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Thinking Lean

Last week I attended a webinar on Lean Supply Chain. One concept they discussed was Lead Time. In manufacturing this is generally thought of as the time between placing an order and receiving the product. But at BlueGrace this could take many forms. Lead time could be the time a quote comes in until it has been quoted. It could be any request from a customer or employee. It could be a request from management down the chain of command. It can be just about anything.

The lecturer used the following math formula:
LEAD TIME = VALUE + WASTE

Pretty simple stuff. Lead time equals the value placed on the object by the customer plus wasted time/movement etc. Waste has no value to the customer. Like any mathematical equation if lead time is constant and you increase waste what happens to value? It goes down. Conversely how do you increase value? By lowering waste.

Per the lecture the Ultimate Business Model looks like this:
Supply Lead Time + Manufacturing Lead Time + Outbound Logistics Lead Time  needs to be < Customers Lead Time (this is Built to Order)

Most companies fail at lead times and have to forecast (guess). Their model looks like this:
Supply Lead Time + Manufacturing Lead Time + Outbound Logistics Lead Time  > Customers Lead Time (This is called Inventory)

How does all of this apply to us? Honestly, I haven’t totally put my finger on that but my gut tells me this is important. Lets look at our process when handling a request from Bobby. For example, he told me to manage a particular area of the business.

The optimum design would be:
The time it takes for me to complete (This is Lead Time) = Value (this is the value Bobby places on the request) + Waste (this is me asking someone to get me a list, go through the list, wait for responses, meet to make decisions).

Nothing in the waste category adds ANY value to the customer (Bobby), he just wants it done. In this equation, if we reduce waste (remember, for this equation Bobby’s value is a constant) what happens to lead time? It goes down! The very cool thing about this type of equation is reducing waste does two very big things.

  1. It reduces lead time.
  2. It increases value!

I am about to start a course in Lean Six Sigma. Hopefully,  I will learn more about lean concepts and how it can apply to us but for now please consider this blog and think about the simple equation
LEAD TIME = VALUE + WASTE
This article is worth reading, A Lean Office Eliminates Waste and Saves Time.

Randy Collack, COO
Follow me @schmengieBG

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.22 Caliber Mind in a .357 World

Surely the title grabbed your attention! I am sure you asked what can this blog be about. I decided to write this blog about being flat out better than the next guy. In any business you can’t simply be better than the competition, you have to know them and what they do and be innovative enough to do it better. Businesses are reluctant to change because what they are doing is comfortable and they don’t know that there is a better option that allows their businesses to run smoother. My company prides ourselves in staying out in front of the competition and not being just another 3PL. In the freight and logistics world, you can’t simply offer better rates than your competition and expect to stay afloat.  This is the age of technology, efficiency and innovation. We are the first 3PL in the industry to release a Mobile Freight Optimizer app for the iPhone. We are one of the first to roll out Dock to Doc, software that allows businesses to see their Proof of Deliveries and weight inspections for all carriers in one system. This is one of the many things we do that allows businesses to run more efficiently. It helps accounting see that the freight delivered for all carriers so they can bill their customers faster. If there was a problem with a re-weigh it allows them to see that inspection with a click of a button rather than calling and e-mailing carriers and waiting on a response.

Many businesses in many industries are still taking knifes to gun fights. Many franchises are still arming themselves with .22 caliber business plans instead of using .357 innovation. This is the business era dependent upon lightning fast internet, cell phones, text messages, webex demonstrations and yes, state of the art Transportation Management Systems (TMS). People are learning to do more with less. Web-based applications allow businesses to be fluid and mobile. Businesses are learning to become more process driven and less labor dependent. To be competitive, to be successful, the trick is no longer to outgun your competition but rather to use a more effective weapon

– Dustin Snipes, Account Manager
Follow me @DSnipesNole_BG

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Go Green or Go Home!

green company | green initiativesAs we wade through the aftermath of the disaster in the Gulf, there is resurgence in discussions about how to protect the environment and whose responsibility it is to do so. Big businesses, once regarded as corporate giants with no identities, have long since taken on personas and play an integral role in our daily lives. Companies like McDonald’s, GE and FedEx spend a great deal of time, energy and money on how their image is perceived. People expect businesses to act as socially and environmentally responsible citizens. Going green sets a positive example for employees and prospective customers, and increases morale with a cleaner and healthier work environment. Leaders are coming to understand that being good to the environment can be good for the bottom line.

