Cultivating a Value-Centric Parcel Carrier Relationship
Navigating the intricate dance of a shipper/parcel carrier relationship requires more than a keen eye on the bottom line; it demands a shift in dialogue from the immediate allure of price to the enduring promise of value.
This philosophy is not just about deflecting attention but about guiding clients to a vantage point where long-term benefits outshine short-term savings. Its here that the client-focused consultants can truly excel, helping decision-makers to see beyond the price tag and embrace the holistic value of their investments.
Understanding the Price-Value Dichotomy
The fixation on price is a natural inclination for clients seeking to maximize their immediate gains from parcel carriers. However, this narrow focus can eclipse the broader picture of total cost and long-term value. The art of consulting is not just about presenting a product or service; it’s about leading a client through a paradigm shift—from price-conscious to value-aware.
How to Shift from Price-Conscious to Value Aware
1. From Price to Total Cost:
A good logistics consultant helps a client to see beyond the tip of the iceberg. The dialogue should illuminate how your carrier’s offering reduces not just the monetary cost but also the cost of time, potential waste, and inefficiency. By articulating the broader cost implications, a good consultant can reframe the conversation to focus on the comprehensive value your provider’s solution provides.
2. From Savings to Differentiation:
The allure of savings is potent, but it’s the differentiation that sustains a business relationship. When price is the only factor, it’s crucial to help clients pivot the conversation to what sets a carrier’s offering apart. This shift is about showcasing the unique benefits and superior outcomes that justify the price difference. It’s not just about what the service is, but what the service does differently—and better.
3. From Narrow to Broad Needs:
Simplistic needs invite simplistic solutions. By broadening the conversation to encompass the full spectrum of the client’s complex needs, you create more value for your client. A parcel carrier should be a partner, not just a provider.
Empathy as the Gateway to Value
Each conversational shift begins with two powerful words: “I understand.” This empathetic bridge reassures the client that their concerns are heard and validated. A good logistics consultant will work with you to find a parcel carrier that understands this important dynamic. It’s the starting point for a dialogue that transitions from a transactional interaction to a consultative relationship.
The Focal Point
In the end, what remains focal is what becomes important. By maintaining a steadfast focus on value, our clients can elevate the conversation, transcend the commoditization trap, and make better decisions that are not just good for today but great for tomorrow. Learn how ICC Logistics is different by setting up a free consultation today. Let’s help you get the value you deserve out of your parcel carrier relationships.
The rise and fall of FedEx and UPS stock prices, and what it means for you
If you have been following UPS and FedEx Stock prices for the past 6 months, you have probably noticed some major differences in performance. During this period, UPS Stock has seen a decline of over 18%, while the FedEx stock price has increased by almost 20%. While you may think that these swings are only important for the stockholders of these respective companies, we feel that this is equally important for shippers.
To explain this, the first important question to ask is, what is driving these major changes? If you have been following the blogs that we have been putting out for the past few months, you probably have a good idea already.
We had been monitoring and reporting on the UPS/Teamster negotiations that started back in April. The negotiations were quite contentious, and ended with UPS providing an offer that the Teamsters touted as “Historic”, and that will cost UPS $30 Billion over the life of the new five-year agreement.
UPS leadership has publicly debated how much this new agreement will actually cost the company. However, regardless of how much, it is pretty obvious that it is going to increase their costs in a meaningful way.
The chart below illustrates the performance of UPS Stock price over the past 6 months. As you can see there was a big drop in value following the kick-off of negotiations, most likely driven by the negative sentiment and risks associated with a potential strike by the Teamsters.
The stock has continued to fall following the completion of negotiations, and has seen a steady decline since UPS reported Q2 earnings at the beginning of August. This UPS earnings report acknowledged the loss of volume due to customer concerns of the outcome of their negotiations with the Teamsters. UPS also lowered its revenue outlook for the year following the outcome of the new agreement.
For FedEx, there has been a steady uptick in their stock price. As you can see in the chart below, their stock has risen substantially during the same period.
FedEx earnings reports have suggested that they have been successful in reducing costs and have solid plans to continue doing so. However, they have also acknowledged the fact that UPS/Teamsters negotiations have helped them gain market share.
