logistics cost improvement with distribution networking

LOGISTICS COST IMPROVEMENTPOTENTIAL RE-ENGINEERING

TECHNIQUES

2

COST of FREIGHT The cost ($) of freight is generally between 4% to

8% of a companies Gross Sales Freight ($) is 5.5%* of Gross Domestic Product

(GDP) in the United States With the largest mode being truckload {2010 - $520Bn**}

Either: Parcel (Ground) Less-than-Truckload (LTL) Truckload Commercial Carriers Private Fleets Dedicated-Contract Carrier Services Inter-modal

TOFC –Trailer on Flatcar COFC –Container on Flatcar

*Source: APICS Module 3, Managing Customer & Supplier Relations ,pg 74**Source: DC Velocity, March 2011, pg 51

SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012

3

ANNUAL SALES to TRANSPORTATION SPEND to MANAGING FREIGHT

Removed $36MM from $270MM in freight costs through*: Reengineering Stronger Tariffs Better Contract Negotiations Focused Routing Guides

SALES TRAFFIC SPENDPOTENTIAL SAVINGS (4% to 8% of Sales) (13% of Traffic Spend)

$ 50MM $ 2MM to $ 4MM $260K to $520K$ 75MM $ 3MM to $ 6MM $390K to $780K$100MM $ 4MM to $ 8MM $520K to $1.1MM$250MM $10MM to $20MM $1.3MM to $2.6MM$500MM $20MM to $40MM $2.6MM to $5.2MM

SRM Logistics, Inc (Stephen R McCleary, Pres) ©2012*Stone Management Corporation

4

PERCENTAGE of FREIGHT in the LOGISTICS BUDGET


PACKAGING SHIPPING MATERIAL; 6%

MAN-AGEMENT SALARIES;

7%

DC/WARE-HOUSE OPERA-TIONS; 25%

INTER-FACILITY TRANSPORTATION; 22%

OUTBOUND TRANS-PORTA-

TION; 40%

Source: Grocery Manufacturers Association (GMA) Survey 2005

5

CONTROL of FREIGHT COST

THROUGH COMPETITIVE Contracts Tiered Discounts Tariffs Rate sheets

TARGETED ACCESSORIALS ($) RE-ENGNEERING of METHODS COLLABORATIVE TRANSPORTATION

MANAGEMENT (CTM)


6

FUEL SURCHARGE

Added in to the line-haul (offset the fluctuation in fuel)

Changes Weekly from DOE published Diesel Prices (cst/gal)

Two Ways to Calculate Cst per miles – Advantage if shipments are less than (<)

500 miles Percentage (%) – Advantage if shipments are more than (>)

750 miles All Carriers are calculating this in their rates

There is no advantage to an All-In Rate


7

COST of DIESEL FUEL (US - DOE)

JAN '05 JUN '05 JAN '06 JUN '06 JAN '07 JUN '07 JAN '08 JUN '08 JAN '09 JUN '09 JAN '10 JUN '10 JAN '11 MAR '11$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

$1.929

$2.198

$2.412

$2.837

$2.534

$2.764

$3.345

$4.643

$2.272

$2.322

$2.771 $2.904

$3.303

$3.823

PRICE of FUEL

Cost

of

Die

sel per

Gal ($

)


8

FSC CALCULATIONS

On Average 87% of carriers, usually agree to follow a company-structured index

In the next graph – An aggregate of carrier fuel indices Compared to a Structured one

Cst per mile ($) Percentage (%)

Rates based on a typical cst per mile and Line-haul for 250 miles 500 miles 750 miles 1,000 miles 1,500 miles 3,000 miles (cross-country)


9

DIFFERENCE: MARKET vs. STRUCTURED FUEL SURCHARGE SCHEDULE –One Engineering Method

