Reduce Freight Costs:
First off - the reality is a lot of freight invoices are incorrect, so they all should be checked. Mileage calculation errors are common and the complexity of fuel surcharge matrices mean that the applicable surcharge changes week to week. Do a spot check of some invoices and I can promise the wrong surcharge is getting applied on some shipments. Partnering with a resource to help automate this auditing process will make it simple for you. Most freight invoice auditors will claim a freight savings of 2-6% off your logistics spend. I can’t verify that either way, but I do agree an opportunity for savings exists. On the high end, you should expect to pay $.80-.85 per invoice, but much less with higher volumes of invoices or using EDI to facilitate the process. This would involve getting each of your carriers to interface electronically with the freight payment company. This is a bit complicated to get started with but will become relatively simple to maintain once the whole process is in place.
Reduced Shipping Administrative Expenses:
Companies conducting their freight invoice audit in-house are using expensive employee resources to ensure carrier invoices are correct - and probably not very effectively. Realistically, a manual freight audit is not able to uncover the same number of carrier audit billing errors and shipping service failures that an automated freight invoice audit process is able to identify. Automating the invoice audit process will eliminate the excessive time currently allocated to these tasks and as a result generate additional cost reduction in time saved. Think about it – how are your carrier rates sheets organized right now? Hardcopy print outs in a drawer? Maybe a spreadsheet attached to an email in someone’s inbox? How efficient or accurate is it for someone to be auditing each carrier’s invoice by referencing one of those sheets, running the miles, adding stop charges, and accesorials – and doing it correctly? Plus – they need to check this week’s fuel surcharge from the DOE website, reference yet another table provided by the carrier, and add that amount to the carrier charge. You do all this for one truckload, when you can automate the process in a way that eliminates the work and the potential errors.
Freight Management & Carrier Reporting:
From a business management standpoint, this is the possibly the most valuable benefit of automating freight invoice audit. Information. The importance of knowing all your freight data is accurate and accessible allows for effective business reporting and use of that data. Understanding your logistics and supply chain costs in detail is vital to effectively running a business. Attempting to manually audit and collect freight data is too time consuming and very error prone. Think about the valuable components of freight spend data. The better you understand the cost components that make up your freight spend, the better you manage your business. If you keep getting hit with detention a particular consignee you what to know about… if freight costs are going up because of fuel, you want to know about that too. Good information is vital to making your business run better.
Ken is a 15 year veteran of logistics and supply chain operations. He has founded companies in the ecommerce order fulfillment and transportation management system markets.
Showing posts with label Transporation Management. Show all posts
Showing posts with label Transporation Management. Show all posts
Monday, June 28, 2010
Wednesday, June 2, 2010
Options for Business Process Outsourcing in the Logistics Industry – 3PL vs. Logistics Services Integrators (a.k.a. 4PL)
Business Process Outsourcing can be a practical and beneficial option for most companies. Organizations outsource for many reasons, with the desired outcome being reduced costs, improved operations, overcoming a lack of internal capabilities, gaining competitive advantage, and other benefits that are both tangible and intangible.
Outsourcing can be used in many parts of a business, but most often for what a company defines as non core functions; accounting, legal, human resources, information technology, manufacturing, sales, sourcing and logistics /supply chain management. Of course “non core” and “core” differ by company and industry. Non core can be important and critical to a company, but does not define the company and set it apart from competitors.
When it comes to logistics and supply chain management, there are two primary methods to take advantage of business process outsourcing – 3PL and Logistics Service Integrators (also known as 4PL or 4th Party Logistics).
3PL (3rd Party Logistics provider).
For about the last 20 years, 3PL’s have led the way in logistics outsourcing. Drawing on its core business, whether it be trucking, order fulfillment, warehousing, etc. - 3PL’s have expanded their offering with new or additional services. It presents a way for essentially a commodity type service logistics provider to move into higher margin, bundled services and further develop and leverage their customer relationships.
Customers, seeing value in the concept of the 3PL and always looking to reduce costs, have recognized value in the concept. The result is the market opportunity for outsourced logistics service providers, whether domestic or international became and remains sizable.
Unfortunately the reality has not lived up to the promise. The reasons are varied, but the bottom line is many 3PL’s have failed at their own business transformation beyond adding the “Logistics” moniker to their company name. Often 3PLs have not successfully moved past their core commodity service to become true multi-service providers – the trucking company is still just providing trucking services, not providing value or improving the customer’s logistics network. Others have failed to differentiate themselves against the competition. Many 3PL’s have done a poor job positioning and defining themselves in the marketplace while others have commoditized their 3PL service, as a result undoing the very purpose of their 3PL.
The complicated and varied methods for how 3PL’s look to be paid for services has added to the challenge. Shared savings, contingency and transaction based fee structures are among the many ways 3PL’s are compensated. The very method for how a 3PL is paid can be in direct conflict with the best interests of the customer whether it be a consideration of cost or service. Customers can still find they have no understanding of their true costs and service performance with all the shipping data and information moving through a 3PL.
These setbacks have prevented the growth of some 3PLs in terms of both retention and new customers. Broad fragmentation of the sector reflects both the uncertainty of how 3PLs view themselves and the diversity of customer needs. With the involvement of multiple 3PL’s customers are often forced to deal with proposals or solutions that cannot be measured against one another.
Business Process Outsourcing and the Logistics Service Integrator (LSI).
First, note that Business Process Outsourcing (BPO) is not traditional outsourcing. Traditional outsourcing is typically taking a set of tasks or functions and simply moving them to an outside service provider. A BPO provider, or in the case of the supply chain/ logistics industry, a Logistics Service Integrator (LSI), brings an expert perspective, specific knowledge and experience as well as technology to an organization. The LSI works with the company to develop a solution to improve an existing or new process through independent and unbiased analysis and recommendations.
