Of all the industries that American consumers have come to rely on, perhaps the most underrated, and subsequently complex, is that of the transportation industry. While the laws of supply and demand will affect every form of business it is perhaps the most volatile and fluctuating when applied to the transportation industry. Last year was a great year for trucking companies, demand was high, capacity was low, and it allowed them to more or less pick and choose the jobs they wanted to do.
With so many wild swings in one direction or another, we’re entering a period of “new” balance that no one is quite sure of.
Shippers, for their part, have accepted the higher rates as an understood cost of business, but with so many wild swings in one direction or another, we’re entering a period of “new” balance that no one is quite sure of. Shippers that turned to contracts to escape the high rates are now making a return to the spot market as there’s plenty of available capacity currently on the market.
Aptly put, this “muddy middle” for the trucking department is a rare moment when supply and demand have reached something of an equilibrium, something that hasn’t been seen for years. Spot rates for FTL have dropped upwards of 12 percent from this time last year while contract rates, on the other hand, have climbed up 14 percent in 2018 according to data from DAT Solutions and Truckstop.com. Shippers that turned to contracts to escape the high rates are now making a return to the spot market as there’s plenty of available capacity currently on the market.
Given such a high volume of transference, it might have actually created an overly strong demand on contract rates which would have caused them to increase.
It’s rather reasonable at this point to speculate that the current shift towards the muddy middle was caused by overcompensations. Beneficial cargo owners (BCOs) reacted to the rate spike mid 2017 by shifting over to contract rates. Given such a high volume of transference, it might have actually created an overly strong demand on contract rates which would have caused them to increase.
Going into 2019, carriers and 3PLs were using terms such as “balanced” and “equilibrium” to describe the current state of the market. However, that might not be entirely accurate, or, at least not strong enough of a prediction to hold fast in the days to come.
The transportation industry is precariously balanced amidst two slippery slopes and it could go one way or the other.
“With contract and spot rates currently headed in different directions, it’s unclear exactly how this will all play out. IHS Markit chief economist Nariman Behravesh put the odds of a recession in 2019 at around 30 percent but upped that chance to 50-50 for 2020. A recession would mean lower cargo volumes, which would drive down both contract and spot rates, creating a buyer’s market,” according to an article from the JOC. Hence, the muddy middle. The transportation industry is precariously balanced amidst two slippery slopes and it could go one way or the other.
Given the nature of the industry, balance doesn’t tend to last overly long. Eventually, rates will break either one way or the other to someone’s advantage (or disadvantage depending on your perspective.)
“A lot of shippers who started the process in the third or fourth quarter, they saw the rates [moving] in the right direction for them, so they actually held out on releasing the awards until mid-January or even into February,” said Mark Ford, our very own chief operating officer here at BlueGrace Logistics. “Shippers are trying to figure out where that bottom is, throwing out their routing guides, and going to the spot market depending on the cost differential.”
Shippers aren’t the only one that has a card or two up their sleeve.
Given that time is such a commodity, shippers have the power to drive rates in either direction, depending on what value they attribute to their time. However, shippers aren’t the only one that has a card or two up their sleeve. Given a recent downturn in the trucker pool in addition to more stringent regulations that make it harder to operate, carriers might have a little more say about carrier rates than one might expect.
A Drop In the Trucker Pool
While shippers can garner some power to affect rates, that doesn’t mean that carriers aren’t without an answer. A recent report from the Wall Street Journal states that carriers have cut payrolls by 1,200 jobs last month, owing largely to a softening of demand at the tail of a profit-boosting hot streak all through 2018. The drop in demand for new trucks is also a good indicator of a softening in the trucking sector.
“Orders for Class-8 trucks – the heavy trucks that haul consumer goods, equipment, commodities, and supplies across the US to feed the goods-based economy – plunged 52% in April compared to April last year, to 16,400 orders, according to FTR Transportation Intelligence on Friday. It was the lowest April since 2016 when the industry cycled through its last transportation recession. This comes after orders had already plunged 67% year-over-year in March, 58% in February and January, and 43% in December,” reads a recent article from Wolfstreet.
The flip-side of that particular coin is that warehousing and storage company job positions have been on the rise, up 1,700 in March alone, likely due to the continual increase on online consumer shopping. Same can be said for courier and messenger companies that make last mile deliveries.
In general, the transportation market, which has been ramping up over 2017 and 2018 is beginning to slow down, allowing them to control their overall available capacity and their spot or contract rates as a result.
Utilization seems to be the key to determining which way the rates will go. Shippers should be using this time to consider how they can vastly reduce their load times and what sort of effect that would have on the available capacity in the market. Given that there’s no clear indication of which way the market winds will blow next, focusing on optimization and utilization could be the necessary elements to not only help drive rates down, but to keep them down.
For carriers, the means of reaching a perpetual middle of the road would be to find alternative service offerings as well as increasing their focus on last mile deliveries. Doing so allows them to provide more value to their customers and increase their profit margins as a result.
Navigating Through Industry Changes
BlueGrace helps our customers navigate through the constant changes the industry brings. No matter the situation, we are here to simplify your freight needs. If you have any questions about how a 3PL like BlueGrace can assist, contact us at 800.MYSHIPPING or fill out the form below to speak with a representative today!
While all facets of the modern business are important, arguably the most important to any retail, manufacturing, or goods based service is their supply chain. The supply chain serves as the backbone of these companies and has a significant impact on the company’s business strategy which directly affects its operation and operational costs. Additionally, the performance of the supply chain has a direct impact on a company’s ability to provide services to their customers and create additional value via services offered or simply through reliability. With the multitude of changes that have been occurring within the logistics, trade, and freight industries now, more than ever, is an opportune time to conduct or review the process of internal audit of your supply chain.
An internal supply chain audit is one of the most powerful methods of evaluating and possibly improving your supply chain, reduce operations costs, and increase competitive advantages.
An internal supply chain audit is one of the most powerful methods of evaluating and possibly improving your supply chain, reduce operations costs, and increase competitive advantages. The goal of the internal audit is to help you find weaknesses within your supply chain and correct pain points, bottlenecks to increase supply chain flexibility, agility, and overall efficiency.
To make the most out of your audit and its results, it’s important to understand that the supply chain isn’t a stand-alone, isolated feature of your business. In all actuality, the supply chain is suffused in every aspect of your business. As such the supply chain needs to be viewed between all participating companies and suppliers throughout the supply chain, with solutions applied from a holistic approach.
Why an Internal Audit is Necessary for Your Supply Chain
For most companies, audits are typically part of the normal routine, either for financial records or for physical inventory. The entire purpose behind an audit is to make sure things are where they should be and that everyone is playing by the same rules.
“Internal auditing is defined as an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization to accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes,” as defined by The Institute of Internal Auditors (IIA).
This is especially important when trying to maintain retail compliance, for example, with increasing customer demands like On Time; In Full (OTIF) or Must Arrive By Date (MABD).
Simply put, an internal audit is a multi-step process that is a means of determining whether your current systems and operations are in compliance with your company’s predetermined operating procedures and regulations. This is especially important when trying to maintain retail compliance, for example, with increasing customer demands like On Time; In Full (OTIF) or Must Arrive By Date (MABD). Conducting an internal audit does more than just evaluates the supply chain, it also takes a necessary look at the interaction between other aspects of the organization such as the accounting and financial systems, practices, and procedures. For example, are your planners and purchasers communicating properly, not only with each other but with the production floor and shipping department? Are parts coming in with enough lead time that items can be manufactured and shipped according to customer requirements?
An internal audit is important because it allows the company executives and logistics decision makers to examine the effectiveness of their business operations and controls and applications of new policies. Over time, establishing those best practices means a more competitive and more profitable company in the future.
Things to Consider Before you Start the Audit
Performing an audit is one thing, but knowing what areas you need to be focusing on is something else entirely. While every audit should be more or less tailored to the specific needs of an individual organization, here is the basic framework for initiating an audit that needs to be included:
Audit Planning: Internal auditors should have a plan in place well before the actual auditing begins.
Examining and Evaluating Information: Internal auditors should have a standardized criterion to compare findings against.
Communicating Results: Audit should have a clear and concise method of reporting their findings.
Follow Up: Internal auditors should follow up in a timely manner to ensure that appropriate actions have been taken to correct audit findings.