JAN '0

9-25

0 m

iles

JAN '0

7-25

0 m

iles

JAN '1

0-25

0 m

iles

JAN '1

1-25

0 m

iles

JAN '0

9-50

0 m

iles

MAR '1

1-25

0 m

iles

JUN '0

7-50

0 m

iles

JUN '0

8-25

0 m

iles

JUN '1

0-50

0 m

iles

JAN '1

1-50

0 m

iles

JAN '0

8-50

0 m

iles

JUN '0

9-1,

000

mile

s

JAN '1

0-75

0 m

iles

JUN '1

0-75

0 m

iles

JAN '0

7-1,

000

mile

s

JAN '1

1-75

0 m

iles

JAN '1

0-1,

000

mile

s

JUN '0

8-50

0 m

iles

JAN '0

9-1,

500

mile

s

JUN '0

9-1,

500

mile

s

JAN '1

0-1,

200

mile

s

JAN '0

9-1,

750

mile

s

JUN '1

0-1,

200

mile

s

JAN '0

7-1,

500

mile

s

JAN '0

9-2,

000

mile

s

JUN '0

7-1,

500

mile

s

JAN '0

7-1,

750

mile

s

JAN '1

1-1,

200

mile

s

JAN '0

8-1,

200

mile

s

JUN '0

7-1,

750

mile

s

JAN '0

7-2,

000

mile

s

MAR '1

1-1,

200

mile

s

JUN '0

7-2,

000

mile

s

JAN '0

8-1,

500

mile

s

JAN '0

9-3,

000

mile

s

JUN '0

9-3,

000

mile

s

JAN '0

8-1,

750

mile

s

JUN '0

8-1,

200

mile

s

JAN '0

7-3,

000

mile

s

MAR '1

1-1,

750

mile

s

JAN '1

0-3,

000

mile

s

MAR '1

1-2,

000

mile

s

JUN '0

8-1,

750

mile

s

JAN '0

8-3,

000

mile

s

MAR '1

1-3,

000

mile

s$0

$500

$1,000

$1,500

$2,000

$2,500

MARKET PLACE STRUCTURED FSC INDEX ($ per mi)

PRICE of FUEL- DISTANCE TRAVELED

CO

ST (

$)

of

FS

C A

PP

LIE

D t

o

SH

IPM

EN

T


10

RESULTS

Reduced transportation costs by 29.6% by implementing a standardized Fuel Surcharge (FSC) index amongst all LTL Transportation Providers along with a single base rate

Reduced transportation costs by 21.9% through the implementation of a standardized Fuel Surcharge (FSC) index amongst all Transportation Providers along with a single base rate

Created a 12.8% decrease in freight costs with the implementation of a structured Fuel Surcharge (FSC) Index


11

FREIGHT CONSOLIDATION

DELIVERIES (ORDERS) NOTHING LESS THAN 250lbs (One-Ways) –

Minimum $65 COMBINED ORDERS SHIPPED OVER A 2-

DAY PERIOD Average Weight per Shipment 826.8 lbs Average Pallets per Shipment 4 pallets

REC HOURS 8am–2pm (Unless Specified)

MAXIMUM 7 SHIPMENTS per TRAILER MAXIMUM 24 PALLETS per TRAILER


12

FREIGHT CONSOLIDATION

UNLOAD RATE 35 PALLETS per HOUR MINIMUM TIME per STOP 25 MINUTES

MAXIMUM WEIGHT 45,000 lbs per TRAILER FOLLOW ‘HOURS OF SERVICE’ DRIVING

REGULATIONS USED ROUTING SOFTWARE TO DEVELOP

POTENTIAL LOAD CONFIGURATIONS COMPARED CURRENT LTL COST TO

PROPOSED TRUCKLOAD w/INTERMEDIARY STOP-OFFS


13

COMPARISON of LTL RATES {Rates w/FSC -Disc Applied} vs. TRUCKLOAD RATE {w/Stop-Off & FSC}

Another Engineering Method

SH

IPM

EN

T I

SH

IPM

EN

T II

SH

IPM

EN

T III

SH

IPM

EN

T IV

SH

IPM

EN

T V

SH

IPM

EN

T V

I

SH

IPM

EN

T V

II

SH

IPM

EN

T V

III

SH

IPM

EN

T IX

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

TOTAL COMBINED LTL RATES TRUCKLOAD RATE with Intermediary Stop-Off

TO

TA

L C

HA

RG

E F

OR

SH

IPM

EN

T


14

L/H with Fuel VIIILTL $1,541.17T/L w/Stops $1,421.98 TOTAL WEIGHT – 19,814 lbsTOTAL PALLETS – 25Six Intermediary Deliveries plus Final


15

L/H with Fuel LTL $3,025.99T/L w/Stops $2,483.97 TOTAL WEIGHT – 23,605 lbsTOTAL PALLETS – 20Five Intermediary Stops plus Final


16

L/H with Fuel VILTL $780.14T/L w/Stops $404.66TOTAL WEIGHT – 34,358 lbsTOTAL PALLETS – 20Two Intermediary Stops Plus Final


17

RESULTS

Reduced freight costs $147,304 annually (20.2%) with the implementation of a freight consolidation program moving LTL shipments to Truckload with intermediary stops-off shipments