FedEx’s chief customer officer, Brie Carere, said “We onboarded new customers who valued our service, and were committed to a long-term partnership with FedEx,” she said on the company’s earnings call Wednesday. “As a result, we added approximately 400,000 in average daily volume by the end of the first quarter.” She then went on to say “My job is to make it very difficult for our primary competitor to win back that share.”
In case you didn’t catch it, the statement made by Ms. Carere should be the aha moment that explains why these fluctuations in stock prices are important to shippers! The bottom line is that both carriers have a need for volume right now. The economy is soft, which is having a negative impact on volume. UPS needs to recoup volumes lost due to Teamster contract negotiations, and FedEx has won volume from UPS that they don’t want to lose. Seems like the perfect storm for shippers. This suggests that carriers might be willing to get aggressive with pricing to protect and or grow their volumes.
So, now you are probably thinking that you need to call your respective UPS or FedEx rep to try to take advantage of this situation. Maybe you have been successful in the past with obtaining better rates and discounts directly from your carriers. Maybe you have built and used successful strategies in the past that resulted in cost reductions for your company. But before you pick up your phone to call your reps, there are some very important questions that you need to ask yourself.
How well do you understand your own Parcel Data? Do you have the visibility that you need to understand your shipment characteristics and trends of your parcel spend? Are you relying on data/reporting that comes directly from the carrier to understand your volumes? (bad idea #1)
How do you know that you will be able to obtain the best rates possible from your carriers? What do you have to compare this to? Are you going to bench mark new offers against your own existing rates and discounts? (bad idea #2)
Do you have the ability to completely analyze and determine the true impact of offers that you receive? Will your analysis pick up on discount details that you feel will not be impactful, but actually are? Are you going to take your carrier rep’s word for it when they tell you that their new offer is going to save you money? (you guessed it- bad idea #3!)
Our long term experience tells us that instead of picking up the phone to call your carrier rep, you should first pick-up the phone to call us. Here’s why;
The proprietary analytical program/process that we have built along with our associated Auditing & Reporting portal allows for unmatched visibility and reporting. THIS WILL TRULY ALLOW YOU TO UNDERSTAND YOUR PARCEL VOLUMES AND SHIPPING CHARACTERISTICS!
Shippers have no way of knowing that they are receiving the best rates and discounts possible on their own. Do not take your carrier rep’s word for it. ICC Logistics utilizes a vast database of over $9B/yr. in carrier data that allows for highly accurate benchmarking of rates and discounts. WE KNOW WHAT THE BEST RATES AND DISCOUNTS LOOK LIKE!
Our analysis will provide a true and accurate picture of the impact of all carrier offers. We have protected many customers from accepting offers that carriers claim would reduce costs, and that would actually have had little impact or even increase costs. DON’T BE FOOLED BY SMOKE AND MIRRORS!
So if you are looking to enter into negotiations with your carriers from a position of power, it is imperative to partner with a company that understands the process. Market conditions suggest that now is the time to dust off your parcel carrier contracts, and take advantage of potential cost reductions. The Parcel market is ever changing, and the pendulum can quickly swing back the other way as capacity tightens. We are certain that our approach to negotiations will help shorten the timeline and result in the highest level of savings possible. So, be sure to reach out to us today to get things moving right away!
Following FedEx’s 2024 General Rate Increase Announcement on August 30th, we published an article that provided some details and insight to help shippers begin planning for the increased costs that this will drive. We had also expressed surprise that FedEx had announced an average GRI that was lower than last year. At the time that this article was released, UPS had not yet publicized their plans for their 2024 rate change.
So, a lot of us were on the edge of our seats, wondering how UPS would react. They were put in a bit of a sticky situation given the fact that they needed to figure out a way to fund the expensive new Teamster agreement that just went in place. At the same time, they need to be sure to protect their crumbling market share. UPS has faced competitive pressure from FedEx, Amazon, LaserShip/ Ontrac and the slew of other delivery options that have popped up within the last few years.
Many experts including ICC Logistics, were predicting record level increases for the Parcel shipping community. Some even predicted double digit increases! Well, it looks like we all received another major surprise. It looks like UPS has decided that they are not in a position to announce a higher GRI than FedEx. On Friday September 8th, UPS posted the following on their website.