This framework also serves as a support system for corporate managers and allows managers of larger production systems to delegate the oversight of the audit to the internal audit department. This is important for a few reasons:
Operating Complexity: Automated data processing has increased the levels of complexity when analyzing data, a task better suited for those who know what to look for.
Decentralization: Given that supply chains are prone to be decentralized in terms of a physical location due to globalization.
Lack of Expertise: As the adage goes, stick to what you know. Leave those auditors in charge of the audit for the best quality audit.
With the right framework in place for the audit to commence, let’s take a look at the tasks involved for the actual audit.
Supply Chain Structure and Internal Audit Tasks
Like we mentioned above, every company is different and, as a result, the needs for every individual supply chain will vary. So while there is no hard and fast or “Use audit ‘A’ for Supply chain system ‘1’ ” convenient method of doing things, there are some common focal points that are applicable for just about every organization and style of the supply chain.
The supply chain management processes identified by The Global Supply Chain Forum are:
Customer Relationship Management
Supplier Relationship Management
Customer Service Management
Manufacturing Flow Management
Product Development and Commercialization
All of these processes are hallmarks of a healthy supply chain and also indicative of the successful supply chain management. Here again, we can see all of the links that connect the supply chain to every other facet of the business. Another benefit to performing an internal audit is that offers to perfect opportunity to increase the synergy between these various departments. For CFO’s and supply chain leaders, this means that supply chain management deals with total business excellence and represents a new way of managing the business and relationships with vendors, suppliers, and partners.
An internal audit can help a company in finding answers to crucial questions about managing success factors of supply chain excellence, of which these can be divided into five main sections:
Strategy – To determine if the enterprise has a clear strategy tuned to business expectations and focused on profitably servicing customer requirements
Organization – To determine if an effective organization structure exists enabling the enterprise to work with its partners to achieve its supply chain goals
Process – To determine if the enterprise has excellent processes for implementing its strategy, embracing all plan-source-make-deliver operations
Information – To determine if the enterprise has reliable information and enabling technology to support effective supply chain planning, execution, and decision-making
Performance – To determine if the enterprise is managing supply chain performance in ways that will increase the bottom line, cash flows and shareholder returns
Supply Chain Risk Management
As much as we wish we could, the ability to see and accurately predict the future still eludes us to this day. In the end, it all comes down we can optimistically refer to as an “educated guess”. With that being said, even the most educated guesses can’t predict the weather or a broken down truck. This means that within every supply chain, there will always be an element of risk. That risk represents any number of things that can go wrong within your supply chain and halt or delay your shipments. For this very reason, risk management is incredibly important when evaluating your supply chain.
An internal audit can provide business leaders with the necessary framework to develop an appropriate supply chain risk management program.
Risk management is a huge proponent of supply chain health, especially given the instabilities in the global marketplace created by political uncertainty, trade tariffs, etc. An internal audit can provide business leaders with the necessary framework to develop an appropriate supply chain risk management program. This is how your supply chain audit can also help with risk reduction and increased security:
Reviewing and understanding supply chains, including their strengths and weaknesses, in developing markets, to validate monitoring programs
Working with the company’s supply chain specialists to help develop a monitoring process that can be repeated
Helping to identify which suppliers are critical
Assessing which suppliers may be vulnerable to threats and helping draw up a residual mitigation profile
Identifying strong risk control procedures
Helping to develop key analytic tools and techniques
Aiding with compliance monitoring
Ideally, the risk mitigation will also allow companies to increase supply chain efficiency to the point where on hand stock can be reduced. While having excessive stock might create a buffer in time where shipments are running late or capacity is tight, that excess can also eat into company profit margins. Additionally, having a well-running supply chain vastly lowers the chance for disruptions, operating costs, and other unexpected costs such as chargebacks, detention fees.
Despite the cause, however, the results are often the same, a drastic slow down of operations and a huge impact on customer satisfaction and profitability.
Supply chain management is a very complex structure of activities with cross-functional processes, and it presents one of the most important functions in the company since it is directly linked to all functions of the company. Supply chain problems can result from any number of things including natural disasters, labor disputes, supplier bankruptcy, an act of war or terrorism, systems breakdowns, procurement failures, and other causes. Despite the cause, however, the results are often the same, a drastic slow down of operations and a huge impact on customer satisfaction and profitability.
The supply chain internal audit aims to support managers in process optimization and above all in cost reduction which result from an uncertain environment by evaluating and directing management towards approaches which will prevent or reduce negative effects.
After analyzing definitions and some of the standards of internal audit, it can be concluded that this process can improve effectiveness and efficiency, and by that, the performances of many functions within the organization. High-impact supply chains are more competitive and are capable of winning market share and customer loyalty, creating shareholder value, extending the strategic capability and reach of the business. Independent research shows that excellent supply chain management can yield:
25-50% reduction in total supply chain costs
25-60% reduction in inventory holding
25-80% increase in forecast accuracy
30-50% improvement in order-fulfillment cycle time
20% increase in after-tax free cash flows
To increase supply chain strength, agility, and overall integrity, companies should develop a framework for a structured approach to ongoing risk identification and management. This will enable businesses to proactively address organizational supply chain risks on a periodic basis – a practice that affords stronger company and brand protection against supply chain risk gaps.
The more we know the more we can simplify.
The more we know the more we can simplify. When we know what your current transportation situation involves and what your pain points are, we can really help you simplify. The journey with our customers begins with the Needs Assessment process and the goal to determine transportation management solutions that increase productivity and decrease overall costs. To speak to one of our freight experts, call us at 800.MY.SHIPPING or fill out the form below to receive a FREE Supply Chain Analysis.
Supply chains are complex and dynamic. They comprise many different variables that operate both on their own and as a part of a whole. The success of a supply chain depends on the integration of all the components without compromising their individual roles and responsibilities.
To design and operate a supply chain that is efficient and effective in both cost and service, it is important to analyze the contribution of each component in the system and how it impacts the other variables.
How Will a Supply Chain Analysis Help You?
A timely and periodic analysis will work as a preventive health check-up for your supply chain thus ensuring it continues to operate at an optimum level.
A thorough study of the processes will give you insight into the performance of the different aspects of the supply chain. It will help you identify which processes are crucial to the success of your business. An end-to-end in-depth analysis will also highlight which processes are redundant or need to be restructured. In short, a timely and periodic analysis will work as a preventive health check-up for your supply chain thus ensuring it continues to operate at an optimum level.
Apart from assisting you in understanding the different aspects of the supply chain, a study of planned against actual performance will also provide information on how you can further improve your services to match customer demand and control operating costs.
It’s safe to say that transportation is the backbone of the entire supply chain.
Transportation is one of the most crucial functions and is integral to almost all aspects of the supply chain. The manufacturing department is dependent on it to get raw materials to the factory on time. The factories need it to ship the finished goods to warehouses who in turn need it to ship the goods to the end customers. It connects the different parts of the supply chain and helps convert the final product into sales – thus generating revenue for the organization. It’s safe to say that transportation is the backbone of the entire supply chain.
A Deeper Look into Your Supply Chain
There are many factors that need to be considered when conducting a complete assessment of your supply chain. However, the health of the system can be easily ascertained by taking a look at how your transportation management system measures against the parameters given below:
Freight Costs: Transportation is a cost center. It’s considered to be operating at an optimum level if the rates are contained within a certain range of the cost per unit of shipment or net sales/purchase price of raw materials. The range of acceptable percentage varies from industry to industry.
Transit Time: Transit time is one of the main indicators of successful transportation planning. If your transport rates are low but the transit time is long, then you are saving money at the cost of service quality.
On Time Delivery: Are you delivering products within the timelines agreed with your customers or your retailers, such as Walmart or Target? Is the warehouse inventory replenished timely? Is the factory receiving goods in time? If the answer to these questions is yes, then its a plus point for your transportation planning. If the answer to any of these questions is no or most of the time, then you need to rework your transportation planning.
Damages: If you have managed to contain the transport rates and deliver within acceptable transit time, but there’s the rate of damage claims are high, then again, your transportation planning needs to be restructured.
Shipment Visibility: A good transportation system offers you and the customer visibility into the shipment’s location from the time it leaves the starting point until it reaches the intended destination.
