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8 Steps to Better Collaboration: Procurement and Logistics

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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.

parcel and freight contract audit service

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!   

 

Leading in Times of Change- The Fundamentals

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As we see it, there are three Key Fundamental Strategies for Leading any company or department for that matter through change.  The first Key Fundamental is the need to perform a Gap Analysis.  This Gap Analysis is necessary in order to measure where your company, or department is today and where it needs to be in the future to ensure your change management strategies will be successful.  In other words, what are the gaps between the present and the future.

carrier contract audit

While performing the Gap Analysis, many companies find that change means moving into the unknown, and that can be a very scary place to be.  It may also include moving from a current “not complex” environment into one that just might be a “very complex” environment.  How a company navigates this process from simple to complex will determine how successful the change management process will be.

The second Key Fundamental Strategy is the need to Map the Journey Forward.  This strategy process serves as the road map to make sure any and all constraints, perhaps within the team itself, or in the individual business processes, will not only be identified, but necessary changes in personnel and processes MUST be made in order to ensure success.  The mapping process will create a compelling vision for the future with the path based on rational business models and analysis.  It should also create and ensure buy-ins from all key stakeholders and build a strong coalition for change.  This includes, identifying and resolving all primary constraints to achieve higher performance; know which condition is weakest, people or processes; and finally, resolve any constraints to achieve the highest Return on Investment.

The third and final Key Fundamental Strategy is the Creation of a Compelling Vision for the Future.  This strategy process will need to ensure that high performance teams are capable of identifying and resolving all possible constraints.  Again, whether they are people constraints or process constraints or both for that matter.  Comprehensive investments made in this area will allow change teams to precisely identify and close all constraint gaps.

It is important to remember that while engaged in this Fundamental Strategy Process of change management, that you will most likely encounter both sides of change.  The first is the technical side of change and the second is the human side of change.  Remember, success will be based on making changes to both sides of change may very well be necessary.  In most cases, making changes to the people side will be much more difficult than making changes to any process.    

Supply Chain Impacts due to COVID-19

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Everstream Analytics monitors and produces a weekly summary of supply chain impacts due to the ongoing COVID-19 pandemic. The update is provided free-of-charge to the industry.

Below is your weekly update:

  1. Vietnamese authorities imposed a two-week COVID-19 related lockdown in Mekong Delta and Ho Chi Minh City metropolis, with restrictions to be in effect from July 18.
  2. Myanmar announced a nationwide COVID-19 related lockdown from July 19, while declaring public holidays from July 17 until July 25 to contain the spread of COVID-19.
  3. Thailand has expanded COVID-19 restrictions that include travel curbs and a night-time curfew to three more provinces – Chonburi, Ayutthaya, and Chachoengsao – from July 20.
  4. Authorities in Libya imposed restrictions that require all government agencies to reduce attendance at work to 25 percent, until at least July 25.
  5. Mozambique tightens nationwide COVID-19 measures through August 17, with nightly curfew hours expanded to last between 21:00 and 04:00.
  6. Chile extended its border closure measures until July 25 due to Delta variant concerns, with all existing domestic restrictions remaining in place with the extension.

Need help navigating these disruptions?  Reach out to ICC today to learn more about our supply chain growth consulting services.

Thank you to Everstream Analytics for this valuable information. Please check out their platform by visiting their site.

Guest Post: 6 Reasons Why Logistics is Important

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6 Reasons Why Logistics Might Be More Important To Your Business Than You Think

Guest Post by: Howie Bick, The Analyst Handbook

Logistics is sometimes overlooked as an important part of a company’s underlying business, and plays an important role incorporating a variety of pieces to a business’ puzzle. Logistics is often coordinating between two parties, how a package goes from one place to another, and ensuring that your company has the necessary materials or resources it needs to keep moving forward. It is often tied to several different aspects of a business, from the time it takes for raw materials to arrive, to the time it takes to deliver your finished product, or the coordination between the purchasing party and the selling party. Whether your business is a marketplace provider, a wholesale manufacturer, or a B2C company, logistics plays an important role in the way the business operates, the type of infrastructure a company builds, the type of brand image you create, each customer’s experience, and the customer service aspect of your business as well.

Company Infrastructure

Logistics is an important part of a company’s infrastructure, because the way company’s process sales, order new materials, and coordinate their delivery play a major role within a company. The infrastructure behind a company is often closely tied to the logistics it has in place. Whether it’s the trucking company it utilizes to move goods from A to B, the backend development it has in place for its technology, or the way they process orders from purchase to delivery, logistics is how these tasks are completed, and continue to be completed. 