The following changes will be effective December 26, 2023. Previews will be available later.
The rates for UPS® Ground, UPS Air and International services will increase an average net 5.9%.
The list of ZIP Codes to which Area Surcharges apply will change.
The list of ZIP Codes aligned to certain zones will change
Once again we need to emphasize that the announced GRI is just an average, and that the actual impact will vary greatly depending on a shipper’s volume characteristics.
Also, we are certain that both carriers will find other creative ways to help ensure they protect and grow their profit margins. Our last article detailed how Parcel Carrier accessorial charges have been a sneaky way for them to drive rate increases that are higher than the GRI that they announce. We provided some important details and insight related to how Delivery Area Surcharges have been added and changed over time.
It looks like we hit the nail on the head in relation to Delivery Area Surcharges, as the UPS announcement spells out that the list of Zip Codes that DAS applies to will change! We are willing to bet the farm that the change will not result in less zip codes receiving DAS charges!
It’s also interesting that UPS announced that there will be a change in the alignment of zip codes and zones. We had seen this announced in the past. However, we were not able to identify any major changes in the zone charts that we studied. We will definitely be taking a closer look at this area for the 2024 rate increase impact, as this could have a major impact on shippers.
For example, currently 5 Lbs. UPS Ground Commercial package going to Zone 4 carries a published rate of $14.60. If UPS adjusted their zone chart, and caused this same package to be classified as a Zone 5 package, the cost would jump to $15.85, an 8.6% increase! This is obviously far above the announced 5.9% GRI. We are not saying that UPS or FedEx will make these kind of changes. However, the fact that UPS has announced that there will be changes to zones has one wondering.
In addition to the GRI announcement, UPS also provided details related to their Peak Demand, and Holiday Peak surcharges for the remainder of 2023 and into 2024. Besides big increases in Additional Handling and Large Package Surcharges (which will increase 6-7% compared to Peak Demand surcharges from 2022), they also provided specifics of rates for high volume Holiday Peak shippers (A Demand Surcharge will apply to certain UPS Air Residential, UPS Ground Residential and UPS SurePost packages, for customers who are billed for more than 20,000 packages during any week following October 2022).
Below is the chart that high volume shippers will use to determine their peak demand surcharges.
October 29, 2023 until January 13, 2024
Service Level
>105% to 125% of Baseline Volume
>125% to 150% of Baseline Volume
>150% to 200% of Baseline Volume
>200% to 300% of Baseline Volume
>300% to 400% of Baseline Volume
>400% of Baseline Volume
UPS SurePost
$1.35 Per Package
$1.85 Per Package
$2.15 Per Package
$2.60 Per Package
$4.45 Per Package
$6.40 Per Package
UPS Ground Residential
$1.35 Per Package
$1.85 Per Package
$2.15 Per Package
$2.60 Per Package
$4.45 Per Package
$6.40 Per Package
UPS Next Day Air Residential
$2.40 Per Package
$2.90 Per Package
$3.20 Per Package
$3.65 Per Package
$5.50 Per Package
$7.50 Per Package
All Other UPS Air Residential
$2.40 Per Package
$2.90 Per Package
$3.20 Per Package
$3.65 Per Package
$5.50 Per Package
$7.50 Per Package
We compared this chart to the one that UPS provided for the 2022 Holiday Peak Season. The increase in rates for these volume demand surcharges increased as much as 8% for some tiers!
So what does this all mean? First of all, we are sticking to our guns, and reiterating that the impact of the 2024 Parcel Carrier rate increase will be higher than 5.9% for many. We are already seeing this in many areas as described above, and expect to continue to see this as the specifics of 2024 rates trickle in from both UPS and FedEx.
The bottom line is that if you are using the announced 5.9% GRI’s as a basis to budget for 2024, you are probably making a big mistake. The impact of the increases could be record level for some, depending on which levers the carriers decide to pull! Also, don’t think that you are protected from major increases if you have a Rate Cap in place in your agreements. Rate Caps typically only apply to base rates, so accessorial increases can have a major impact on your actual costs.