Many large corporations are doing their part to reduce their carbon footprint:

  • GE and Wal-Mart understand that people want more efficient, cleaner products.
  • FedEx Airport Operations in Oakland, California is almost entirely supported by solar power.
  • Bank of America is developing green technology (such as an eco-friendly credit card) and electronic banking
  • Other green companies include McDonald’s, Anheuser-Busch, Continental Airlines and DuPont.

The supply chain, an integral part of most businesses, is where going green can offer the most long-term benefits. By cutting down on consumption, going green allows increased efficiency, improved service, and lower operating costs. Businesses can cut down on packaging materials and condense their orders to have more concentrated shipments. The greatest impact going green in one’s supply chain will have is the overall reduction in waste.

A business who manufacturers and distributes goods could use 9 or more pieces of paper per order:

  • The purchase order
  • 3 printed copies of competitive quotes from freight carriers
  • 2 printed copies of the Bill of Lading (BOL)
  • Proof of Delivery (POD)
  • The customer invoice
  • The invoice from the freight carrier
  • A daily log of all outbound shipments

This list can get longer if they report inbound or third party “drop shipments” or if management requires other reporting or visibility. A recent article from Information Week discusses how although the financial outlay of a more efficient data system can be overwhelming to small business, there are a number of ways to green a company’s data center easily and cheaply, and the financial rewards can be significant.

By utilizing a non-asset based 3PL such as BlueGrace Logistics, a company can reap the benefits of a Transportation Management System (TMS) without any significant upfront cost. A leading edge TMS can be an effective data warehousing system and significantly reduce a company’s output of waste.

 A TMS can:

  • Produce and store quotes from multiple freight carriers
  • Produce and store copies of BOL’s
  • Store electronically uploaded POD’s
  • Store addresses and product information
  • Produce a daily log or other required reports.

In addition to a far cleaner, far greener, and far more efficient order management process, housing your shipping data can save your business a TON of money!

Nick Klingensmith, Director of Sales Development
Follow me @theBGexperience

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Industry Spotlight – George Steinbrenner

George Steinbrenner SpotlightOn July 13, 2010, longtime New York Yankees owner George Steinbrenner died at the age of 80. What most people do not know about the man, who helped a then struggling major league baseball team become one of the most successful teams in history, is that his career began in the shipping industry. 

Following in his grandfather’s footsteps, Steinbrenner joined his family’s business, the Kinsman Marine Transit Company, shortly after graduating from Purdue University.

Steinbrenner was quite a force in his business dealings, working successfully to revitalize his family’s struggling company. One thing I believe is key when running a business is knowing which commodities are practical for the times and knowing the best way to maximize its profitability. Steinbrenner realized that Kinsman’s true potential lay in the transportation in grain over ore.

Investing in the different facets of an industry is also something I believe to be beneficial in expanding any business. After securing a gross annual income of 100 million dollars, Steinbrenner saw the potential for profit by investing in shipbuilding, acquiring the American Shipbuilding Company in the early 1960’s. In an effort to maximize cost effectiveness, Steinbrenner relocated all operations to Tampa, Florida in 1984. 

Anyone who has followed baseball for the past 40 years can attest to Steinbrenner’s knack for building success. Although some of his methods proved controversial it is undeniable that George Steinbrenner is undoubtedly someone to emulate.