18

BILLED MILES vs OPTIMIZED MILES – Another Engineering Method

460,0

00

470,0

00

480,0

00

490,0

00

500,0

00

510,0

00

520,0

00

530,0

00

540,0

00

550,0

00

BILLED MILES, 540,930.9

OPTIMIZED MILES , 489,440.3

MILES SHIPPED {BILLED vs. OPTIMIZED}

MILES


19

RESULTS

Saved $313,474 annually by utilizing a routing program along with the PC Miler software where miles were determined for multi-stop shipments and invoices paid from this data, this produced a 37.6% of that portion of the freight spend


20

LTL – Shipped Product Weight and Pallet Weight

Another Engineering Method

STUDY I STUDY II STUDY III

7,601,088.0

19,847,200.0

11,256,757.4

859,452.0

2,183,800.0

643,141.3

ANNUAL WGHT of PRODUCT SHIPPED (lbs) ANNUAL WEIGHT of PALLETS SHIPPED (lbs)


21

RESULTS

Reduced the Annual LTL Freight Spend by 9.2% with removal of the pallet weight from the rate calculation of the shipment

Saved $242,000 (11.8%) in Annual Freight Costs by negotiating a stronger tariff amongst the LTL carriers with better discounts and waiver of pallet weight with the product shipment

Eliminated 5.2% of calculated rating with the removal of the pallet weight from the shipment calculation


22

CROSS DOCKING 3-Month Period

1,300 Shipments Pure Customer Deliveries

5.4MM lbs 550 mile Delivery Radius

COST (Line haul + Fuel Surcharge + Accessorial) Two Equations

cost ($)/pounds shipped (weight)/delivery miles radius $0.0004

cost ($)/visit (deliveries)/delivery miles radius $1.9411


23

CURRENT DELIVERY LOCATIONS


24

ALL 12 – CURRENT 3PLs


25

8 – 3PLs from CURRENT


26

9 – 3PL LOCATIONS OPTIMIZED


27

DATA COMPARISON CURRENT to OPTIMIZED

# of SITES

MILES (Visits) SERVICE

VIOLATIONS

% of SERVICE

VIOLATIONS

COST $ (Weight)

COST $ (Visit)

12 (Current)

108,000

48 3.69%$540,0

00$668,9

00

8 78,000

15 1.15%$446,8

00$534,2

00

9 (Optimized

)

76,000

11 0.85%$442,3

00$523,0

00



28

LOCATIONS to COST

8 9 10 11 12 13 14 15 16 $-

$1,000.00

$2,000.00

$3,000.00

$4,000.00

$5,000.00

$6,000.00

$7,000.00

$8,000.00

$9,000.00

COST EFFECTS of INCREASING NUMBER of WAREHOUSES

INVENTORY COST WAREHOUSING COSTS TRANSPORTATION COSTS COST of LOST SALES TOTAL COSTSNUMBER of WARESHOUSES

29

RESULTS

Created an 18.3% cost reduction in Annual Freight Spend by designing a Distribution Network where Cross-Docking of Product at selected 3PLs throughput throughout the Continental United States was streamlined and became more efficient


30

REGIONAL PARCEL CARRIERS - Another Engineering Method


REGIONAL PARCEL CARRIERS STATES COVEREDTransTek CO, WYOnTrac WA, OR, CA, NV, UT, AZLoneStar Overnight TX, NM, OK, LA, ARSpeeDee Delivery Service MN, IA, KS, MO, NE, WI, ILUS Cargo Packaging WV, OH, KY, TN, IN, MIEastern Connection VA, MA, NJ, NY, VT, MD, DE, ME, CT, VT, RI, PA, NHSkyline Messenger GA, AL

31

RESULTS

If 30% of Shipments are within 600 miles (zones 2 thru 4) of Specified Regions One can utilize a Regional Parcel Carrier in

place of the National Ones Negotiate More Aggressive Discounts Waiver of Assessorial(s) Higher Tiered Savings Discounts Better Dim Qualifications Over-Night Service Guaranteed with no

additional cost ($)


32

COLLABORATIVE TRANSPORTATION

MANAGEMENT (CTM)*

A holistic approach that brings together supply chain partners and service providers to drive inefficiencies out of the transport planning and execution process

*-Source: APICS Dictionary 12th Edition; Advanced Supply Chain Management –’Managing Customer and Supplier Relationship’ Module 3, Section B


33

COLLABORATIVE TRANSPORTATION MANAGEMENT (CTM)

Breakdown Pricing: Drive Time (Ideal Hours) Back-Hauls with Customer or Suppliers Continuous Moves Co-Loading Insurance Fuel Reduction of carriers' wait time for loading and unloading Optimization of weight and volume capacity of network resources Route Optimization Load Optimization Preferred Carrier Rating Off Hours Loading/Unloading Drop & Hook Etc…

All which help to drive down costs in the systemSRM Logistics, Inc (Stephen R McCleary, Pres) ©2012

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