Finally, we cannot stress enough the importance of partnering with companies like ICC Logistics, that can help you determine the exact impact of these rate changes. It is crucial to fully analyze your current agreements, pricing structures, and actual data to determine true impact. Without this approach, you are leaving yourself open to surprises that can have a major negative impact on you and your companies’ profits.
Most people like a nice surprise, especially when it’s a good one! Yesterday, the parcel shipping world received a nice surprise. FedEx provided an earlier than normal announcement of their General Rate Increase (GRI) for next year. Surprisingly some of the increases that they announced were less than those imposed last year. FedEx announced that their rates for Express and Ground Services will increase by 5.9% (on average) in 2024. While it is nice to hear that the increase for FedEx is lower than expected, this is certainly no reason for celebration!
Last year the GRI for both FedEx and UPS came in at 6.9%. Many experts, including ICC Logistics, have been predicting record level increases for Parcel Carriers in 2024, driven by the expensive new UPS-Teamster contract. It has been reported that this new agreement will cost UPS $30B over the next five years.
Early speculators are saying that this move by FedEx is designed to put pressure on UPS and their profit margins. It is hard to say how UPS will react to this. One would expect that they did have plans to push through a rate increase designed to soften the blow of the higher costs associated with the new Teamster agreement. We had expected a GRI of at least 6.9% by UPS. But, due to this new pressure in the market, they may be forced to mirror the 5.9% increases announced by FedEx, and find some other way to improve profit margins.
If UPS decides to go this route and match the FedEx 2024 GRI amount, they will need to find creative ways to improve margins. Let’s face it, UPS and FedEx are no strangers to creative pricing. First of all, it’s important to point out again that the announced GRI’s are just average increases. The actual impact of the rate increases will vary greatly for shippers. Many factors will drive the bottom line increases that a shipper will experience including average weight and zone of packages, package dimensions, increases in accessorial rates, as well as potential changes to accessorial rules and/ or the introduction of new accessorial fees. Also, the verbiage and elements of carrier agreements can affect the bottom line impact for shippers.
Carriers have been using accessorials as a creative way to improve profitability for a long time. Many years ago, the Delivery Area Surcharge (DAS) was introduced by UPS and FedEx for certain zip codes. Then new categories of delivery surcharges were added, accompanied with higher charges. First the Extended Delivery Area surcharge (EDAS) came into play. In more recent years (2022 to be exact) – the Remote Area surcharge was created. This sneaky little surcharge carries a price tag of $13.05 per package in 2023 for UPS, and is typically not covered by discounting that shippers may have in place for DAS or EDAS. UPS published charges for DAS and EDAS are $5.30 and $7.15 in 2023.
On top of this, both carriers usually make adjustments to the zip codes that these Delivery surcharges apply to. Our analysis has shown that UPS has continued to move DAS Zip Codes to the EDAS category and EDAS into the Remote Area Surcharge category. In 2023 UPS had approximately 400 more Remote Area Surcharge zips listed than they did in 2022. We are speculating that this practice will continue in 2024 and beyond.
Both Carriers have made changes to rules that govern Dimensional Weight as well as Additional Handling Charges over time. In 2015 both carries lowered their Dimensional Weight Factors from 166 to 139, which increased costs for most shippers. Both have also introduced new rules that apply to Additional Handling surcharges. For example, in 2016 both carriers lowered the length of packages (longest side) from 60 inches to 48 inches before the surcharge applied. New categories of Additional Handling have been added over time, and now include extra charges for specific weight, combined length and girth, length, width, as well as packaging. Published charges for Additional Handling vary from $16.50 to $34.50 for UPS and $16.50 to $36.00 for FedEx (per package).
There are also many interesting rules that govern situations where carriers reserve the right to charge Additional Handling Fees. UPS has one listed in their Service Guide under rules for the application of Additional Handling for Packaging. It states that they can charge an Additional Handling Charge for Packaging for “Any article that is encased in a soft-sided pack (e.g., poly bags and bubble mailers) that exceeds 18 inches along its longest side or 14 inches along its second-longest side or 6 inches in height.” We know that many shippers use these larger size poly bags to ship their product (especially those that ship clothing/ garments). However, up until this point, we have not seen any wide scale enforcement of this rule. Not sure why, but this could be a creative way to help bolster profits.