– Jon Cuello, Partner Invoicing

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More Trucks Means Better Prices…Hopefully

truck | freight | truckingAs many have noted, truckload capacity is a very interesting issue right now. The full truckload market is completely one-sided in favor of the driver and carrier. The economic downturn caused most trucking companies to cut down on their drivers and equipment with many even selling their trucks overseas. For those who like numbers, there is currently an average of 3.02 loads posted on DAT360 from Transcore for every one dry van truck available at any time. For flatbeds, the numbers get much worse with a current average of 23.95 loads posted for every one flatbed truck available.

As the economy has picked up, even though slightly, companies have started producing more. While this is great, it just adds to the existing capacity issues. The numbers above confirm the effect.These factors have caused truckload rates to reach all time highs. The increased demand combined with higher rates should incent companies to grow their fleets. According to a report from ACT Research, the orders for Class 8 commercial vehicles reached its highest point in June this year. Orders are up 93 percent over last year.  “Early second quarter reports from publicly traded truckload carriers confirm the improving freight transportation environment, as revenues and profits are up significantly from 2009,” said Steve Tam, vice president with ACT. “Overall orders are still below normal replacement levels, but momentum is building as trucker profitability improves,” added Tam.

Basic economics says that increased supply will help bring prices down in the near future. This is just another step in the right direction for all those working with full truckloads.  Those who have worked with BlueGrace Logistics on full truckloads have noticed that the pricing is at an all-time high and finding trucks has been extremely difficult. We have been working hard at finding trucks and developing relationships with many strong carriers, with nearly 100,000 trucks in our network. Through those relationships, we are starting to see that the capacity in a large group of our carrier network is opening up these past few weeks. Hopefully that trend will continue for our customers and us.

– Ben Dundas, Web Analyst
Follow me @ben37dBG

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The Brutal Reality…Logistics, Capacity and where we are headed

I am a pessimist by nature. When I am in a big pot in Poker I am convinced the river will make my opponents hand. I am also not very bullish on the economy. Over the last 2 years members of both parties have thrown trillions of public dollars at the economy and it appears to have only stopped the bleeding. That doesn’t portend too well now that most people agree we are out of money to throw around. So how does this apply to our industry? The last 6 months we have all heard about capacity issues in Truckload and LTL. Freight is piling up on docks and loads are going unfilled. Rates are going up as trucking companies struggle to meet demand. But what is missing in this picture?

Well as I remember from high school when demand goes up two things are supposed to happen. First, prices go up as the Laws of Scarcity go into effect. We have all seen the prices of LTL freight going up this year. Secondly, supply is supposed to increase to meet the demand. I have not seen this happen, have you? But why is this not happening and what does it tell us about the near future?

I think there are a few basic reasons supply is pretty static.  Barriers to entry are huge. New companies cannot be formed to handle excess LTL freight. Terminals are needed; trucks, trailers and people are very expensive. The timeline to form, open and staff a new trucking company is years. It is just not going to happen. And let’s not forget about government regulations. Jay Thompson of the Gerson Lehrman Group covers that in great detail here. “When it comes to regulation, it’s like a confluence of issues that results in carriers being hesitant to invest in much of anything – smartly so.”   The base of suppliers of LTL freight is not going to change any time in the near future. It might even contract with companies going out of business.

Cash is tight. LTL carriers have just suffered through a couple years of losses and are only now coming out of the doldrums. Even titans like FedEx are posting losses. YRC has seen it’s stock price fall to 15 cents. Other companies are also coming off bad years. They have retired older equipment without replacing. Drivers are let go or allowed to retire with no replacements hired. No one is buying new equipment. We have seen the unemployment numbers; no one is hiring new drivers.  No new companies plus no new equipment is not a recipe for increased supply. For these reasons, Moody’s is predicting that rail will outpace trucking in the near future. “We expect railroad sales growth to outpace growth for truckers into the second half of 2010,” the report said. “U.S. truckers were devastated by the recession, which constrained their ability to invest in new fleet and infrastructure. Consequently, their fleets may be less able to accommodate spikes in demand,” the report said. Railroads, meanwhile, maintained capital spending during the downturn and will be able to handle increased demand without the bottlenecks that accompanied previous recoveries, Moody’s said.

