An interview with Michael Salih, the Domestic Freight & Couriers specialist of the Expense Reduction Analysts - Asia Pacific team.
Michael has over 25 years international work experience across a variety of general management roles, predominantly within the logistics, retail and information technology industry.
He has worked with some significant retailers in Australia and Asia, in regional director roles with responsibility for procurement, business development, human resources and information technology services.
Michael’s experience includes financial analysis, strategic planning, project management, and business improvement. With broad management experience, he works with clients across a range of industries and expense areas, including initial identification of cost categories, supplier negotiation, and management of the change process and the development of innovative solutions to build long-term client relationship.
Q1. Michael – what are your thoughts regarding freight costs and how it can be reduced?
Freight is often seen as a core expense in medium-large organisations. However, many organisations do not have the internal expertise to review their expenditure in detail, and therefore continue using the incumbent supplier without benchmarking against market prices.
Organisations can find savings by working more efficiently with suppliers, organisations can dramatically cut suppliers’ costs – and these savings go straight to the bottom line. For example, based on an eight percent gross profit margin, you would have to increase sales by $625,000 to match the same impact on the bottom line of $50,000 savings on costs.
Q2. On average how much do organisations spend in freight and courier services?
Our experience suggests that around 90% of businesses are overspending on day-to-day expenses, in some cases by as much as 70 %! Organisations should look to protect themselves by reducing the wasteful spending in freight and courier expenses and invest that money in other projects or upgrading their business processes.
Q3. What steps should organisations take to reduce their freight costs?
The first step to reducing freight and courier expenses is to understand your needs. There are many different methods of moving goods, parcels, items from one location to another. These methods will depend on the time frame, urgency and needs that will be determined by the customer. Customer needs and demands are paramount to future dealings with them and the service provided to match their needs will be vital. Matching the right supplier with the proper service levels required by customers with the right costs is not an easy task. When determining which supplier to appoint in a review, these factors need to be taken into consideration.
Q4. Can you give me an example?
For example; parcels, pallets, cartons etc. can be moved same day, same day by the end of the day, the same day within one hour two hours, four hours, overnight, overnight express, VIP Express, slow mail, linehaul, full truckloads, partial loads, road, air, the sea. Each method has a different cost base and warehouse managers, receptionists, despatch clerks or any employee authorised to act on behalf of the organisation, needs to ensure the right options are chosen to match the customer’s needs as well as provide the organisation is not selecting an unnecessary method that will add costs.
Q5. Why is it important to do price reviews?
Rarely will a supplier volunteer a price review. Let your suppliers know that you are undertaking a review of all your overhead costs. In addition to reviewing prices, look at establishing key supplier performance indicators that are appropriate for your business. Never assume that you know the market as well as your suppliers – and never imagine that they’re providing you with the best deal possible.
Do you know what your competitors are paying for the same products? Compare your cost-management performance to others. “Gather the data from outside agencies, consultants or benchmarking services where necessary.”
Q6. Does reducing costs disrupt the quality of service?
Reducing costs is not just about going to a cheaper supplier. You can in the majority of cases generate savings without affecting or disrupting standards of service through changing suppliers. Good relationships in any line of business are fundamental, and the one with your supplier is no exception.
Q7. Where are the biggest risks?
One of the main risks in completing a successful freight review is to ensure management and stakeholders are all on the same page with the same goals in mind. Projects have failed over the years due to a stakeholder not fully aware or behind the freight review. Stakeholders often have a good working relationship with the freight company and are worried by changing freight providers they would not be able to carry out their duties efficiently.
Stakeholders may have also had a bad experience with various transport providers and then become concerned that any disruption to the organisation's operation will also affect their personal ability to carry out their duties efficiently. The most effective way to elevate the risks involved in a freight review is to meet with all stakeholders and go through their concerns.
Another significant risk is smoothly changing suppliers so that the company’s operations are not affected in any way. Changing a supplier is always risky as promises made by the new freight company may not be able to be carried out. At ERA we always ensure we pick the most reputable organisations to deal with and match the size of the company to the right freight provider.
Q8. What are the biggest opportunities for savings?
Often, we find a company has outgrown its carriers’ capabilities and therefore there are losses in efficiency and costs are high, or it could be a case the company’s operation have changed (business model, supply chain network, throughput). Changes can also take place in the carrier’s business, e.g. new ownership, which could also affect pricing models the carrier uses.
1. Conduct a high-quality Freight RFP once a Year
Make sure you open the bid process to new transport carriers, logistics service providers. Supply the carriers with a summary of a year’s worth of shipping data. Share as much information as possible about pallet configurations, loading processes (e.g. live load versus drop trailer), seasonality issues and other aspects of your shipping processes.
2. Optimize your Freight Network
Examine the locations of your suppliers and customers and evaluate every opportunity to reduce hand-offs, excess inventory, and duplicate routings. Look for ways to create round trips, pool points and consolidation/deconsolidation opportunities.
3. Audit your Carrier Freight Invoices
Between 1 and 2 percent of all carrier invoices are rated incorrectly. There can be errors in the base rate and/or fuel surcharge and/or accessorial charges. Monitor the results and go after the offending carriers for those monies owed to your company.
4. Develop Supplier and Customer Collaboration Initiatives
Speak with your suppliers and customers about any processes that cause inefficiencies and seek a better way to do the work. This can include everything from order sizes and pallet configurations to service intervals and consolidation points.
5. Develop a reputation for loading quickly
When carriers develop pricing, they typically assume a 2-hour load window. But if the carrier knows they’re picking up at a place where items will get loaded in an hour, that affects the price. It also inclines the carrier to work with that shipper.
6. Offer night pick-ups
May not always be possible, but this may give transport providers an opportunity to make your load into a backhaul by offering them pick-up times after most other shippers have closed the dock – 6-12 p.m.
7. Minimize the number of pallet spaces needed when shipping LTL
Optimizing the cube of a product, stacking the product, so you take fewer pallet spots, even boxing it differently – great opportunity to save big dollars.
8. Ship more product, less often
Encourage customers to take larger orders. It’s a lot cheaper to ship six pallets at once than to send two pallets every two days.
9. Capture and benchmark your freight costs
Important to understand what you are currently paying, and can you achieve a better result.
10. Finally, don’t be a serial rate shopper; develop relationships
If a freight company knows you have some loyalty, then they will offer competitive rates for a couple of years. Having a working relationship with an account manager will also help rates to be steady and not rise by more than the annual CPI.
About Expense Reduction Analysts (ERA)
We help clients to support the health and growth of their business, whatever its nature, focusing on proactive expense and supplier management. As an Australian and global company, Expense Reduction Analysts can benchmark costs and spending, follow the latest supplier innovations, and have real-time data on changes and advancements. This strength gives Expense Reduction Analysts the recognition and power needed on supplier markets to best serve your interests.
For more information please contact Ruth Cohen at rcohen@expensereduction.com