So, our point with all of this is that it really doesn’t matter if UPS matches the FedEx GRI or not. The bottom line is that 5.9% is still a hefty increase! On top of this, it is only an average, and the impact could be much greater for shippers, especially when the carriers start playing the “Smoke and Mirrors” games that they play. It is obvious that carriers have many levers that they can pull to help improve their profits. Many of these are not so obvious to the average shipper.
The big questions are “What is the specific impact to you, the Shipper?” and “Do you have contracts that can help shield you from potential rate increases that can damage your bottom line?” We would expect that you don’t want to be unpleasantly surprised by unplanned/ unexpected increases in costs in 2024. ICC Logistics has a long history of delighting customers by driving significant cost savings that they didn’t know existed. Please reach out to us today to ensure that the surprise that you experience with your 2024 carrier rate increase impact is a good one!
And, as an added bonus, ICC, (which we have done for decades now), will be publishing FedEx and UPS Rate Comparison Charts comparing 2023 rates, with the new 2024 rates just as soon as the revised rates are officially published by FedEx and UPS. Be on the lookout for this incredibly valuable information.
Well the results are in- UPS Teamster members have voted to accept the UPS contract offer that their leadership team had tentatively accepted back on July 25, 2023. The contract was overwhelmingly accepted with 86.3 % of UPS Teamsters voting yes to the deal. Shippers no longer need to worry about the possibility of a strike. Obviously this is the Good News Story. But what impact will this new agreement have on the market place and your business? Our intent is to provide you with some insight regarding what to expect moving forward, and to help you build a strategy to minimize the impact of market changes.
Now that we know the good news, let’s talk about the bad news. There is probably no need for us to get too deep into the increases that UPS workers will receive through this new deal. There have been many stories in the media that describe how UPS Driver pay will go to $170K per year. Part time workers will see increases in pay by as much as 48% over the life of the agreement. Additionally, UPS made many other concessions that will prove costly for them in the coming years.
UPS Leadership acknowledged that the new Teamster agreement will have a big impact on their costs. In their latest earnings release earlier this month, UPS cut its full-year revenue and profitability targets, citing higher-than-expected labor costs and business lost during the contract talks with the Teamsters.
So, shippers that use UPS should brace themselves for the record level rate increases that ICC and other experts have been predicting for some time now. For those shippers that use FedEx and other parcel carriers, don’t think that you are off the hook. As we all know, history repeats itself. So, why wouldn’t FedEx just match the increases that UPS will announce later this year to help them improve their profit margins as they have in the past? This is really a no brainer.
If you think that Amazon’s expansion into the Parcel delivery market will help keep costs down, guess again. The Teamsters have been very vocal about their desire to drive higher salaries for Amazon workers. Teamster General President, Sean M. O’Brien has been quoted as saying, “Teamsters have set a new standard and raised the bar for pay, benefits, and working conditions in the package delivery industry. This is the template for how workers should be paid and protected nationwide, and nonunion companies like Amazon better pay attention.”
Adding to the bad news is the recent Yellow Freight bankruptcy. Thankfully, in the short term, excess capacity in the LTL market seems to have staved off any major impacts on cost. But, what will happen as capacity starts to tighten during the upcoming holiday peak season? Estes and Old Dominion have made offers for Yellow Freight assets, which could help these carriers grow their respective market share. So, what impact could this have on LTL prices? Obviously still a lot of unanswered questions here. But, many things point to higher costs for the LTL market as well
So now for some more good news. The bottom line is that smart shippers can plan ahead to help protect themselves from substantial increases in costs and further erosion of profit margin. Here are some of our recommendations for you to consider as you build your cost avoidance strategy;
1.Time to Assess your Parcel and Freight Carrier Agreements. Many things need to be considered here. Many shippers have the ability and resources to take a high level view of where they stand with their Parcel Agreements. There are some easy things to look at. For example, When does my agreement expire? Do I have any language in my agreement that would prevent me from renegotiating my agreement now? When was the last time I renegotiated my agreements? Is my company in a position to consider a move to another parcel carrier? How much has my business changed since I last negotiated my current parcel agreement?