Having sound logistics can provide companies with a variety of benefits, from their corporate finances, to their operational expertise. Having strong logistics can make it easier for companies to expand, and increase in size. They’re able to have a strong foundation to build off of, and can have a strong infrastructure to begin with. Without a sound logistics plan, a company’s business can see increased lead times, less sales processed, and less goods produced. Having a solution to continue the flow of goods for a company, is what keeps the business going. If you’re a manufacturer, without having the raw materials on hand, you can’t produce the goods you need to sell. Solidifying the logistical aspect of your business, can be a great way to increase the velocity at which you sell, decrease the amount of time between production and delivery, and keep the business running smoothly.

Delivery

A big part of logistics is the time it takes to deliver your products and services to your customers. Logistics is how you’re able to distribute your goods, ship your products, or move your inventory from one location to another. Without having a strong logistical structure, you run the risk of losing time on delivery, frustrated customers, and having shipments arrive late. While some people may feel delivery dates aren’t important, many would tend to differ. 

As the world we’re in continues to gravitate toward same-day delivery, next-day deliver, or two-day delivery, logistics has become more and more important. Consumers expect goods to arrive within a certain timeframe, have the opportunity to track their products along the way, and compare one company’s delivery service to others. While some people may not feel delivery is so important, others have been using it as a way to gain a competitive advantage, build market share, and further develop their businesses.

Brand Image

Part of the way brands are built and companies are created is based on how they’re able to process orders, and produce the desired result their customer is looking for. A company’s brands, and brand images, play an important role in the type of position it has in a marketplace, the type of reputation it builds with customers, and what customers can expect to experience moving forward. Logistics factor into that equation. Companies that have a strong logistical footprint, are able to deliver on the estimates it provides to customers, its logistics can continually produce for them on a consistent basis, and continue to build up more brand loyalty with purchasers along the way. 

In the business environment we’re in today, many companies are looking for more and more ways to expand, grow market share, and enter into new industries. In order to compete, smaller or existing companies can utilize logistics to keep customers happy. By having a strong logistical presence, you increase the likelihood of producing for your customers on a continuous basis, not give them any reasons to leave or entertain new companies, and build brand loyalty with them as well. Through having strong logistics, you can work to protect the market shares you’ve been able to capture, and the businesses you’ve been able to build. 

Costs & The Financial Side

Logistics have the potential to influence your business from a financial perspective, by increasing delivery costs, seeing increased returns, rising sales revenue, or through the investments made into logistics. Logistics for a company can sometimes be costly as well. It might be a large undertaking or cost a substantial amount in order to open a new warehouse, or build a new hub, but it offers you the opportunity to cost your delivery costs in half. 

Taking a look at it from the financial analyst job description angle, evaluating whether an investment into logistics is worth the investment, or the upfront cost, depends on how much you feel it might save you delivery costs, the type of synergies or benefits it might offer you, and where your company is currently at logistically. Considering the cost to deliver goods, the time spent driving, the gas spent, the tolls accumulated, might not feel like a lot, but at scale, over a large amount of time, when you’re a large business, processing orders, it can add up. You can use good logistics practices as a way to decrease costs, and increase profits. That new hub might reduce delivery time in half, or cut the distance traveled by a third. Doing that trip at scale, over a year, five years, or ten years, can really add up and make a different cost wise. You might be able to generate more sales by having a stronger logistical footprint. Customers might be more satisfied, or more inclined to reorder from you based on the time it took to receive their order, or the results you produced. 

Customer Experience & Customer Service

Customer experience is ultimately how customers feel, and whether or not they were satisfied with the way the company performed, or the experience they received from the company. As previously mentioned, more and more companies have been looking for shorter time frame solutions, same-day, next-day, and two-day, that those types of delivery methods have begun to become more and more the norm, or what customers are using to compare your company against. Having faulty or weak logistics, can influence the type of experience customers have. Weak logistics might see frequent downtimes in processing, longer wait times for orders to be processed, and longer delivery times to receive goods. Keeping your customers happy, making sure they are having positive customer experiences, can be influenced by the logistics behind your company. Creating positive customer experiences can encourage customers to speak highly about your business to friends, increase the likelihood they might purchase from you again, and create positive reviews for you where you have a brand presence or location on digital platforms. Strong logistics can play a role in creating a strong customer experience for your clients, and keeping them wanting to purchase more in the future.

Another way logistics can impact your company is through the customer service aspect. Companies who have poor logistical setups, or poor logistical infrastructure, can see an increased number of customer service inquiries as well. When customers aren’t receiving the products and services they offered in a timely fashion, more and more of them will reach out to your customer service staff, look for answers, and inquire about an update. An increase in customer service inquiries can lead to you needing more customer service personnel available, frustrated customers leaving negative reviews, or making it more difficult to provide a solution for each customer inquiry. 