Capacity Utilization: Are you utilizing truck capacities to the fullest extent possible when planning your deliveries or spaces on trucks are going underutilized? Unutilized space will translate into higher cost per shipment, leading to uncompetitive products and loss of profit.
If you’ve gotten a negative result or response for any of these parameters, then it is time to get a thorough inspection of all aspects of your supply chain.
At BlueGrace, we understand the importance of operating a robust supply chain. That’s why we offer a FREE Supply Chain Analysis to help you gain insight into how your supply chain is performing. Call us at 800.MY.SHIPPING, or fill out the form below to speak to one of our experts and set up your free supply chain analysis today!
Controlling costs is critical for any business to be successful. When working with a supply chain, the more complex it is, the more chances there are for additional costs and surcharges, any of which can cost your company a great deal of extra money.
They are any freight services that go beyond the normal scope of pickup and delivery.
Accessorial charges are a particular type of surcharge. They are any freight services that go beyond the normal scope of pickup and delivery. This can include inside or special delivery charges, waiting or detention time, fuel surcharges, storage fees, and many others. Given the way the freight market is changing, especially due to the rise and continual growth of e-commerce, many companies are looking to a more specialized version of last mile delivery as customers want their products sooner rather than later. The “white glove” last mile service, while costly, is growing increasingly important as customer service is becoming one of the last true differentiators among the competition.
In our webinar, we covered the basics and most common questions of accessorial charges which include:
What are accessorials?
How do they affect cost?
How do they affect supply chain efficiency?
How can we mitigate problems?
How do we know if we have a problem?
Consumers want their product today, that means that retailers want it delivered, checked in, and on the shelf yesterday.
Logistics and supply chain management has become a very tight game, almost cutthroat in its harsh severity. Consumers want their product today, that means that retailers want it delivered, checked in, and on the shelf yesterday. With the ability to order just about anything a consumer could possibly want from the vast online marketplace, brick and mortar retailers have to run an even tighter ship than they have before if they have any hopes of competing. To that end, some retailers are upping the ante and doling out punishment for shippers who aren’t in compliance.
WHAT ARE ACCESSORIALS?
As we mentioned above, accessorials are extra charges associated with freight delivery that fall outside simple pick up and delivery. We gave a few examples above, but those are by no means the only accessorial charges that you could be stuck paying. Here are some other types of common accessorial charges.
Appointment / Notify
Sort & Segregate
While inaccurate weighing of freight could be a result of an honest mistake, the cost of that mistake can add up quickly.
It’s important to control and monitor as many of these as possible to help control costs. Consider reweigh charges for example. When a carrier weighs freight and compares the actual weight to what’s listed on the bill of lading, the difference can be instantly tacked on to the invoice. For shipments that are 50 pounds or more over what the bill of lading states, there is a $25.00 validation fee as well as an increase to shipping costs. Additionally, all freight fees, fuel surcharge fees, and any other applicable accessorial fees will be adjusted accordingly. While inaccurate weighing of freight could be a result of an honest mistake, the cost of that mistake can add up quickly.
HOW ACCESSORIAL FEES CAN AFFECT YOUR SUPPLY CHAIN
One way to better control accessorial charges is to have a more efficient and agile supply chain. Detention fees are a prime example of where efficiency pays off. For the LTL market, every shipment has a set amount of free time per stop before the charges start being applied. While this is based on weight, meaning that heavier shipments have more time, it can be hard to gauge just how long each stop is going to take which leaves your company exposed to detention fees.
Another thing to consider is that the ELD mandate severely limits the amount of working time a driver has available. The longer it takes to load and unload freight can cause delivery delays and will ultimately increase the price of a shipment. Once you start adding detention fees onto the bill it can quickly become more expensive than you were initially anticipating.
It’s critical to have your supply chain running smoothly and efficiently.
Because of this, it’s critical to have your supply chain running smoothly and efficiently. Not only does it increase the chances that you will make your delivery schedule, but having a more efficient operation makes you a more attractive customer to carriers (which increases the likelihood of getting the capacity you need) as well as helping to control shipping costs.
LEARN MORE ABOUT HOW YOU CAN MANAGE ACCESSORIAL CHARGES
When it comes to controlling costs, the more you understand about extra fees the better off you’ll be. Because many of these accessorial charges can compound and complicate others, it’s important to understand the full workings of your supply chain and identify any potential problems before they arise.
The truth of the matter is that the more you understand your freight and the way your carrier works, the more accessorial fees you can either reduce or negate entirely. Many of these fees won’t even enter into the picture so long as the shipper is taking the time to make sure they’re doing things right. Doing this means preventing the issue before it even begins. On the other hand, if your freight invoice is coming as a bit of a shock, it might be time to take a closer look at the surcharges and determine what you can you do to correct the issue.
Ultimately, everything we covered in the webinar is about helping your company to manage these fees and perform better across the board. From internal operations to external executions, everything is connected and we break it down for you. Watch the full webinar to learn more about how you can be successful!
There are a number of other benefits that can come from working with and outsourcing your logistics to a 3PL. If you would like to speak to one of our experts, call us at 800.MYSHIPPING or fill out the form below.
Congratulations! You made it this far – you’re a Walmart supplier. To achieve this, you’ve provided all your information, proven that your products are a good fit for Walmart’s customers and demonstrated that you are the sort of business Walmart wants to work with. You’ve filled in the forms, shared your certificates and completed the 11 step onboarding process.
It’s a fantastic achievement. According to Walmart, you’re now one of 100,000 businesses worldwide supplying products to its customers. That number demonstrates just how much Walmart is the “800 lb. gorilla” in the supply chain, and it’s also a mark of how highly regarded you are, as a CPG company, to have it agree to distribute your products.
We know that all your distributors, all the retailers you sell wholesale to, are important to you, but Walmart is possibly just that little bit more special. Whether you’ve just started, or have been supplying it for a few years, it’s a different business to the one we all grew up with. The pressure Walmart faces are the same as the rest of the retail sector. Its size is a double-edged sword – its footprint of stores and operations means there are more places to be affected by market disruptions, yet it has the resources to not only weather the storm, but profit from it too.
Just being big isn’t enough, however. What marks Walmart out is its commitment to innovation. In July 2019 it opens its first high-tech consolidation center — a 340,000-square-foot dock in Colton, California that will use automated technology to receive, sort and ship freight. According to the announcement, this ‘will enable three times more volume to flow throughout the center’.
Walmart innovates to maintain its position. Why does it need to do that?
The Situation Today
Walmart needs to continually innovate because it faces a very real threat.
Amazon has been at the forefront of the consumer shopping experience revolution. One-click payments, same-day delivery in certain geographies, multiple delivery and collection options, dash buttons – all features that are shaping customer expectations. Its dominance of the retail landscape is such that it has gone from driving 15 percent of core US personal consumption expenditure (PCE) growth in 2013 to 69 percent in 2017, according to Morgan Stanley Research.
This has forced many retailers, including Walmart, to revise how they serve customers. For Walmart, that means a switch from building stores to focusing more on e-commerce to drive growth. In September 2016, it acquired e-tailer Jet.com, accelerating its online sales and helping it to outperform the retail sector within a year. It consolidated its e-commerce position with the purchase of Indian online retailer Flipkart in 2018.
In much the same way that Amazon purchased Whole Foods to acquire physical presence, Walmart acquired Jet.com to give it a credible e-commerce function.
That does not mean that Walmart is abandoning its bricks and mortar business. Those stores mean that it is closer to more people in the US than any other retailer, with 90 percent market penetration, versus Amazon/Whole Foods’ combined 74 percent.
So, Walmart is closer to you, but Amazon can offer a great experience. This is where Walmart’s innovation switches from automation technology in vast consolidation centers to delivering efficiencies in its extended supply chain. A customer can find anything in Amazon and get it the next day. With a Walmart down the street, if a product is in stock, that same customer can walk away with it on the day.
It is here that suppliers come in. Products have to be in stock. As Steve Bratspies, the chief merchandising officer for Walmart US, told the Wall Street Journal, “When we receive the product that we ordered, we see better sales.”
In other words, if a customer can not find what they want, they will go somewhere else. Not only does the retailer lose that sale, it also loses the opportunity to sell complementary products, or perhaps something that simply catches the shopper’s eye on the way to checkout. According to Greg Foran, Walmart US CEO, five percent out of stock at Walmart’s scale translates to 5,000 orders.
