SMC’s LTL tariff in a given year.

Now there is a push to eliminate LTL classifications and just use density pricing as a basis for pricing.

So what is a small shipper to do?  Using LTL consolidators will likely lower cost since the consolidator volume to a a carrier will lower ones costs.  Another strategy is minimize the amount of LTL shipping.  Send a truckload to a distribution center near your customers and you may save money.

Small shippers are the most vulnerable to density pricing due to their little sway in the marketplace. So if this change is unfavorable to the company find contractors who will handle the things the old fashion way at less total cost. There is likely for some to around.

 

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Jul 18

Freight Payment, the mere words create emotions of anguish, boredom and resignation

Freight payment, the mere words create emotions of anguish, boredom and resignation. (Note the words “freight claims” has the same emotions, that is another post.)

Yes, you know it needs to be done.  You rather be spending your time solving organizational and customer service supply chain problems. But if freight payment is not accomplished, there is no movement in the supply chain, maybe not immediately but soon enough. Lets take a 30,000 feet view of the process and then get down to some details. Yes, I know you rather not.

There are a lot of words being written these days about being carrier friendly by shippers to improve costs. Relatively few of these talk about the importance of freight payment to the carrier, but it is of high importance even bigger than dock delays.  From the carrier’s perspective, the unpaid bills are inventory sitting around doing nothing, costing capital waiting for something to happen from the carriers point of view. For small carriers, who are hand to month in their cash flow, slow payment can be particularly deadly to their operation.

From the shipper’s point of view, it means the outflow of cash, of particular interest to your CFO, who rather not spend it.  Here having an inventory of cash is rather cool and looks good. The shipping company does not make its profit paying freight bills, so it is something it rather ignore.  Making matters worst because there re  unexpected events happening in transit leading to additional cost, such as delays, customs costs, unloading charges, etc., the final bills from the carrier to the shipper was not what the shipper anticipated.

So how is the process done?

There is the transactional approach. The carrier sends a bill to a customer and the customer pays it. There is a variation of this where the shipper just sends  a check without invoicing anticipating the bill.  The former approach is rather costly and the later approach is more efficient until there are unanticipated costs in the transportation process.

Then there are the third party firms that pay a freight for its customers. The third party probably can do the freight payment handling more  efficiently than a firm who freight payment does bring profit but the firm loses direct control of some of its cash, and then there is still the problem of unexpected charges.

The bottom line of all of this is freight payment takes a lot of organizations resources to handle for both carriers and shippers.  And because it is not sexy or glorious, it suffers from a lack of attention.  Many times the lowest paid and least capable workers are assigned the process, with minimum thought of training and support.

Here are some key process thoughts to accomplishing this process more smoothly.  I would urge carriers and shippers to separate the predictable costs from the unpredictable costs. The predictable costs can be handled in almost assembly line fashion. When both predictable and unpredictable costs are invoices, usually no costs of the bills can paid timely as somebody has to find the time to work the issue out.  I will separately invoice unpredictable costs such as demurrage, unloading charges, and other additional (called accessorial) costs.  The carrier and shipper can develop procedures to handle the process of these costs in a timely matter. I think even the shipping company CFO would prefer this as cash flows will be more predictable and the process will be more efficient.

 

 

 

 

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Jul 08

A-B-C applies to transportation spend as well as inventory

Many of have heard about A-B-C inventory planning where your A inventory turns over rapidly and your C inventory turns over slowly while your B inventory is somewhere in between. It is advantageous to think of your transportation spend the same with an important twist.

Transportation spend as KPI (key performance indicator) can be looking at a number of different ways including: the total spend, which carriers the money is being spent on, important lanes of traffic, premium spend, and affect of profit margin.    One important one to view this spend is regularity of movement.

If the product moves regularly to predictable customers and destinations, the transportation spend on this type of what I will call “A” freight can be designed to be very efficient for not only your firm and your customers but also for the transporting carrier. Planning is easy, chance for continuations improvement of the process is strong. You should be your best cost per item for freight in the “A” catagory.

Some freight is seasonal or temporary and can be grouped into your “B” freight. By grouping it together you can plan for it thus reducing your costs. For example, I worked in the salt industry many years, and there were predictable surges of bagged ice control salt demand in winter.

