How to deliver customer service – and cut costs

Logiworx Operations Director David Irvine explains how to maintain high levels of service in transportation and still meet vital cost saving goals ...

The Australian transport industry boasts 40,000 businesses, employing more than 100,000 people.

In the past 12 months this vital industry, which generates $36 billion a year in revenue, has experienced some difficult times.

With a downturn in general freight, consolidation within the industry players, increases in key cost drivers, as well as the continuing cost of compliance, transport vendors have struggled to survive.

The industry has also felt huge pressure from customers desperate to cut costs by aggressively going to market in procurement driven tenders. 
Hard rates-based negotiations have sliced deeper into diminishing profit margins – particularly in the wake of the Global Financial Crisis.
As a result, transport companies are now challenged to maintain the basic standard of service consistently.

So how does an organisation ensure high levels of service to customers, meet corporate cost saving goals and manage the risk associated with chain of responsibility and compliance? 
In this article I have outlined four practical and operationally focused steps to ensure transport can be understood and options identified before going to market:

1. Understand the spend and very importantly who is in control of the spend:

• This task is often easier said than done and on occasion requires similar skills to that of a forensic accountant! There are plenty of fantastic spend classification tools available if the spend is complicated with multiple systems, divisions, languages, locations and vendors. However, the starting point objective is to simply identify and classify the vendors that relate to transport spend. You must then determine who is currently in control and if the spend is under contract or not.
• A simple starting point is to follow the financial classification trail and to request the general ledger view of all transport and logistics related vendors, as well as any specific site entities and profit and loss reports that usually classify spend as well. This does not always mean it is entirely correct yet it can be a very good place to start.
• Once this is completed it is extremely important to understand who controls this spend. Again a starting point can be to identify how and who signs off invoices at the end of the month.

2. Understand cost, service and value drivers – identify the key carriers and determine what services are required or provided:

• Location is one of the key carriers that must be determined and information needs to be gained to profile and analyse the transactional consignment level required. Another must do principle is to study the details in the freight companies invoices. Freight invoices can give an insight into the entire business operation. If interpreted correctly, they can paint a picture of customers, order profiles, service requirements and how this translates to costs.
• Transactional data and spend reports are an important part of this process and provide a profile of requirements. However, while working on a large project at Toyota I came across a great term Toyota use to understand exactly what is going on at the ground level – Genchi Genbutsu (Go to the Source).
• When it comes to the nuances of transport, getting out to the warehouse or contacting customer service staff and speaking with the people that deal with carriers on a daily basis can open up a wealth of knowledge. This knowledge can sometimes be the difference in being able to truly interpret the requirements or making significant errors if a sourcing event is conducted without a clear specification.

3. Transport task segmentation – to understand and to align requirements to capability:

• With a strong understanding of the functional requirements, developing a specification of what is required is extremely important so that a comparison if required can be used in an apples-to-apples sense.
• Further profiling and task segmentation is suggested to understand the mix of requirements the business has.
• Some simple rules to follow to segment freight, may include the following combinations:
  - Order size/product profile/unitisation – this may include the delivery profile such as cartons, pallets, bulk loads and containers.
  - Safety, handling and service requirements – this may include specific loading or unloading deliveries or hazardous goods requirements.
  - Distance, geography, lanes – generally grouped into local, near local, regional and interstate with any other lane specific functions.
  - Method and mode  - this can include methods such courier, route, linehaul, network distribution as well as modes such rail, road, sea and air.
  - Customer segments – this typically fits into the classifications above however can help with internal stakeholders.
• With Australian being such a vast geographic space, a one size fits all approach does always apply and true segmentation should be aligned to the industry capability and to the requirements your specific business has. In order to do this well, having a foundational understanding of who’s who in the transport space and who does what well is important.

4. Determine the best approach to go to market (if at all)

• To develop a robust sourcing strategy it is important to identify the What and How to go to market ahead of time. In a nutshell, identify the options, risks and expectations to enter the process with your eyes wide open. Know what you need, what options that are available and understand the best fit in the industry to service.
• Before even going to market, a reasonably good idea is to talk to your incumbents. I am continually surprised how little this is done on a regular basis. Being the customer, it is generally your right to ensure suppliers take the time to listen to you. And yes, I completely agree. However, if the organisation’s goal is to serve its own customers well, and transport is an integral step, it is sometimes wise to hold the olive branch – take the time to listen to your provider.
• Benchmarking can provide a simple assessment of an opportunity if it exists. However, a key mistake that is often made is requirements and expectations are not clearly understood when sourcing transport services. This can lead to service impact or cost blowouts. Incumbents carriers are always very happy to list all of the value add services they provide. This can be important if what they provide as part of their standard services is costed as an extra by alternate suppliers.
• Finally, understand what you have and what you need. You should clearly understand the requirements before entering into a sourcing event.
• If services are documented and tasks segments are aligned with industry capability, you will increase the chance of delivering cost savings as well as ensuring risks are managed.

* Before joining Logiworx David Irvine gained extensive operational experience with large organisations including most recently BlueScope Steel. David's consulting experience includes project management of multiple client engagements and extensive knowledge of supply chain network modelling, transport modelling, inventory planning and procurement including logistics services outsourcing.