2.Time to take a holistic view of your current Transportation & Logistics Programs – Many shippers are utilizing outdated Transportation and Logistics Systems . In many cases, these legacy programs were built at the start-up of the business, and never changed. They are often built around older internal systems, which limited the ability for changes in order fulfillment. Companies that started out regionally may now be selling nationally and globally. All of this results in added cost for shippers.
Here are some questions to consider with this; What are your options? Are you in a position to consider the use of Regional Carriers, or other Final Mile, or Middle Mile Carrier options that have sprung up in the last few years? Can your current systems support the addition of new carriers? Are you using the right LTL carriers for your product/ customers/ market? Is your current Distribution Center, or 3PL in the right place to ensure lowest cost/ fastest delivery to your customers? Should you upgrade your current TMS/ WMS systems?
3. Time to talk to the experts – Many companies are hesitant or reluctant to bring in outside help or consultants. Transportation and Logistics leaders often feel that they know enough to negotiate their own deals and make their own decisions. CFO’s and other company leaders think they don’t need to bring in experts because they have the right people on their staff that have the expertise to ensure that they are getting the most from carriers.
The bottom line is this- even if you have the best Logistics and Transportation people on your staff, there is no way for them to possess the vast data and insight that the experts can provide. Here is a great way to look at this. The best and most experienced Transportation and Logistics leaders probably have been involved in dozens of Parcel and Freight negotiations during their careers. They also could have worked at many different companies. So maybe they have some good insight. However, Logistics consultants have been involved in hundreds or even thousands of Parcel and Freight negotiations, for hundreds/ thousands of different companies. Also, in many cases (like at ICC), they have sat at the carrier side of the negotiating table.
The experts are much more in tune with current pricing and market trends. Parcel and Freight agreements usually have 1-3 year terms. A lot can change in the market during these time periods. Good consultants have a vast amount of recent carrier invoice data that can be used to benchmark against the current market. The experts are involved with this on a daily basis, so they know what to ask for and when and how to ask for it.
Company leaders need to realize that Logistics consulting experts are not looking to replace, or make their Logistics and Transportation teams look bad. The main goal is to make these teams smarter/ stronger and to provide them with the tools that they do not have to help them drive the greatest savings possible, without compromising service to customers.
Naturally, company leaders are often concerned about the cost of engaging with Transportation/Logistics consultants. The good news here is that most of these consultants are willing to work on a gain share basis, meaning that they will not pay anything unless the consultants can drive savings for them. It is not unusual for shippers that partner with a Logistics consulting firm to experience an ROI of 5X-10X or more.
The ICC Logistics team has had tremendous success with helping customers build their own good news/ success stories. We are looking to continue to spread the good news. So, please reach out to us today to find out how we can help you prepare for the expected changes in the Transportation and Logistics marketplace. We are certain that we can deliver solutions that will protect your margins and enhance service to your customers.
Unlock the True Potential of Synergy and Collaboration
I have always been intrigued by the relationship between corporate procurement departments and corporate logistics departments. The question that always comes to mind is, which department is best suited to negotiate the “best” deal for the company? There is a reason why this intrigues me.
Several years ago, we were asked by the corporate logistics department of a major apparel retailer to analyze their parcel carrier contracts to advise them what potential savings they could achieve as a result of our comprehensive benchmark analysis services. Unbeknownst to us at the time, the corporate procurement department of the retailer had been given the ultimate authority to finalize the negotiations with the parcel carriers.
Negotiations had been going on between the retailer and the parcel carriers for months, which is certainly typical with large parcel spend contract negotiations. In the end, the procurement department made the decision to end the back and forth negotiations and sign the “latest and greatest” offer from the Parcel carriers. This decision was apparently made because of the considerable amount of time the negotiations had been ongoing. However, one key element the procurement department failed to consider, was the fact that the data and analytics we had provided to the logistics department projected that if they did sign the “latest and greatest final” parcel carrier contracts the carriers had presented, they would be leaving over $12 Million in potential savings on the table.
So of course after hearing this decision by the corporate procurement department, my immediate response was, “how will you explain to your CEO and CFO that you left $12 Million on the table?” Secondly, “how many garments would you have to sell to generate $12 Million in net profits for the company?”