Lastly, (and this is where my pessimism comes in) I just do not think that LTL companies believe the hype. There are a lot of very smart people making buying decisions for LTL companies. Like me, they just do not think the economy has really turned. They are pretty sure that when the spending stops that demand is going to fall and no one wants to be left with a bloated supply chain.

Those of us in the 3PL and logistics world need to recognize how this affects us. In the short term, we will be dealing with higher prices but SO ARE OUR CUSTOMERS. Carriers are not raising rates on our segment because of any change in philosophy. Rates are going up for simple economic reasons; there is no supply. If the economy continues to grow, then trucking companies will start to expand their fleets. New companies will take a shot at the multiyear horizon and start to open. Increased supply plus new competition will of course bring the prices down again. It is simple Economics 101. But what if the economy double dips or just stays stagnant? Well all of a sudden, carriers will be cutting back again and looking for help to fill their trucks. Of course, we will be poised and ready to assist. If these times seem hectic and confusing to those of us who are considered professionals in our industry, imagine what it’s like for the customer. This is our time to shine. Anyone can keep a customer happy when saving him or her 20% on their freight needs. But the true professional can keep the customer happy when his costs are going up by 20%. We need to be explaining what is happening in the industry and why. They need to understand why a load that cost $500 in March now costs $750. They need us now more than ever.

– Randy Collack, VP of Administration
Follow me @schmengieBG

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Admitting you don’t know is better than pretending you do

In a service industry such as transportation and logistics, the three most powerful words a salesperson can say are “I don’t know.” Admitting that you don’t know everything about freight shipping is better than pretending you do.  As we grow we need to remind ourselves that although we strive to be experts in transportation, we never truly know everything.  There are several different types of customers out there. Mainly, the ones who know everything, the ones who know nothing, and the ones who think they know everything but they know nothing.

The customer who knows everything will tell you what they want, educate you, and you will earn their trust when you don’t insult them by pretending to know what you don’t. The customers who know nothing rely on you to get them the right information. They don’t want you to mislead them in attempts to earn a fast sale. And finally, the customers who think they know it all will never respect a sales rep that pretends to be something they are not. Nobody has ever had a problem with a sales rep telling them “I don’t know, but I’ll find out.”

The key to continued growth is forgetting what we think we know about our customers and continue to ask questions about their current service and their needs.  This is also true for prospects.  Once you hesitate to pick up the phone because you have already called someone ten times, you have failed.  Preconceived notions about customers as well as transportation carriers cause you to be complacent.  People, business practice, and customer’s happiness change daily. If you don’t have the determination to pick up the phone against your will, then you will miss out. 

Outside sales is no different; when you have gone through your territory ten times and think you know everything there is about each business, you have lost your edge.  You either have to have the determination to go back in to that business and treat it like you have never been there before, or have been hit in the head enough times like me that you really don’t remember being there.  Both will allow you to gain new opportunities. It is only when you can admit not only to others but to yourself that you do not know it all is when you can begin to learn it all!  

– Steve Hicks, Account Executive
Follow me @BG_Steve

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Industry Spotlight – Fred Smith

fred smith | fedexHave you ever wondered what it takes to turn a business plan into a global success? I turn to Fred Smith, founder, president and CEO of FedEx.

It is well understood that FedEx is a leading name in logistics. I attribute its phenomenal growth over the past four decades to what Smith values as some of the most important fundamentals in building a business. Those are constant innovation, development of crucial business strategies and ensuring mutual respect between management and employees. These are fundamentals that I consider to the building blocks of any successful organization, including the one in which I work.

It was as an undergraduate at Yale University where Smith first proposed his business plan for FedEx in the form of a term paper, outlining his strategy to develop an overnight delivery service in a computer age. Ironically, he received a grade of C and was told it would not work. His professor clearly did not see the greater potential of the intangibles. 