From the service vacuum created by 3PLs, the LSI has emerged. Using a Logistics Service Integrator is much different than the traditional 3PL. The LSI is a BPO provider, is neutral, and will manage the logistics process correctly, regardless of what resources need to be used. This includes carriers, fulfillment vendors, freight payment providers, 3PL’s, or any other logistics service providers that are part of the company’s network.
The goal of the LSI is to represent the interests of the customer by bringing their specific expertise into the qualification and management of the logistics service providers. An LSI wants to position itself as an extension of and as part of its customer.
Conclusion. Although born out of good intentions, in general 3PL’s have not fully served the purpose for which they were conceived. The reality is 3PL’s have remained too focused on managing tasks and transactions in a very short sited way, and not on the important broad focus and processes of their customers. The results are missed opportunities to present real value to the organization being serviced. Logistics Services Integrators have become a good alternative for business process outsourcing. The value lies in the LSI being positioned as an extension of the organization itself. Processes are analyzed, logistics technology evaluated, and vendors qualified independently based on the unique needs of the business, with no preconceived ideas or over-riding commitment to a 3PL’s own interests. LSI’s are compensated based on the value they add, with complete transparency of costs for the business they have partnered with.
Ken is founder of two logistics supply chain management companies in the ecommerce order fulfillment and transportation management system markets.
Outsourcing can be used in many parts of a business, but most often for what a company defines as non core functions; accounting, legal, human resources, information technology, manufacturing, sales, sourcing and logistics /supply chain management. Of course “non core” and “core” differ by company and industry. Non core can be important and critical to a company, but does not define the company and set it apart from competitors.
When it comes to logistics and supply chain management, there are two primary methods to take advantage of business process outsourcing – 3PL and Logistics Service Integrators (also known as 4PL or 4th Party Logistics).
3PL (3rd Party Logistics provider).
For about the last 20 years, 3PL’s have led the way in logistics outsourcing. Drawing on its core business, whether it be trucking, order fulfillment, warehousing, etc. - 3PL’s have expanded their offering with new or additional services. It presents a way for essentially a commodity type service logistics provider to move into higher margin, bundled services and further develop and leverage their customer relationships.
Customers, seeing value in the concept of the 3PL and always looking to reduce costs, have recognized value in the concept. The result is the market opportunity for outsourced logistics service providers, whether domestic or international became and remains sizable.
Unfortunately the reality has not lived up to the promise. The reasons are varied, but the bottom line is many 3PL’s have failed at their own business transformation beyond adding the “Logistics” moniker to their company name. Often 3PLs have not successfully moved past their core commodity service to become true multi-service providers – the trucking company is still just providing trucking services, not providing value or improving the customer’s logistics network. Others have failed to differentiate themselves against the competition. Many 3PL’s have done a poor job positioning and defining themselves in the marketplace while others have commoditized their 3PL service, as a result undoing the very purpose of their 3PL.
The complicated and varied methods for how 3PL’s look to be paid for services has added to the challenge. Shared savings, contingency and transaction based fee structures are among the many ways 3PL’s are compensated. The very method for how a 3PL is paid can be in direct conflict with the best interests of the customer whether it be a consideration of cost or service. Customers can still find they have no understanding of their true costs and service performance with all the shipping data and information moving through a 3PL.
These setbacks have prevented the growth of some 3PLs in terms of both retention and new customers. Broad fragmentation of the sector reflects both the uncertainty of how 3PLs view themselves and the diversity of customer needs. With the involvement of multiple 3PL’s customers are often forced to deal with proposals or solutions that cannot be measured against one another.
Business Process Outsourcing and the Logistics Service Integrator (LSI).
First, note that Business Process Outsourcing (BPO) is not traditional outsourcing. Traditional outsourcing is typically taking a set of tasks or functions and simply moving them to an outside service provider. A BPO provider, or in the case of the supply chain/ logistics industry, a Logistics Service Integrator (LSI), brings an expert perspective, specific knowledge and experience as well as technology to an organization. The LSI works with the company to develop a solution to improve an existing or new process through independent and unbiased analysis and recommendations.
From the service vacuum created by 3PLs, the LSI has emerged. Using a Logistics Service Integrator is much different than the traditional 3PL. The LSI is a BPO provider, is neutral, and will manage the logistics process correctly, regardless of what resources need to be used. This includes carriers, fulfillment vendors, freight payment providers, 3PL’s, or any other logistics service providers that are part of the company’s network.
The goal of the LSI is to represent the interests of the customer by bringing their specific expertise into the qualification and management of the logistics service providers. An LSI wants to position itself as an extension of and as part of its customer.
Conclusion. Although born out of good intentions, in general 3PL’s have not fully served the purpose for which they were conceived. The reality is 3PL’s have remained too focused on managing tasks and transactions in a very short sited way, and not on the important broad focus and processes of their customers. The results are missed opportunities to present real value to the organization being serviced. Logistics Services Integrators have become a good alternative for business process outsourcing. The value lies in the LSI being positioned as an extension of the organization itself. Processes are analyzed, logistics technology evaluated, and vendors qualified independently based on the unique needs of the business, with no preconceived ideas or over-riding commitment to a 3PL’s own interests. LSI’s are compensated based on the value they add, with complete transparency of costs for the business they have partnered with.
Ken is founder of two logistics supply chain management companies in the ecommerce order fulfillment and transportation management system markets.
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