Then there is the wildcard freight, the “C” freight if you will, which is highly variable.  A customer in Anchorage,  AL might order twice a year. A repaired machine needs to move on an emergency basis. A regular transportation route is blocked by flooding.  Even this can be planned for and cost savings achieved. Premium services can be contracted in advance of shipment. A procedure to ship to Alaska can be developed.

By going to an A-B-C model of freight it breaks the whole into workable parts and thus more easily planned and the process improved.

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Jun 27

Sustainability, quick and dirty calculations

Did you ever wonder how some firms calculated that a particular new solution would remove “X” amount of tons of carbon from its carbon footprint?  What do you do you when you are small, can’t hire an expensive service to figure out what affect a particular action would have on your carbon footprint.

I found at the end of article in the current edition of DC Velocity on Ocean Spray improving its carbon footprint, so easy mathematical formulas, written about the author of the article, Peter Bradley. The link for the article is here: http://bit.ly/19FETqz

The formula for road movement is:

CO2 emissions (road) = shipment weight * road distance * road emission factor.
The article recommends 149.7 grams for you road emission factor.

You might think, I am a small or medium size busy, and what difference does a carbon footprint make with an organization like mind?  Many businesses have found this is a measure of efficiency of operation.  Working to lower your carbon footprint, lowers your cost of doing business.

 

 

 

 

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Jun 07

Straight Truck Safety

The National Transportation Safety Board has recommended straight truck drivers be required to have a commercial driver license. Please see this article in the website of Heavy Duty Trucking website: http://bit.ly/12wl2eo.

The alarming number is straight truck drivers were in 1,800 fatal accidents in a four year period from 2005 to 2009.  Not only our straight truckers not required to have commercial driver license, but many times because they are of a local nature they are exempt from interstate safety regulations mandated by the US government.  Regulations made come and some states have regulations, but it is important that regardless straight truck fleet operations be run safely.

For the conscious operator of straight truck vehicles many of which are small operations, they should not wait for federal or state regulations to change, they should take a proactive safety approach.  The federal regulations do provide a guidepost and while not perfect (nor can they be) they have proven to be effective in making the process safer.

The steps recommended are:

1) Remember that drivers are human beings. They can only work so many hours a day before getting dangerously tired. They need adequate rest breaks. Studies have shown that drivers should not be run over 11 hours and should have at least 10 hour breaks at least between shifts.  A well rested driver will serve your customers well also.

2.) Make sure vehicles are maintained for safety.  Daily inspections of the vehicle should be made. Breaks and mechanical parts should be regularly checked and maintained.

3) Periodic meeting with drivers and people respond for keeping the operation should be held to discuss safety and safety issues. Make it important and it will be.

Safety materials and procedures can be brought from firms like J J Keller. In the long run, a safe operation is a low cost one.

 

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May 31

LTL Carrier Costs

One of the hardest thing to understand or know is costs of a vendor you might use to price your business. So when I read Joe Heligs article in page 10 of Parcel Magazine  (http://bit.ly/12m2Eom) I knew I was reading something unusual.  In this article he talks about the actual costs a Less Than Truckload (LTL) carriers faces.

Two of the buzz words these days are “analytics” and “big data”.  What that means is while in the past a business could guess what it cost to serve a particular customer, now with the data available in its computer, they are going to get much closer to actual cost to serve a customer than they ever could before.  When a shipper negotiations for pricing, an understanding of the carrier’s costs will lead to a better result. In the article for instance the author says running an ltl pick up costs $120 to $130 hour. It will make a difference if you are in an industrial area where multiple pickups will occur or if the truck has to make a special one hour drive just to get to facility with no other potential customers around.

If you are a carrier or a shipper, one should always remember numbers tell important story but it is not the entire story.  Maybe that shipper one hour drive with his shipments  provides the outbound balance to loads coming inbound, therefore if a slightly lower price leads to that balance it may be worth it.

Finding a story like the one referenced here in Parcel Magazine is like finding a needle in a haystack. These things are not easily found in a general search engines like Google.  So it is worth looking in the table of contents when you get an industry magazine.