So, Walmart will do everything to make sure that its shelves stay full, that customers can find what they want, when they want it. If insufficient stock is ordered, that’s a retailer issue. If insufficient stock is delivered at the right time, that’s a supplier issue.
At the same time, as Walmart and other bricks and mortar retailers look to economize, they’re looking at where they hold stock. They want stores to sell, not to act as warehouses – the price of retail square footage simply does not allow that in the current market. That’s why Walmart is introducing these consolidation centers – to collate from hundreds if not thousands of suppliers, before using their own distribution networks to get the stock to stores.
That’s the retail landscape suppliers are entering into when they become part of the Walmart supply chain. Alongside this are rising fuel and transport costs – the US Energy Information Administration (EIA) May 2019 update forecasts that regular gasoline retail prices will average $2.92 per gallon (gal), up from an average of $2.85/gal last summer.
It’s an additional cost that both suppliers delivering to Walmart and the retailer itself, through shifting products from consolidation centers all the way to stores, are going to have to take on board. This ultimately impacts margin across the supply chain.
Ramifications: they say jump, you say how high
An environment of ruthlessly seeking efficiency, with fluctuating transportation costs, dominated by 800 lb gorillas.
What that means for suppliers is that they have to deliver when Walmart wants, not when the suppliers feel like it. It’s where OTIF comes in – on the actual due date, exactly the right amount. There is no grace period, limited leeway. That’s because flexibility eats into the margin.
Struggle to comply and chargebacks kick in – currently three percent on all shipments below the threshold. Amazon, with MABD, may appear slightly more lenient, but it has a similar level of chargeback on both late and early deliveries. On top of that, purchase order (PO) and advanced ship notice (ASN) violations (such as failing to confirm a PO or not sending an ASN in good time) levy a two percent charge
It’s just got stricter, as well. From May 2019, suppliers that ship full trucks must hit a specified window 87 percent of the time, up from the previous 85 percent previous target. For less than truckload (LTL) shippers, the jump is that much higher – up to 70 percent in that window, from 50 percent before.
It gets trickier. Historically, suppliers were judged on how consistent deliveries were on time and how complete they were. Now, those two parts will be evaluated separately. It’s all about having data that can be fed back into a stringent evaluation process to identify further efficiency opportunities.
Then there’s the challenge of Walmart as an international operation. As you grow within Walmart, there may become opportunities to supply its Canadian subsidiaries, or even further overseas. That brings its own challenges as you will need to comply with local regulations and legislation, both in terms of your products and your business practices.
What you need to think about if you are
So far, what we’ve discussed applies to all shippers. Yet every business is different, and there will always be specifics that only certain types of suppliers need to focus on. In this section, we’ll take a brief look at three types in particular: newer CPG companies, LTL shippers and those dealing in perishables (such as fresh food).
…a newer CPG shipper
With the introduction of consolidation centers, and the end of stores holding inventory, the onus of predicting consumer demand is passed on to CPG companies. That means knowing who your end customers are, how they shop and when there might be spikes in demand, even if you do not sell direct. This is a challenge for all CPG shippers, but whereas more established brands may have the resources to store spare stock, for newer businesses that capacity may not be available. This is where really clear insights into customers, coupled with efficient internal processes and a lean supply chain of your own, come into play. Falling foul of chargebacks will quickly eat into profits, making it vital that shippers can accurately predict consumer demand.
If you’re LTL, the positives are savings in not paying for half-empty trucks, but the drawback is less control over how the carrier gets to your distributor than if you were a full-truck shipper. The carrier may pick up your pallets, then go to another shipper for their products. It might head to a regional dock to unload your pallets to go on another truck heading somewhere else, before being cross-shipped on to a third truck with everyone else heading to Walmart. That means you have to build in additional time to your shipment planning to ensure that you comply with OTIF, which will have ramifications for your own production processes and supply chain.
…dealing in perishables
While targets may be tight for long-life or non-perishable goods, for suppliers that deal in products that have a limited shelf life, OTIF goals are even stricter. That two-day window becomes one, which puts the emphasis on the shipper to be absolutely accurate with their deliveries. All retailers that stock food and drink, particular that which needs to be kept in controlled, refrigerated environments, need it to be able to stay on the shelf for as long as possible, in order for it to be as attractive as possible to customers. Get closer to use by or best before dates, and consumers are less likely to buy, leading to last-day discounting and wastage.
It might seem like becoming a Walmart supplier is nothing but hardship and the constant threat of chargebacks. Yet it is challenging because Walmart is such a golden opportunity to get your products into the hands of millions of consumers, both in the US and further afield.
It isn’t all about the sales opportunity, however. With retailers like Walmart looking for efficiencies, it forces their suppliers to either follow suit or fall off. By aligning your own systems and processes with the demands of OTIF, you will end up a leaner, meaner machine. This means less wastage in your operations, resulting in less outgoings and more profit.
At a time when all sectors are undergoing huge disruption, this streamlining sets you up to thrive rather than simply survive. While it is demanding, the practices and processes you onboard will unlock long term gains for your business.
The question is, what do you need to consider when aligning your business with the demands of Walmart?
Top tips on being a star supplier for Walmart
Here’s what we’ve learned turns a good shipper into a great Walmart supplier from working with businesses just like yours:
It’s all about data: Walmart wants its supply chain to be as efficient as possible, so it’s willing to share the data it has to help you shape your operations. If you don’t sell direct, getting tangible customer intelligence can be a challenge, but Walmart will share information, such as on-shelf availability and point of sale insights, more often.
Work from the customer backward: On time doesn’t mean in-time to Walmart. If you don’t want to suffer chargebacks, you need to think about your timings from the customer backward. The customer buys your product after it’s been on the shelf X days, so how long prior to that do you need to be delivering it to the distribution or consolidation center? How long does it take to get from your warehouse to that point?
Chargebacks hurt, so make sure it’s justified: Walmart may be huge, but it isn’t infallible. There’s a lot of automation, which means sometimes chargebacks can be applied due to mistakes in their processes rather than your failed compliance. For instance, a carrier may have delivered your shipment OTIF, but the DC did not unload that day. The only way you can contest, however, is to have full and complete records showing how you delivered OTIF against the buyer requirements. Having a trusted logistics partner that can audit your scorecard and compare it to carrier manifests is critical, and it could be the difference between receiving a chargeback or being able to challenge it successfully.
Load planning: If you supply multiple products to Walmart, think about how they are loaded on the pallet or in the truck. It’s no good having the back half of the truck full of products for distribution centers further down the line, or shorter life products nearer the bottom of the pallet.
Think like a Roman: The Romans crisscrossed their empire with straight lines, because that’s the most efficient way from point A to B. You want to do the same, but build in factors such as weather forecasts, traffic patterns, fuel levels, and load points. You’re looking for the most optimized route because it will save you time, which in turn saves money.
Packaging tips: People need to know what’s in the box. That means distribution center employees, yes, but it also means customers. How will it look on the shelves? At Walmart’s Supplier Summit 2019, Foran said “packaging should be designed for impact and efficiency with large fonts that are easy to read, easy to find and bar codes which also are prominent on the packaging.”
Cut down on travel time: Fuel and transport costs are the great unknown, tied to everything from crude production levels to the political situation in the Middle East and South America. You want to control as much as possible, so limit how far you need to move your inventory by positioning it closer to warehouse locations. If Walmart is selling your product predominantly in California, why not get as close as possible to the new consolidation center? Limit the variables and you have a more efficient machine.
Appointment scheduling: Be aware that your mode of transport will dictate when your products can be delivered. Most LTL carriers will not allow you to pre-schedule appointments, preferring to wait until your freight has arrived at the consolidation terminal. It will then be co-loaded with other Walmart-bound deliveries, with appointments based on the trailer the carrier has allocated for that day. It’s therefore vital that you, or more likely your logistics partner, can work closely with both the carrier and scheduling system to make sure this is being done. By doing so, you will be better placed to identify exceptions, such as where the carrier cannot accommodate the delivery, to adjust OTIF without penalty. Most suppliers don’t realize this and miss the opportunity. It is important to note, however, that this must not be abused and is for exceptions only. Your lead logistics service provider is expected to have the right connections and expertise to manage it professionally.