Smith did not let this deter his plans for his future. Upon graduating with a Bachelor’s Degree in Economics, he joined the United States Marine Corps in 1966. It was here where he studied military logistics, observing procurement and delivery procedures. Additionally, his relationship with Lieutenant Colonel William V. Cowan would eventually assist Smith in FedEx’s Middle East expansion. 

Smith founded FedEx in 1971 with an initial investment of 4 million dollars. Over the next forty years, he would turn his dream into a global transportation powerhouse, commanding over 30 billion dollars a year in revenue, employing 280,000 people worldwide, serving over 200 countries and dispatching more than 8 million shipments a day. 

Perhaps most important to Smith is his relationship with his employees and how he views them as an integral part of FedEx’s success. Ensuring loyalty to the business by fostering strong relationships amongst personnel at all levels is something he considers critical to a successful business and something that all businesses should hope to achieve. These are the intangibles his Yale professor seemed to have missed. People are the single greatest asset in any organization. With one as successful as FedEx, it is clear that Fred Smith has always subscribed to that philosophy. That is what it takes to turn a business plan into a global success.

– Jon Cuello, Partner Invoicing

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Old School Style

With a certain ring of Ma Bell, or Grandpa telling you how back in his day things were made with the quality of blood, sweat, and tears, Old Dominion Freight Lines has been spotlighted numerous times for “Holding the line” on pricing, and relying on their quality of service. While rumors circulated of a domestic economic downturn, coupled with accordion like freight capacity, Old Dominion chose to focus on outperforming their competitors in service quality, rather than cost aggressiveness. “By maintaining price discipline and focusing on a best in class service, which saw 99.6% of shipments arrived undamaged, Old Dominion has maintained margins at a level that continues to outperform its peers.” (Transport Thoughts)

Markets shift. Capacity tightens and expands.  Profits rise and fall. Companies who separate themselves by providing best-in-class service during good economic times should trust that those same service levels will continue to allow them succeed. Filtering vendors by price is a simple and convenient decision-making strategy, but far too often businesses cut prices to remain competitive and at what cost to their quality of service? The real question that no one is asking is what is the greater impact of these cost reductions to the end user?

A reduced LTL or truckload price may help a struggling manufacturer in the interim, but what is the financial impact of that increased transit time? Or increased claim ratio? What is the impact to the integrity of that customer when their LTL carrier’s customer service is now failing them? As tides rise and fall, it’s imperative that any business who provides a superior service continue to provide that service without sacrificing margins, market share, or most importantly, quality.

This is a sales issue. A good transportation provider focuses on providing a myriad of services designed to help companies make more profit, rather than simply cut cost. A 3PL can offer what any one freight carrier cannot. For example, BlueGrace provides access to a free state-of-the-art Transportation Management System (TMS); specializes in LTL and can also provide Air Freight and Expedited Services when the need outweighs the cost. Does your low cost shipping company provide you with a free App for the iPhone so that you can run your quotes on the go? A good logistics provider analyzes customer needs and provides services to help them streamline their current processes. The ripple effect of such process improvements is exponential for a business. While everyone strives to provide the most cost aggressive rates, I’d rather be known as the most cost effective rather than the cheapest.

Nick Klingensmith, Director of Sales Development
Follow me @theBGexperience

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Excellence and Perfection

Very few hours go by at BlueGrace without someone using a sports analogy or sports quote to make a point. It’s remarkable how often that what works in sports also works in business. Vince Lombardi is probably quoted more than anyone else in sports. Everyone knows the standard quotes; “Winning is not everything – but making the effort to win is.” and “Winning is not a sometime thing, it is an all the time thing.”  But my favorite is “Perfection is not attainable. But if we chase perfection, we can catch excellence.”

Just earlier tonight I asked some associates a question. Are we setting up unrealistic expectations for our Customers? Huge percentages of shipments are handled without incident, but when something goes wrong it’s like the sky is falling. I hear that perhaps we are risking losing that customer because of this. But what about those previous 97 shipments that moved without a problem? Don’t they buy us enough goodwill to survive a mistake? Transportation is not an exact science. Trucks break down, traffic jams happen, and freight sometimes ends up at the wrong terminal. With so many moving parts, isn’t failure just part of the deal?

