Significant Logistics Savings were made by rethinking the relationship with hauliers.
Client had a significant spend in US freight and was run as a cost center with a decentralized supply base across 64 locations supported by local coordinators with significant purchase order volumes.
- Very few formal contracts were in place with key transportation vendors as most work was carried out through brokers.
- Local coordinators were spot buying on the day of need so there was no consistency in pricing of supply.
- Commercials were agreed on an allocation basis rather than a quotation basis.
- Criteria for choosing suppliers was based on performance of last delivery rather than set criteria.
- No centralized control to ensure consistency in both service and pricing across North America.
Related Article: Procurement Management
Approach on Logistics Savings
Logistics spend was broken into 2 buckets:
National trunking routes and local deliveries.
First stage of the program was to pilot a change of national trunking logistics – e.g. from site to site – to a centralized team, and to deliver commercials through reverse eAuctions.
A 3-month pilot was then set up which ran over 250 bids and significantly reduced the baseline cost per mile.
This then enabled the development of the business case for management of North America. The business case was approved by the global CEO and CFO of Rentals division and was implemented in 3 months.
The eAuctions delivered over 50% savings on the current category baseline.
A model was created for the sales team to calculate logistics pricing and as such a cost center was turned into a profit center.
Over the first 12 months over 1400 bids were run by the central team leaving the local team to focus on the local routes and connecting more deeply to their local haulier.
As this was not the norm for the industry a training program had to be built to train key suppliers on the technology required and how it would be used.
Data could now be compiled on routes, time for transport, and jobs could be allocated immediately taking advantage of elements that were not there before.
Conclusion on Logistics Savings
Training of the vendors was key in using the new technology.
Benefits outweighed costs in both cost and service.
Takeaways for the professional buyer
Directional and strategic change will deliver larger numbers but will need more work. Are you ready for it?
Be ready for to explain to the rest of the world as to how this technology helped and see if it will fit into other markets.
Other Resources: Spendedge