Speaking of carriers, reliable ones are worth their weight in gold: We hear of horror stories where carriers and shippers fall out because neither can clearly understand what the other is actually trying to achieve. The number one mistake people make is to think that being efficient equals going for the cheapest option, when it’s actually about having every part of your chain operating reliably. There are carriers that will drop prices to get business on board, but if you’re then simply more low-paying cattle, is your OTIF compliance going to be top of the carrier’s agenda? You want a good price, certainly, but you need a partner that’s aligned with your objectives more.
The right foundations: You can’t operate a 21st-century business using 20th-century tools. To compete in today’s market needs having the right technology underpinning your operations, foundations which give you visibility and control and allow you to have sight of, and optimize, every aspect of your business.
Embrace digital: Walmart is investing billions in its technology – that means manual processes and paper documents are disappearing. Digital tools like electronic bills of lading are becoming the norm. Do you really want to be the only shipper the trucker has a paper docket for, with the rest on his mobile device the dock or DC are simply scanning?
Ensure everyone lives by OTIF: It’s all well and good your logistics team being held to OTIF, but when the penalties impact the rest of your business, isn’t it really a matter for everyone? It comes back to working back from the customer – the process doesn’t stop when the product leaves your dock but should carry on through to your production team. If you’ve got a lead time of two weeks to produce new stock, that’s not a just manufacturing factor, it’s a supply chain one too.
Walmart want you to win; let it help you: Walmart run a sophisticated education network designed to support suppliers. It’s in its interests that you are operating to the best of your abilities, so make full use of the classes, academy, and tools it offers to help you do just that.
OTIF is vital, but so is everything else: Walmart is taking huge strides in making its entire operation as sustainable as possible, which includes targets for suppliers. These are only going to get stricter, so it’s a good idea to know what they are and keep yourself aligned. There will come a point where being 100 percent OTIF compliant, with customers buying your products in droves, won’t save you if you have a huge carbon footprint and are unsustainable. That’s a lot to take in, so here’s a one-off tip:
How to write a great OTIF action plan: Walmart lives on data, which means evidence. Write a great OTIF action plan and you will have evidence on how you will improve standards. But how do you do that if you’ve not done one before? Googling isn’t an option here – you need qualified, experienced support. Hiring the right people is one route – but they won’t come cheap, and can you justify having them on staff as a permanent employee. Another option would be to outsource to a competent third party. One which has experience of supporting suppliers to build efficient supply chains, whether they’re supplying to Walmart, Amazon or any other big box retailer. Having a supportive partner that has done this, time and time again, for all sorts of different businesses and sectors, means you get access to the right experience and support, tailored to your unique requirements
Being a Walmart Supplier – a story from the frontline
For one Houston-based health and beauty supplier, working with Walmart was a dream come true, until the tremendous growth it propelled led to distribution challenges.
With vendor scorecards dwindling and chargebacks against purchase orders mounting the need for a better solution was apparent. From numerous carrier meetings to drive on-time compliance to costly upgrades in service levels, the trend continued to show little improvement.
Lead times were not an issue and inventory levels were manageable, yet carriers could not seem to comply with the OTIF date clearly displayed on the BOL. Purchase orders were being shipped with ample lead time and in most cases early with guaranteed service at a premium. However, even with upgraded service, the carriers would typically refuse to refund the charges since they were delivered “on time” per the standard transit.
To tackle this, the supplier analyzed the data and scorecards to determine the root cause and set a baseline for current state performance. Next, an assessment of ERP integration capabilities was performed. By linking this with a transport management system, this supplier was able to apply custom business rules to achieve the missing link of the overall issue.
What this meant was that no matter when the order was received in advance of the OTIF, the supplier could effectively route the “Best Value Carrier” and provide the most optimal ship date, relative to the selected carrier’s standard transit time. Each order, once approved within the ERP, would be rated and routed with a Walmart approved carrier delivering the lowest cost, standard service and shipped on the day that would best fit that carrier’s network, all to allow for the delivery within the specified OTIF window.
The supplier showed a 90 percent reduction in chargebacks within the first 60 days of implementing this program and realized the best scorecard performance in recent history.
Now it’s time to start work
As we said before, the hard work starts now. Remember, you aren’t alone – many CPG companies experience difficulties keeping up – back in August 2017, OTIF compliance stood at 70 percent, and it’s taken a while to get higher. Walmart wants you to do well, so listen, learn and take the opportunity that awaits. Look at your own network, your own suppliers and operations, and see how they can work together to support your business with Walmart or any other big-box retailer. Technology and nuances of logistics and supply chain operations are vital here. Working with partners who have the connections, first-hand experience, and understand both the business and technology can make the difference between success and failure.
BlueGrace is a freight and logistics services provider and one of the top 3PLs (Third-party Logistics Providers) with invaluable experience in managing complex logistics programs of leading CPG companies. The dedicated team has the first-hand experience in planning, building and delivering supply chain solutions for CPG businesses that not only help them meet the requirements of their retail partners but turn their logistics from a cost to value add.
You’ve done great work getting this far. Now it’s time to do even better. Give BlueGrace a call today at 800.MY.SHIPPING or fill out the form below and see how we can help you achieve exactly that.
When it comes to running your business, it can be difficult to identify points of improvement, leading you to believe that things are as good as they can get, but in a climate of rising logistics costs, making sure that your operations are running as smoothly and efficiently as possible, can mean the success or failure of your business.
Ground transportation is a cost faced by almost every shipper in every industry, and quite a significant one, yet many shippers aren’t paying enough attention to how their ground transportation spend is being allocated, or don’t realize that there are different ways to approach it. In this article, we will break down a major factor that affects transportation costs: the differences between less-than-truckload (LTL) and full-truckload (FTL) services. We will break down those terms, what they mean for your business, and give two examples of how BlueGrace helped clients that were operating with less-than-ideal business models save hundreds of thousands on their ground transportation costs.
Yes, the perceived cost savings associated with sharing a truck with five other shippers is tantalizing, and a legitimate notion, but it’s not everything.
LTL has gained a reputation of being a more efficient, cost-saving method of transporting freight. It can be thought of like carpooling for cargo; if two people are going the same place, why not double-up and go in one car, splitting the cost savings? Translating that idea into a business scenario, if you’re a small-to-medium sized business, you likely do not have enough product going to one destination to fill up a truck’s full trailer, so LTL can seem like a cost-saving no-brainer, but unfortunately, it’s not quite so cut-and-dry. Yes, the perceived cost savings associated with sharing a truck with five other shippers is tantalizing, and a legitimate notion, but it’s not everything. There are other factors to consider when deciding between LTL and FTL, and there is no, one-size-fits all approach.
Potential Downsides of Utilizing LTL
Timing: By nature of LTL, there are multiple stops along the route that means longer lead times and may cause delays in the supply chain. So, if you are aiming to minimize transportation time, which everyone is in the logistics world, then you are making a sacrifice.
If your company operates in the realm of e-commerce, it would be prudent to examine the costs associated with the loss of business that your business suffers due to potentially longer LTL delivery times, and evaluate what options would open up if you were able to reduce your transportation times by a period of days.
For some shippers, timing is absolutely critical. The obvious examples are perishable products, like fresh produce and pharmaceutical products, which cannot sit for long periods of time in untempered conditions. But now, other “non-perishable” products, like apparel, electronics, and non-perishable food products are becoming time-sensitive in the e-commerce driven world, with monoliths like Amazon now offering same- and one-day shipping options, which have set a standard in the minds of consumers to receive products quickly. If your company operates in the realm of e-commerce, it would be prudent to examine the costs associated with the loss of business that your business suffers due to potentially longer LTL delivery times, and evaluate what options would open up if you were able to reduce your transportation times by a period of days.
Damage: Another common problem associated with LTL transportation is the higher occurrence of damage to cargo. Due to the frequent stops and touch points along routes, in which cargo is being loaded and unloaded from the trucks, freight generally incurs more damage on LTL trips than on FTL trips. For hardier freight, some light damage to exterior packaging is unlikely to be of major consequence, but for shippers dealing in more delicate products, delivering damaged product could mean having to refund a customer for the full price paid for the product, the burden falling on you. If your product is not easily damaged, this may not be an important factor, but if your product is damaged frequently or even occasionally, calculate the average cost that you end up paying to make up for damages per quarter, and then comparing to how much it would cost you to instead opt for FTL, which would result in significantly less damage. Which cost is higher in the end? It will depend on your particular business.
