Are you putting the correct class and NMFC number on your Bill of Lading?

As of August 1st there have been numerous changes to how the trucking industry is classifying freight. Putting the wrong class or the wrong NMFC# (National Motor Freight Classification), could cause you to pay 10-20% more. Now is the time to update your current Bill of Lading (BOL)!

Many distributors have been using the same BOL for years. Trucking companies are now running at or over capacity.  In order to cut there their costs they are looking at freight classifications in a different way.

Density based pricing is here to stay.

$237,500

In working on transportation cost efficiencies in the wholesale distribution industry for over 25 years, we find that the average available savings ranges from .75% to 1.25% of annual sales. For a distributor with $25 million in annual sales, this equates to $237,500 a year.

How much in sales do you need to generate to cover $237,500 in expense? At 3% net profit, the answer is $7,916,667. So… where are the savings?

Transportation costs for a distributor can be broken into three areas. They are the customer delivery system, branch transfer and LTL, small package and supplier paid freight.

In the customer delivery area, costs are made up of driver wages/benefits, truck depreciation/lease, maintenance, fuel, insurance, registration, taxes and route management.

It is easiest to think of delivery expense in terms what one truck with all annual expense including driver wages cost. The average cost to operate a single delivery route is $74,500 a year.

Route optimization is a key to delivery cost management. Due to the drive to provide the best customer service possible, distributors often have more trucks and use more drivers than is necessary. How full are the trucks? Are the trucks dispatched early in the day so that after the initial delivery run, they are available to make a second or third run?

Sales involvement in the delivery process is very important. Are customer delivery times properly qualified to allow the warehouse the time to efficiently set a route. Are emergency deliveries an exception or the rule?

For a typical distributor, a driver should make 15 stops and drive 150 miles each day. What we normally find are numbers well below that.

A 24’ delivery truck is costing upwards of $100,000 to purchase today. Truck financing options are abundant. Finance lease, fair market value leases and full service leasing are the most common. One way or the other, you still wind up paying a considerable amount for a truck.

The question to be asked is “do you need the truck at all?” If your current fleet is less than 70% optimized, the answer most times is NO.

In addition to servicing customers on the company fleet, an area of opportunity is to outsource certain deliveries to a third-party carrier such as a small package or LTL service. Distributors can mistakenly think that a delivery must be made on the company fleet to assure proper customer service.

However, what customers truly care about is that the product shows up when they need it. How the product gets there is immaterial to them. Outsourcing is an additional means of supplementing delivery capacity.

The second area of transportation savings is freight. Many distributors view freight rates as the beginning and end to good freight cost management. This view is plain wrong!!

What needs to be focused on is the total cost of freight expense to the company. To identify this, all freight expense must be identified (inbound supplier freight, outbound carrier freight). Subtract from this number the amount of freight billed out to your customers. What’s left over is the true cost of freight to your company.

We call this net freight expense. A properly managed freight program will run at .2% or less of annual sales. Total customer freight billed out should be 75% plus of total freight expense. Total freight cost as a percentage of sales should be less than .8%.

Like delivery, freight is an area that we find a great deal of opportunity in for cost savings. If you only address rates, there is 85%+ of the opportunity not being addressed.

Finally, the transfer area. Are the branches being serviced at the right frequency? Are only full box quantities transferred? Can deliveries and transfers be combined on a single run from a larger branch supporting another branch? Branches within 50 miles of each other are prime candidates for this.

The answer to those questions can provide yet another source of cost savings opportunity for the distributor.

More today than ever before, distributors are looking at their transportation processes with a critical eye. On close examination, unnecessary costs can be identified and eliminated. All that is required is not to full victim to the philosophy that “we have always done it this way”.

Good luck!!

It’s all about the process…

How many calls and emails do you get a week promising cheaper freight rates?  How can each company save you even more money?  The days of significant savings by solely negotiating lower freight rates are gone for most companies.  Everything is automated by carriers and they are not going to deliver freight for free, therefore if delivering your freight doesn’t operate well for them it is very unlikely you will get them fighting over your business.

The biggest opportunity today is more about the PROCESS.  Are you controlling your inbound freight or is the supplier?  Are you effectively passing on the freight charges to your customers or are you eating the cost of the freight on your own?  Are you keeping track of it all?

We have developed a Net Freight Process that addresses the key areas of freight cost. Our customers have experienced annual savings ranging from 25% to over 50% of net freight costs.

This process is simple and it works.  Feel free to reach out and discuss.  Let us tell you about some of our success stories, and hopefully, yours will be next.

The impact of rising fuel on a company fleet

With oil prices rising, keep an eye on its impact on your fleet. For every rise of .50 cents per gallon, fuel cost will go up $1,750 per vehicle.