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May 24

Logistics Problem Solving, the Ultimate Team Sport

Thomas Alva Edison, one of the few people who we remember his or her middle name, once said genius is 1% inspiration, 99% perspiration. In logistics we are all about the perspiration part. Isn’t most of business the perspiration part, be in it finance, marketing, sales, accounting or operations?  Yes, it is.   But one very strong factor in  logistics problem solving is the importance of making others successful. You make the customer successful by having product to sell. You make the boss look good by organizing your supply chain to add value to the supply chain your customer will pay for.  Even at times, a logician must ask one part of the organization to  be less successful so that the organization good is done. You made increase somebody’s freight transportation budget to cut down inventory because the savings are greater cutting inventory.  Or you may ask that warehousing costs go up so transportation costs can go down more.

To accomplish changes like described in the last few sentences, it takes quite bit of work. Because if you increase somebody’s budget even though you are getting total cost lower and probably providing a higher quality service, top management must be won over. You are asking management to spend to determine this and reflect in its performance metrics. Many times salary incentives have to be rethought. A good argument will not win this case. One has to sell the change to the organization and be persistent.  It will not happen easily.

To win the respect a major change requires, you have win the respect before it happens. One must resolved many smaller issues for people in your organization. One most be responsive on issues which may not be top priority but meets the needs of the organization and earns your respect. This probably may not be a direct benefit to you and your branch of the firm but it wins you  the credibility to lead.  People in logistics who think first about their success only, will not be successful in logistics. Its a team sport even if the team is not formally there.

 

 

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May 13

Logistics Process – Where is flexibility necessary?

I recently heard a presentation at a joint Chicagoland Chamber of Commerce- Chicago Roundtable CSCMP by Andrea Farris, Vice President of Inventory and In Stock at Walgreens and Dan Smolensky, Principle at the Modal Group. The Modal Group is a commercial real estate companuy in Chicago.

Both speakers said the e-commerce has changed the supply chain, logistics and warehouse markets.   Consumer’s value prompt delivery. In the past it was about getting of truckloads of products to stores. That is still true. But now individual item (SKU) is also needed to be picked at a warehouse to serve e-commence customers. To be effective in this, more warehouses or distribution centers are needed to serve the market effectively to meet the needs of the e-commerce business.

The implications to this is when you are designing your logistics processes.  Lets use the issue warehouse locations planning to illustrate this.

If you have fixed assets like stores you are shipping to you can design a distribution process for them that might functional for the longer term. Multi-year leases for warehousing are less costly per year but limits your flexibility, but may be the most cost effective in that situation.  Where a firm needs flexibility such as e-commerce, limited term leases for warehouses and distribution  would be appropriate.  Not only will customer needs change frequently but technology would be quickly changing too.

Designing your logistics system to allow flexibility where it is needed is the key.  It is a way to handle the volatility of the marketplace.

 

 

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May 03

New businesses learning how to export

I recently attended an export seminar on electrical equipment at the Industrial Council of Nearwest Chicago (ICNC). It is an organization to promote small businesses, particularly manufacturers and distributors in some industrial buildings west of the Loop, Chicago downtown area. While the “1871”  gets out the headlines as the virtual business generator in the Merchandise Mart, it is not the only way to grow a business and employment in the Chicago area.

At the seminar, John Allen of Product Safety Consulting and Margie Heffernan of Cretors talked about the electrical safety standards custom officials in foreign countries demand which includes many certificates of safety by established testing groups. Some people relatives new to the business were surprise to learn about the export requirements.  One asked doesn’t the 3PL do this?

The short answer is no but they can help. Those new to international logistics and shipping start off with an assumption they don’t know they are even making that shipping goods internationally is like shipping goods from Illinois to Iowa. Both exporting and importing requires one doing one’s homework to understand what the rules are for shipping your particular goods across the border. In the case of electrical goods, a US based safety certification like from Underwriters Laboratories (UL) may not fly in a foreign country, they may need local certification. If you ship to that country, your goods will be stopped at the border and never get to the intended consignee if local country rules are not met. Your 3PL may have enough knowledge to tell you what the requirements are but your firm will need to do the actual activities required.

The real important upside in doing your homework is your firm will smoothly get your products across the border.

Our jobs as logistics and supply chain people is to make sure the appropriate people in the organization know what is necessary to get products across the border.

 

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