It’s not an easy task for shippers. At BlueGrace, we work with shippers on a case-by-case basis to help determine strategies that fit business’ specific needs. Our digital platform, BlueShip®, takes all of a company’s attributes into account to identify which options result in minimized costs and maximized profits. In the case studies, for example,“Private Equity Group & Transportation Cost Reduction,” and “Manual Process Reduction & TMS Integration for Restaurant Industry,” we dive into each case, exploring how BlueGrace helped two different clients with similar needs rethink their supply chain strategies that were giving them less-than-optimum results.
The routing guide left out multiple states that certain carriers could not go to. Because of this issue, the supplier was receiving chargebacks from distribution centers on a regular basis.
In the first case, a private equity group (PEG) was using proprietary enterprise resource planning (ERP) system to allocate resources and make business decisions. After analyzing the company’s situation, it turned out that the ERP was not suited for the client. The routing guide left out multiple states that certain carriers could not go to. Because of this issue, the supplier was receiving chargebacks from distribution centers on a regular basis. Once BlueGrace helped them downsize their carrier network to a more tailored group of carriers, it saw a 12 percent reduction in transportation costs and $300,000 in annual savings.
In the second case, a restaurant supplier was having difficulties managing their current in-house ERP system. They had looked at 3PL solutions in the past, but couldn’t find a solution that suited their needs, causing them to continue to incur chargebacks frequently, dinging their bottom line significantly over time. After the implementation of BlueGrace’s systems, the supplier was able to straighten out their supply chain and avoid chargebacks, saving them 12 percent in hard costs totaling at $468,000 in one year.
Do You Understand Your Business’ Needs?
At BlueGrace, we understand that every business has specific needs.We would love to learn what matters most to you in this aspect of your business. Contact us at 800.MYSHIPPING or fill out the form below to speak to one of our freight experts today, and learn how you can optimize your supply chain, minimize costs, and maximize your company’s bottom line!
The news for the week was Tesla, but isn’t it always? This time the discussion was around Elon Musk’s comments about being in “logistics hell” and his company’s inability to get the now finished electric automobiles delivered on time. On Wednesday, September 19th our VP of Enterprise Sales, Randy Ofiara was invited to speak on WGN Radio in Chicago. He shared his expertise on why Tesla and other freight shippers are having difficulties meeting shipment deadlines due to the capacity crunch we are witnessing currently. Driver shortages, tariffs and government mandates are impacting shippers like never before.
Click HERE to listen to the podcast on the WGN website. The logistics discussion starts at the 7:30 mark. Take some time to listen to why the experts at BlueGrace are on top of the industry for you, helping you simplify your shipping everyday.
Even with the capacity crunch in full swing for all types of industries, there is still pressure to curb costs, but there is no reason to fold under the pressure. There are plenty of opportunities to save on costs waiting to be revealed. All it takes is a hard look at your business model. To speak to one of our freight experts, call us at 800.MYSHIPPING or fill out the form below.
The ongoing driver shortage is nothing new in the U.S. freight industry. As more and more drivers approach the age of retirement, younger generations are less inclined to take up truck driving as a profession. As the driver shortage increases, so too does the cost of freight which is putting the squeeze on a number of industries.
One of the biggest industries to be hit by the shortage? Food, perhaps the most important of all consumer items. Everything from restaurants and fast food chains, to grocery stores and even wineries, are going to start feeling the pain of the higher transportation costs.
Shortage By the Numbers
According to statistics from the American Trucking Associates, 2017 saw one of the most significant driver shortages in history, approximately 50,000 drivers. That number could continue to grow to 174,000 unfilled positions by 2026.
It’s not just shippers that are being hit with the higher costs.
“In addition to the sheer lack of drivers, fleets are also suffering from a lack of qualified drivers, which amplifies the effects of the shortage on carriers,” ATA Chief Economist Bob Costello said. “This means that even as the shortage numbers fluctuate, it remains a serious concern for our industry, for the supply chain and for the economy at large.” Cass Information Systems shows that U.S. trucking and rail freight spending have increased by 17 percent over May this year, versus last year, and that figure continues to grow. And it’s not just shippers that are being hit with the higher costs. Shippers, Carriers, and brokers alike all expect trucking costs to increase by about 6.4 percent this year according to a poll conducted by Morgan Stanley.
Shortage Hits the Shelves
Consumer packaged goods companies, agricultural consortiums, and vintners are already feeling the pressure of the shortage. Kellogg Co. has commented that freight is causing its most “acute cost pressures”. Restaurants are starting to feel the issue, but it’s their suppliers that are being hit the hardest. Tyson Foods’ CEO notes that higher freight costs have had a net impact of approximately 14 cents per share. “While we were climbing the hill, the grade steepened and now we are estimating the full-year impact to be roughly $250 million,” Tyson Foods’ CEO Thomas Hayes said, adding that the company “cannot subsidize the increased freight.”Given how closely most restaurants work with Tyson Foods, that price increase will more than likely be passed on to the consumers who frequent such restaurants.
The industry is struggling to get good, qualified drivers.
“It is a crisis and there has been a perfect storm of consequences that has led us to where we are now. The industry is struggling to get good, qualified drivers. The industry only appeals to half the workforce to start – women account for only about 6% of drivers. Recently, the economy has picked up, so demand is higher than it’s been in a decade and that adds pressure on the supply side. And we have a regulation where 21 is the age limit to drive, but by the time someone turns 21, they’re likely involved in some other profession,” Jim Murabito, executive VP of supply chain at Michigan-based Hungry Howie’s Pizza, said he sees the freight-cost issue getting worse before it gets better.Murabito goes on to say that they’ve been seeing somewhere between a 10 to 20 percent increase from all of their suppliers over this course of this year to help cover the higher freight costs.
“These are suppliers who haven’t had increases in three or four years. That underscores the issue this year,” he said. “There are some lanes that are seeing increases of 50 to 100%. (For example) We get supplies from Minnesota and there aren’t a lot of goods that come out of Minnesota so people don’t send their trucks there.”
In addition to the increase in freight costs, there’s also the increase in lead times for deliveries. The Electronic Logging Device mandate and the Hours of Service ruling are putting a hurt on a number of businesses, especially agricultural which has a more time sensitive delivery schedule than most companies. “Nationally, what used to take two days is now going to have two-and-a-half to three days to move product from one end of the country to the other,” Yvonne Sams, director of logistics at G3 Enterprises said.
The logistics industry as a whole is going to have to buckle down to find a solution.
With some major companies like Walmart and Target tightening the delivery window, shippers and carriers are having to become significantly more coordinated if they want to avoid the sting of chargebacks and penalties accrued by late or incomplete deliveries. As the driver shortage continues, the logistics industry as a whole is going to have to buckle down to find a solution. There’s a long road ahead of us, and it will likely get worse before it gets better.
How Can Your Business Adapt?
BlueGrace partners with an extensive list of carriers, providing you with the resources needed to ease the affects of the tight capacity crunch. If you would like more information on how BlueGrace can help simplify your supply chain and reduce transportation costs, fill out the form below or contact us at 800.MYSHIPPING to speak to one of our freight experts today!
The term “optimization” is thrown around often in the logistics landscape. It’s true, optimization is an indispensable part of a well-run business model. Of course, every business owner wants their operations running as tightly and efficiently as possible, but the footwork required to determine how to optimize your business’s operations and see tangible results is often easier said than done.
Our Webinar discusses the typical LTL network and differentiates between less than truckload (LTL) and full truckload and the factors companies should consider when deciding which alternative is best for a particular shipment.
In our Webinar “Driving Down Supply Chain Costs with Mode Optimization,” Brian Blalock, Senior Manager of Sourcing Strategy at BlueGrace, discusses the typical LTL network and differentiates between less than truckload (LTL) and full truckload and the factors companies should consider when deciding which alternative is best for a particular shipment. Both have their advantages and weaknesses, but one may suit the business better depending on the kind of freight being transported, the location or origin and destination. While the decision is sometimes considered arbitrary, in order to optimize your operation, i.e. lower cost and maximize profit, it is crucial to consider the following factors.