Today the cost of diesel is $2.42/gallon. Not too bad huh? However, back in 2012 the cost of diesel fuel reached as high as $4.13/gallon.   One of the biggest costs to running a private fleet is the cost of fuel and an increase like we had in 2012 could be catastrophic to the bottom line.

Now is a good time to focus on improving the efficiency of the delivery fleet. There is nothing you can do about fuel pricing. However, fuel consumption is within your control.

Here is where we can help.  Did you know reducing your fleet by one truck could save you around $75,000/year? Better yet, removing a tractor trailer could save you upwards of $125,000/year for just one truck. Sound good?

Some key questions to answer –

  • Are your trucks fully loaded when they are dispatched?
  • Are trucks routed in the most optimum manner?
  • Do your drivers deliver product all day?
  • The average delivery driver should make 12 stops and drive 150 miles each day. How many stops and miles do your drivers perform each day?

The majority of companies have a lot of waste when it comes to company trucks going out half full or just sitting idle around the yard. We will analyze your fleet, number of drivers, and routes. We will then show you how to optimize your fleet without sacrificing efficiency, and most importantly customer service.

Transfer Expense

Increase customer delivery service, while saving money in this general ledger account.
Too often companies don’t review their expenses of their transfer truck, and expenses incurred by third party carriers and UPS?
While transfers are a necessary part of a distributors business, they can be recovered, reduced and optimized.
Let us show you how the best in class do it!

Unprofitable delivery routes

A very common thing we come across during our logistics reviews is that we see too many trucks leaving the yard late, and often times not nearly at capacity. You may notice the same thing as you pull into work. Your route that is costing between $65,000 – $100,000 is not giving you a return on that investment. This can be corrected and turned into a profit maker, not a loss leader. We can help.

Training

We can help you get where you need to be, and it may not need be an expansion or increase of assets or real estate.

Turnover is the most expensive cost of personnel these days. What does your turnover percent look like today, and are you satisfied? The number one reason is not money!  It is usually their manager, your supervisor or someone who has not engaged with them and/or taken the time to train and put them on a path, where they want to go, not just where you want them to take them.

Everyone says they don’t have the time, energy or resources to do this, yet they will spend countless hours looking for new people, additional people and hiring a warm body to fill the gap “till I have time to hire the right person.”

We can help, find and train your next long term employee.

Distribution Centers

How much do they cost and how many do I need?

We get asked these questions regularly, because depending on the wind and what your competitor is doing, you start to question your delivery practices and supply chain optimization.

There is no cookie-cutter answer, but a great question  to start asking yourself and your staff is, “If you had a blank piece of paper and wanted to start a new distribution plan, what would you do first?”

Spending money is not always the problem solver, but a distribution center can be a profit center, service center or just an impediment for you in trying to serve your customers needs and bring down costs.

With the proper distribution system, you can do both.

 

Freight Recovery

What is freight recovery? Simple, freight recovery is the percentage of freight that you recover when shipping your products to your customers, it also includes non-stock inbound, expedited, special orders, as well as direct shipments from vendors to customers. When you ask your sales force, “how often should this expense be billed to a customer?” The answer should be 100% of the time unless a mistake was been made.

Distributors often let legitimate recoverable freight expense fall between the cracks, instead of to the bottom line. Why?  Here are the main reasons:

  • There is no system in place that supports compliance or measures freight recovery
  • Sales may lack the proper freight pricing tools, and the discipline to pass on the freight expense along to the customer
  • Nobody in the company is responsible for making sure freight charges are put on customer invoices.

Whatever the reason, freight recovery represents a great opportunity for many distributors to add profit to the bottom line.

Over the past 20+ years Tag Logistics has developed a program for our clients. This program has been proven and has yielded significant results. If you would like to learn more give us a call or visit our website at taglogistics.com.

Cost of running Equipment

Are you getting ready to replace or add delivery trucks? Since 2007, the average cost of a new truck has risen over 40%. A new 26’ delivery box truck can cost $91,000+. We ask a basic question at Tag Logistics. Do you need the truck at all?

Over the past 25 years, Tag Logistics has worked with the wholesale distribution industry on transportation and logistics issues. A common opportunity that we identify through the delivery routing process is that most distributors have too many trucks.

Years ago, delivery and branch transfer systems were created with an eye toward service first, cost second. A “whatever it takes” attitude for customer service if you will. Today, distributors must solve the customer service mission cost effectively in order to succeed. We can help.

We have worked with hundreds of distributors on their delivery, transfer and freight management systems. We have proven solutions that are geared toward providing world class service at a competitive cost.

As you look ahead to 2015, let us help provide a platform that will lean out your logistics cost structure in a customer focused manner. We will be contacting you to see if we can be of service We hope to have that opportunity. . For further information, my email is mloonie@taglogistics.com.