Competing In The Marketplace

With more and more business being created, and entering into new industries, competition has become more prevalent. One way you can work to create a competitive advantage within the marketplace, is by having strong logistics. Strong logistics might make it tougher or more difficult for others to truly compete with you. You might be able to create a stronghold on a particular market segment, by having the logistics and infrastructure built, while new competitors need to create it, and invest in it. On the other hand, logistics can be a way for you to be priced out, or to lose market share from your competitors as well. Companies who can produce products in a faster time frame, provide better customer service, or price their products better, are able to make it more difficult for competitors to compete. If you’re able to create a sustainable and strong competitive advantage through your infrastructure and logistics, you might increase your company’s competitiveness within the marketplace you operate in. 

Conclusion

Logistics have the potential to play an important part in any company or businesses operations. Companies can build a strong logistical presence in order to build great company infrastructure that enables them to expand their businesses more easily. Companies with strong logistics can find ways to decrease time to delivery, reduce the cost or amount spent on delivery, and better compete against their competitors. Companies who have a strong logistical footprint, can see effects on their brand image, with the way customers view their company, the type of brand reputation created, and their position within the marketplace. Logistics has the potential to influence the experience customers are having, which can create a positive impact by having customers become repeat purchasers, recommending their company to friends, and also through sharing their positive experiences online. 

Companies who overlook logistics, can see the number of customer service queries rise, increasing the need for customer service representatives, adding on more costs, and additional customer service queries they need to manage. Having a strong logistics infrastructure and proper planning in place, can help companies compete within the marketplace, create competitive advantages, and build infrastructure that makes it more difficult for new entrants to compete with them. All in all, logistics has the potential to influence your business in a variety of ways, and having a strong logistics foundation and plan can enhance the way a company competes within the marketplace they’re in.

Looking to create a more robust and solid logistics program? Reach out to ICC today to learn more.

The Key to Profitability May Reside in Third Party Data Analytics

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Today, every business is analyzing more and more internal data to track their operational efficiencies, financial and overall profitability assessments, as well as their customer’s buying trends.  This internal data is certainly valuable for every company to assess what’s working, what’s not working and what changes need to be made to enhance overall business efficiency as well as ensure continuing profitability.

An area of data analytics that is often overlooked which would clearly help businesses assess these same areas is what we refer to as “Third Party Data” which often times is not considered when evaluating a company’s profitability.

Take for instance the comprehensive data available from transportation and logistics invoices.  Whether a company processes these invoices for payment internally, or utilizes a third party audit and payment firm to perform that task, freight carrier invoice data can be extremely beneficial when companies measure operational efficiencies, financial condition as well as customer buying habits.  

We would like to focus on the real value this external invoice data can provide in order to improve a company’s overall profitability.

  • First and foremost, companies should be tracking their overall transportation expenses as a percentage of overall sales.  The costs should be evaluated month by month as well as year over year.  This calculation however can vary greatly depending on various scenarios.  These include tracking actual origins and destinations of shipments, period by period.  Which carriers are utilized can also provide variable data.  Shipment weights can vary as well and therefore costs per shipment or per pound may also vary.  It’s always important to make sure you are comparing apples to apples and if not, taking into account all of the variables in the analyses.

We have heard from some CFO’s as well as from various accountants that they do measure these costs, but at a very high level.  The result is what we call a “comfort level assessment.”  What do we mean by this term?  If the freight costs fall within a predetermined percentage of sales, the presumption is everything is good and they do not dig any deeper.

In some cases, these internal assessments of “all is good” happen even when the most basic process of having an independent third party invoice audit is not performed.  That makes absolutely no sense.  The value of these audits is two-fold.  First, if the company has been overbilled, the audit firm will file for refunds and share those refunds with the shipper.  Secondly, and more importantly, a good audit firm will make recommendations on how the company can further save money on their freight expense.  Truly valuable information at very reasonable costs.  In reality, if the auditor comes up empty handed, there is no charge for the service.     

  • Digging deeper into freight invoice data metrics, a company’s Truckload shipment data should be analyzed on a cost per mile basis, and/or a cost per pound basis.  Here too, rates can vary from carrier to carrier and can also vary due to other conditions including continuous changes in fuel surcharges.   Contract rates can vary from Spot rates and as many shippers witnessed last year and this will certainly continue this year.  By some estimates, Truckload rates have increased by 80% within the last year.

The best way for a company to analyze the efficiency of its logistics network is to continually benchmark the rates they are paying with other service providers.  Some shippers work in a multi-tiered truckload environment which include contract rates that typically are stable for periods of 6-12 months, while at the same booking a percentage of their shipments on the spot market.