LTL vs. Full Truckload
LTL shipments must be 12 linear feet or less, usually 5000 pounds or less, and are “typically consolidated with other freight from other shippers,” Blalock said, continuing that they are identified by class and that the structure, and that pricing can be very complex because it is determined by product class, distance and weight. Typically, it costs less than a full truckload, an obvious appeal to any shipper.
Fewer claims of damage occur with truckloads than with LTLs.
Fewer claims of damage occur with truckloads than with LTLs. “Why?” One might ask. It’s simple. Blalock uses the example of witnessing luggage being boarded into the belly of an aircraft; people rarely handle a stranger’s items as gently as they would their own. In conclusion, the “less handling of freight, the less damage to the freight,” Blalock says. Since LTLs require more stops and handling, more damage is incurred to LTL freight than full truckload on average.
When shipping a full truckload, your freight is the only thing on the trailer, so transit time is only contingent upon the required breaks for drivers and the time between pickup and delivery locations. The freight never has to leave the truck because it travels directly to its destination, so truckload shipments tend to arrive faster than LTL shipments, while at the same time, incurring less damage.
When to Not Ship LTL?
LTL loads should be the choice for shippers dealing in smaller quantities at a time as carriers charge by weight and volume, but may not be the optimal choice at every juncture.In order to determine which mode is right for your operation, create business and shipping rules around factors like weight, volume, time constraints, and cargo sensitivity of your shipments. You need to consider the rate at which damage may occur in your LTL shipments. How much does it really end up costing you at the end of the day? In knowing this information, you will be better able to decide in which case you need to opt for a full truckload, and which you are able to go with an LTL.
If the margins are tight on your product, the last thing you want is another cost eating away at your bottom line.
Another key is understanding how business decisions affect OTIF (on time in full). “If you ship to Walmart you can’t show up late, you can’t show up early, and you can’t show up incomplete,” Blalock said. “Any of those that you do, typically, [are] about a 3% ding to the cost of the entire invoice.” If the margins are tight on your product, the last thing you want is another cost eating away at your bottom line. “Likewise, if you continue to not hit your dates, you’ll find that you can lose valuable shelf position, and you won’t be shipping to Walmart anymore.”Blalock says to consider using different carriers for different shippers to this end: “The choices that you build into your business rules include choosing the right type of carrier every time,” he said.
Supply Chain Engineering
“Understand that we are following the linear rules of the carriers,” Blalock says. “Build the rules of your freight around your tariffs.” Blanket rate pricing main type associated with the LTL market. Customer specific pricing is negotiated on your behalf when all of your capacity is going to a single provider, which is typically preferred for shippers with a larger freight spend. BlueGrace negotiates specifically customer-by-customer to determine which suites the customer better. “If you’re in Montana or the upper peninsula of Michigan, sometimes you may just want to pay the more expensive LTL cost,” he said, due to the fact that market is more remote, and competition between carriers is less apparent.
Identifying consolidation opportunities is the key to the cost-reducing aspect of optimizations.
Identifying consolidation opportunities is the key to the cost-reducing aspect of optimizations. BlueGrace’s software is designed to help clients consolidate unnecessary costs in their unique supply chains. One measure that BlueGrace uses is a center of gravity study, which considers various origin points and points of destination and calculates where each region should ship from to find the fastest route at the best cost.“You want to be able to take advantage of the ability to choose the right mode every time and drive down costs. If all things are equal, an FTL is going to travel much faster … and [incur] less damage to freight,” Blalock said. “If time is no issue, if the freight is indestructible,” then LTL could be the best option for you.
Click HERE to watch the full Webinar and learn more about tariffs and fuel surcharges associated with costs. If you would like to speak to one of our freight experts, contact us at 800.MYSHIPPING or fill out the form below.
Logistics and supply chain management has become a very tight game, almost cutthroat in its harsh severity. Consumers want their product today, that means that retailers want it delivered, checked in, and on the shelf yesterday. With the ability to order just about anything a consumer could possibly want from the vast online marketplace, brick and mortar retailers have to run an even tighter ship than they have before if they have any hopes of competing. To that end, some retailers are upping the ante and doling out punishment for shippers who aren’t in compliance.
So what can you do to maintain retail compliance? What about improving your operations to make your company more efficient? We covered these and many more topics in a recent webinar including:
Weekly Product Planning
Proactively Managing Appointments
Planning Optimal Shipping Dates
Eliminate Reactive Shipping
Creating an Internal Scorecard
Learning to identify Real Issues and Actionable Items
Improving Communication and Cooperation among Multiple Departments
Daily Tracking Updates
Full Visibility on Actual Deliveries
Learning to Identify Preferred Carriers
Utilize Upgraded Carrier Service Levels
Here are some of the key highlights from our webinar that can really have an impact on your business. While this doesn’t cover everything, these elements are vital to running a successful business in today’s marketplace.
Visibility is a Must
One of the key points that the webinar focuses on is visibility. Keeping up with retail compliance is more than just making delivery deadlines. The amount of disruptive technologies and customer expectations hitting the field requires a level of visibility that was, until recently, unheard of.
Customers want to know where their product is during transit. They want to be able to track its progress, start to finish until the product is in their control. More than that, they want to know the status of the product itself during transit. While this might not matter quite so much for clothing and other domestic goods, it plays a huge role for sensitive goods such as electronics and food items.
Being caught out of compliance could result in more than just heavy fines, it could result in a total shutdown of business and operations, which is ruinous for smaller companies.
Earlier this year, the FDA passed the Food Safety Modernization (FSM) act which details the requirements for sanitation, cleanliness, and closely monitored temperature control. Being caught out of compliance could result in more than just heavy fines, it could result in a total shutdown of business and operations, which is ruinous for smaller companies. This is one of many reasons why visibility is so vital to companies in their day to day operations.
OTIF and MABD Requirements
Walmart, one of the biggest retailers in the United States, is just one of many companies that are tightening their expectations for their suppliers. Walmart’s On-Time In-Full (OTIF) policy has set a precedent that will actually fine shippers and suppliers if goods don’t arrive when they are supposed, whether that be early or late. This means that shippers and carriers need to work closely together to hit the designated delivery window.
Must Arrive By Date (MABD) and OTIF are crucial for the changing client expectations.
Must Arrive By Date (MABD) and OTIF are crucial for the changing client expectations. Given that Walmart is such a substantial customer for many suppliers in the United States, making deliveries on time and in full is the difference between making a tidy profit, or losing out on a major customer. Additionally, chargebacks could carry a heavy fine, especially for smaller companies. As it stands, Walmart will penalize shippers by 3 percent of the total PO for any late or incomplete shipments. It’s not just Walmart that’s stepping up the regulations either as more companies continue to tighten their delivery windows.
We covered the importance of having someone managing these new requirements as well as questions that need to be answered. Are shipping dates being planned into production times? If there’s a mistake resulting in a delayed shipment, will you be able to identify where the mistake happened? What plans are there in place to reduce potential chargebacks and improve vendor reliability?
Better Planning Means Better Compliance
Planning is a large part of logistics, and being able to enhance planning is another touchstone of what we covered in our Retail Compliance Webinar. For example, what do you do if a truck breaks down while en route to a delivery? Is your company able to catch it with enough time to make the deadline? What about finding carriers with an open capacity to move product? Is your company able to find space, even when capacity gets tight?
These are a few questions that logistics planners and decision makers need to be asking themselves on a regular basis. Reactive shipping, planning a shipment due to a shortcoming of the original agreement, is a risky practice. There’s a lot that can go wrong when you’re already trying to play catch up. Much like maintenance on a piece of machinery, waiting for something to break is always much worse than fixing something before the breakdown actually occurs.
While there are a considerable number of possibilities to consider when trying to be proactive rather than reactive, it’s becoming easier to be proactive with the advancements of visibility and supplemental technologies.
The supply chain is very much the same. It requires a good deal of forethought to keep it flowing smoothly. If, for example, you don’t have a dedicated carrier fleet, will you have the necessary capacity to keep freight moving in a timely fashion? While there are a considerable number of possibilities to consider when trying to be proactive rather than reactive, it’s becoming easier to be proactive with the advancements of visibility and supplemental technologies.