Of course I am asking the wrong questions. The questions should be: what went wrong? How can we learn from this mistake to prevent it happening again in the future? Have we explained the issue to the customer? Do we understand the full impact of the mistake to our customer? Not to sound like a previous President, but are we feeling their pain?

The fear of losing our customer is what needs to drive our pursuit of perfection. If we are perfect we will never disappoint our customers or ourselves. By striving for perfection and owning every failure we will ultimately become better. We can hope to catch excellence. Each person in the company needs to strive for perfection because, as Vince said, “The achievements of an organization are the results of the combined effort of each individual.”

Randy Collack, COO
Follow me @schmengieBG

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E-Logs, Supply Chains Beware

Recently, I received an email from Tim Higham, the CEO of Interstate Transport, pointing out the new provisions regarding the new E-Log rule. Trust me when I say that this new rule can radically change the transportation industry.

The Federal Motor Carrier Safety Administration has opted to place this new rule into effect June 1, 2012. Basically, the rule states that any carrier that fails a single compliance review will be required to use onboard recorders to track driver hours.

Warning.  The following is my personal opinion on this subject

Having been in the transportation industry during my entire working life, I believe this could be a very dangerous rule if not properly overseen. The basis for this rule is that most violators of hours of service rules have much higher incidence rates for accidents. This statistic is not arguable and has a long and proven history. The belief is that cracking down on these drivers and thus requiring onboard tracking devices will greatly reduce offenders. This may actually work, but at first glance it doesn’t seem that all points have been considered. I believe that it may enable  “cheaters” to cheat with greater ease— offenders are already breaking the rules.

And device tampering is only one concern. Another is the possibility of problems in identifying the respective drivers. I’m not convinced that those who want to will not be able to fool the system that is in place. Further, a portion of those that are compliant will be at risk of being more bound to regulations. Having a family on the road every day, I am rather concerned about highway safety. I just don’t see this rule making a positive impact.  It can only result in greater restrictions for the good guys.

Additionally, this could wreak havoc on already tight capacities. A small reduction in capacity could send rates skyrocketing and create delays and instability in supply chains. This would make big winners out of the offenders and those less likely to comply. A rule meant to crack down on chronic offenders could actually benefit them tremendously.

Keep in mind that this rule can be imposed on a single review. It is my hope and belief that strong domestic manufacturing and a strong U.S. economy will emerge by 2012.  If capacity shrinks due to a non-effective rule, everyone would suffer.

Again, I like the thinking behind greater checks and balances. I just hope these new proposed regulations do not harm the good guys.

Bobby Harris, President and CEO
Follow me @BobbyBG_CEO

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Forecast looks good while capacity issues remain

While I was looking through various news and updates in the industry, I found the new forecast for the transportation industry through 2021. The American Trucking Association produced the report and the outlook looks great for the transportation industry as a whole. Capacity however remains an issue that will escalate due to the new CSA 2010. One of the unintended consequences of the CSA 2010 is many drivers will not be able to comply with the new safety  regulations and many carriers will not be able to afford the qualified drivers.

The forecast shows projections for all modes of freight transportation. Railroads are expected to have a small drop in tonnage while Air Cargo tonnage is expected to increase. The trucking industry is expected to show steady growth over the next 11 years with tonnage moving from 68% to just under 71%. Last year trucks captured 81% of the freight revenue. While the recession has hit trucking very hard the last 2 years, this year is starting off very strong and the future looks bright. 

The ATA article, along with the link to the actual report can be found here: http://www.truckline.com/pages/article.aspx?id=718%2F%7b8E1C7279-ED27-4C03-B189-CEEEE26BBB12%7d

The information on the new Comprehensive Safety Analysis (CSA) 2010 can be found at their website: http://csa2010.fmcsa.dot.gov/

– Ben Dundas, Web Analyst
Follow me @ben37dBG

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