We assume those discussions with top management did not go well.
It is clear that the relationship between corporate procurement departments and corporate logistics departments is critical for the overall successful functioning of any organization. While they are separate and distinct functions within a company, their activities are closely intertwined and complementary.
Collaboration is King
Procurement and logistics departments should collaborate closely to ensure the smooth flow of goods and services within the organization. While procurement is responsible for sourcing and acquiring the necessary materials, products, services, and comprehensive contract provisions, logistics provides insight into the company’s actual needs for transportation services, storage, and distribution of these items. Effective collaboration and data sharing, between these two departments is essential to meet the company’s overall operational needs and even more importantly, customer requirements.
Procurement departments must rely on logistics teams to provide insights and data related to demand forecasting and inventory management. Logistics departments offer valuable information about transportation capacity, lead times, storage capabilities, freight rate structures, contract pricing requirements and anomalies, as well as overall supply chain constraints. This information helps procurement departments make informed decisions about when and how much to procure.
Both procurement and logistics departments should interact with suppliers and service providers. Procurement typically negotiates contracts, establishes relationships, and manages supplier performance. They should always work collaboratively to optimize the supply chain, ensure efficient operations, and maximize cost reductions and customer satisfaction.
Working together
Procurement and logistics departments that collaborate effectively tend to understand each other’s needs and objectives, thereby creating the best solution for all parties involved.
Shared Goals and Objectives: Procurement and logistics should align their goals and objectives to ensure a unified approach. This includes understanding the company’s overall logistics requirements, cost targets, service level expectations, and strategic priorities. By jointly defining the desired outcomes, they can work together to achieve the best value for logistics services.
Early Involvement: Procurement should involve logistics early in the procurement process. By engaging logistics experts from the beginning, procurement can gain insights into specific logistics requirements, challenges, and opportunities. This enables them to consider logistics-related factors when evaluating potential suppliers, negotiating contracts, and making sourcing decisions.
Collaborative Supplier Selection: Procurement and logistics should collaborate in selecting logistics service providers. Logistics should provide input on supplier capabilities, service levels, geographic coverage, and any specific requirements related to transportation modes, warehousing, or distribution. Procurement can then leverage this information to evaluate potential suppliers, negotiate contracts, and select the most suitable logistics partners.
Performance Metrics and KPIs: Procurement and logistics should define key performance indicators (KPIs) and service level agreements (SLAs) together. Logistics should contribute their expertise in identifying relevant metrics, such as on-time delivery, transit times, order accuracy, and responsiveness. Procurement can then incorporate these metrics into contracts, ensuring that they reflect the company’s expectations for value and service quality.
Continuous Performance Evaluation: By regularly reviewing supplier performance against established KPIs, they can identify areas for improvement, address any concerns, and drive accountability. This evaluation process should be collaborative, with logistics providing input on operational aspects, and procurement focusing on contractual compliance and cost effectiveness.
Data Sharing and Visibility: Procurement and logistics should establish effective data sharing and visibility mechanisms. They should leverage technology solutions that enable real-time information exchange, such as transportation management systems (TMS) or supply chain visibility platforms. This shared visibility allows both departments to monitor logistics operations, track shipments, identify bottlenecks, and proactively address any issues that may impact value or performance.
Continuous Improvement Initiatives: Procurement and logistics should jointly drive continuous improvement initiatives. By sharing insights, best practices, and lessons learned, they can identify opportunities for process optimization, cost reduction, and service enhancement. Regular communication and collaboration foster a culture of continuous improvement throughout the procurement and logistics functions.
Supplier Relationship Management: Procurement and logistics should work together to manage relationships with logistics service providers. They should collaborate in supplier performance reviews, contract renewals, and contract negotiations. By maintaining strong relationships with logistics partners, they can leverage these partnerships to drive value, innovation, and continuous improvement.
So while we’re sure most companies would think twice about leaving $12 Million in potential savings on the table, (especially when the savings projections were clearly documented as they were in this case), when dealing with logistics and supply chain operations the three most important elements are Communication, More Communication and Even More Communication!
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