  • Another area that is often overlooked is the analysis of shipment efficiency from the freight invoice data.  What we mean by shipment efficiency, is working to route shipments across all modes of transportation as efficiently as possible to gain the best level of service at the lowest available rates.  Some examples include marrying large LTL shipments into truckloads with stop offs to generate not only lower shipping costs, but usually improved transit times.  A true win/win combination.  

Shipping efficiencies are quite often overlooked in the parcel shipping arena.  Take for example shipments that are sent via a two-day delivery service where parcel shippers pay handsomely for expedited services, when often times those packages would be delivered second day in the normal ground service environment.  The same can be said for paying for the high cost of Next Day shipping when in some cases these shipments would also be delivered the next day utilizing standard ground services, perhaps not in the 8:30 to 10:30 AM timeframe, however.  But the real question is, does the customer REALLY require an early AM delivery time?

To take this one step further, shippers MUST become knowledgeable about each and every parcel carriers service offerings, transit times, as well as accessorial fees and surcharges that apply to their shipments.  The combination of all of these pricing elements can and should be used to develop clear cut routing guidelines to ensure the fastest delivery service at the least possible cost. 

Taking these transportation and logistics analyses even deeper, should involve utilizing Third Party Consultants to Benchmark and Target Price a company’s rates, services and contract terms and conditions.  This process will ensure the company does in fact have Best in Class rates as well as Best in Class Contract Terms and Conditions.  The reality is that regardless of the annual transportation and logistics spend of a company, without these competitive benchmarking capabilities, a shipper will never really know how well or how poorly they are doing.  

Think your company has the most competitive rates for the transportation and logistics services it utilizes?  Give us a call for a NO COST/NO OBLIGATION transportation diagnostic analysis.

Supply Chain Contingency Plans Are A Must

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It should come as no surprise to anyone involved in Global Supply Chain operations that the impact of Covid-19, makes the need for creating supply chain contingency plans an absolute must.

According to a recent survey from the Institute of Supply Management, 75% of respondent companies reported they experienced a disruption in their supply chains in some form or manner due to the Coronavirus and subsequent transportation restrictions.  

In another survey conducted by the MIT Center for Transportation and Logistics, only 16% of survey respondents stated their company had set up an Emergency Management Center to manage their supply chain disruptions. When asked if these companies thought the Coronavirus disruptions would change how their company operates their supply chains in the future, a third of respondents felt that their companies should have better risk management initiatives in place. 

Key elements of responses in these surveys documented that identifying and securing critical suppliers is critical, wherever those suppliers might be located.  Furthermore, it was important that key suppliers would have the ability to withstand future uncertainty.

Clearly supply chain executives will need to better understand all of the resources available to them, as well as entertain working in markets and with countries that are more stable that they may not have considered before.   

The real story behind these surveys and several others we have reviewed recently reveals that some businesses are apparently not taking supply chain disruptions seriously.  Perhaps they are confident, or in some cases over-confident, that their current supply chains are safe from disruptions today and will remain safe for the future.  Whatever the case may be, constant review, constant analysis and constant benchmarking supply chain partners should be on every company’s mind. 

As we see it, there are three key critical components for determining the extent of future supply chain disruptions and setting a framework for evaluating potential change management strategies to resolve any future disruptions should they occur.

  1. Gap Analysis: How confident is the company that its current supply chain will remain stable for the short and long term?  How can it absolutely prove that point?  And, if it cannot prove its supply chain is sustainable for the short and long term, what does the company have to do NOW and in the immediate future to ensure its businesses survival?
  2. Mapping the Journey Forward: Supply Chain executives and their “C” level executives MUST have a clear vision of what lies ahead.  What are the supply chain challenges the business will face today and in the future?  Are there any expected constraints now; will there be any constraints in the future, and if so, what steps must be taken to navigate through those constraints to ensure an un-disrupted supply chain.  

Companies must think of this as a crystal ball process.  While no one actually has a crystal ball to know exactly what’s going to happen, that should not stop businesses from thinking about every possible potential disruption that could actually occur.  It’s the only way to ensure continuity in supply chain operations and to be totally prepared for any eventuality.

  1. Create a Compelling Vision for the Future: Businesses need to create a successful path to ensure their supply chain survival goals are constantly met.  The path must include various “what-if” scenarios based on analyzing rational business models and performing on-going evaluations to ensure every eventuality is considered.  

The death knell for any business is the lack of total buy-in from all the key stakeholders affected by any business disruption issue, and that includes supply chain disruptions.  Companies MUST align purpose, mindset, roles, strategies, and ultimate performance throughout their company to ensure it can make the necessary changes on the fly if it needs to.  

How is your company going to protect its supply chain from further disruptions?  We can’t just wait for 2020 to be over, that’s just not going to cut it!   

Visit our consulting page to learn more about the tools you need to create a successful path for supply chain survival.