That level of planning is no longer a novelty or a nicety for customers. It’s becoming a requirement as well as a differentiator among suppliers. Companies who are playing it too conservatively will have a harder time meeting retail compliance than companies who are staying abreast of the changes as they occur.
Changes in transportation regulations, tightening capacity, new technology hitting the market, higher spot rates and higher levels of demand from customers and consumers. Any one of these can be hard to navigate by itself, but trying to deal with all of it at the same time can border on the impossible.
Ultimately, everything we covered in our webinar is about helping your company to stay compliant and perform better across the board. From internal operations to external executions. Everything is connected and we broke it down for you. Click HERE to watch our webinar about retail compliance and learn more about how you can be successful. Ready to speak to an expert? Fill out the form below or call us at 800.MYSHIPPING
It’s been a rough ride for over-the-road freight transportation over the past few years. Higher levels of government regulations have created a strain for drivers including the Hours of Service and the Electronic Logging Device mandates. These both came at a time that trucking companies were struggling with the pre-existing issue with a severe shortage of drivers. With the median age of drivers approaching retirement age, the condition will likely get worse before it gets better. Additionally, there have been huge fluctuations in both spot rates and demand over the years which have left carriers in a rather precarious situation.
Despite the difficulties, there is good news on the horizon. Spot market rates, according to DAT and Truckstop.com, have risen upwards of 20 to 35 percent and contract rates have climbed by an average of 8 percent, year-over-year.
This is good news for carriers, but managing the influx of work could require some extra help from intermediaries and 3PLs. Already, the conversations are beginning about solutions for the generational workforce as well as the adaptation to the increasing levels of disruptive technology hitting the markets.
Higher Brokerage Margins
Last year, 3PLs made due with fairly low margins, about 10 to 15 percent for freight transactions. Mostly as a result of vying for the top spot as a low-cost option for shippers who were looking for a truck on the cheap without using a service in the first place.
Now, in 2018, with capacity tightening, shippers are making a return to 3PLs which will cause third party margins to increase to as much as 15 to 20 percent.
Because of the availability of capacity in 2016 and the first half of 2017, most shippers were able to obtain reasonable rates with carriers, which means that 3PLs had to provide an array of other services to set themselves apart from the competition. Now, in 2018, with capacity tightening, shippers are making a return to 3PLs which will cause third party margins to increase to as much as 15 to 20 percent. Carriers are hoping this will result in a sustainable relationship with 3PLs.
A Spike in Demand is on the Horizon
Freight demand was unusually high between January and February, with a slight slow down through March. Given that these volumes are much higher than they were over the same period from last year, it’s another sign pointing towards the growing health of the transportation industry.
If shippers want to keep up with demand, they’re going to have to change the way they do business.
While this is undoubtedly a good start to the year, produce season, April through July, has kicked off, which means an even bigger spike in demand as produce season will give way to other peak consumer seasons including the Holiday season. Considering that all of this is outside the continual rapid growth of eCommerce markets, 2018 is going to be a busy year, to say the least. If shippers want to keep up with demand, they’re going to have to change the way they do business.
Sensing the growing demand, many trucking companies are beginning to double up on their orders for new trucks. “Trucking companies ordered 35,600 trucks in May, more than double the orders from the same month a year ago, according to preliminary figures by ACT Research. That leaves manufacturers with an order backlog of more than 200,000 trucks, or 8.4 months of production,” according to an article from WSJ.
“This is an astonishing rate of order placement,” said Kenny Vieth, president of the Columbus, Ind.-based ACT. “What’s facilitating it is that truckers are absolutely crushing it on freight rates and profitability right now.”
Shippers might Start Looking to 3PLs for Visibility
“Significant advances in visibility technologies have created a wide range of perceptions and expectations among shippers, including some that are inaccurate. 3PLs in this report identified a complicated web of factors that affect those perceptions and expectations, such as the demands of data aggregation, the need for more education, and the accelerated pace of change that affects 3PL and shipper alike,” the report says.
Over the past year, the importance and need for visibility have only increased as suppliers are dealing with ever-increasing customer expectations and delivery standards
The TIA hopes that their report will highlight 3PLs that have a product or service offering that will provide the necessary information to shippers regarding their freight. With each passing year, the number of shippers that use 3PL services to keep them updated on their freight during the transportation cycle is increasing. Over the past year, the importance and need for visibility have only increased as suppliers are dealing with ever-increasing customer expectations and delivery standards. Walmarts OTIF (On Time: In Full) policy is a perfect example of this, which can punish shippers for not adhering to a strict delivery schedule.
Data and Tech will Pave the Way
It’s more than just the growth of demand that is making 3PLs a tempting partner for shippers. With the influx of big data, analytics, blockchain technologies, and so many more innovations, attempting to keep pace can be difficult. As demand grows and capacity tightens, shippers and carriers alike need to be smarter about how they operate if they want to stay competitive in today’s marketplace.
As the industry continues to change, it’s likely that we’ll only see 3PLs continue to grow in popularity.
A Better Way of Doing Business
At BlueGrace, we take your current freight data and get an inside look at what your team may be missing. Our carrier procurement strategists will help you meet tight deadlines, optimize your freight expense, and ultimately, find peace of mind. Fill out the form below to find out more about how partnering with BlueGrace can create more visibility and opportunities to simplify, overall helping you find a better way to do business.
For the most part, we consider the supply chain to be a means to an end. While it’s an important means, it’s simply the process required to transition raw materials to finish product and take that product from the production floor to its end user.
While the supply chain is a rather complex system that utilizes a company’s logistics capabilities to the utmost, there are some companies that put decidedly more effort, energy, and even love into making it operate at its peak. Some companies will go the extra mile, quite literally, to make sure that they are producing the best possible product for their consumers and bringing some true innovation to the industry.
Some LUSH Sources
Consumer consciousness has been on the rise lately as end users are becoming more aware of what goes into their products. There have been a number of reports about big companies catching flak and negative press because of their willingness to cut corners when it comes to bringing in their raw materials. It’s companies like Lush that really bring ethical sourcing to light, and have changed our understanding of a truly visible supply chain.
Sandalwood, for example, has some incredible value for the cosmetics industry both for its scent as well as it’s therapeutic values. The tree itself takes over 10 years to grow to harvestable maturation and is predominantly found in India and Australia. Given the high levels of global demand, it’s become illegal to cut, harvest, and sell sandalwood out of India without permission from the state forest department, making it a perfect enterprise for criminal entrepreneurs.
It strengthened my understanding of what we wanted and what we didn’t want,’ Gendry-Hearn says. In short, they weren’t going to get sustainable sandalwood from India.”
“Gendry-Hearn and Constantine (buyers for Lush) were in India to investigate the dark underworld of sandalwood smuggling. The trip ended after a meeting in a hotel with a smartly dressed man she described as ‘the big boss.’ He entered with several bodyguards, sat across from them and put his gun on the table. Gendry-Hearn wasn’t scared. ‘My thought was: this is brilliant, this was exactly what we wanted,’ she explains. The big boss boasted that the price of sandalwood oil would never go down as he was sitting on massive reserves of wood and would restrict what was coming through. ‘It strengthened my understanding of what we wanted and what we didn’t want,’ Gendry-Hearn says. In short, they weren’t going to get sustainable sandalwood from India.”
This is just one example of the lengths Lush undertakes to ensure their true to their word on ethically sourced materials. More than that, Lush builds on their relationships with their suppliers and promotes various initiatives (and funding) to increase awareness of corporate social responsibility.
ADIDAS Kicks it Up a Notch
When you consider the sheer amount of consumer goods that are made, transported, and purchased on a daily basis, it almost comes as a shock to realize that footwear is actually one of the most time-intensive products on the market today. The supply chain for shoes more closely resembles that of automobiles, parts and components are made in one location, shipped to another factory for the next assembly step, then shipped to the final factory location to be stitched, glued, and packaged as a finished product. This is a product that hasn’t changed much over the past 30 years.
Now, however, with the rapid change in consumer expectation towards instant gratification and same day delivery, months-long process to assemble a pair of kicks simply won’t do anymore.
That’s what prompted ADIDAS to come up with the concept of the “speed factory.” “A couple of years ago, the top minds at Adidas decided this clunky, inefficient model was too limiting. “That’s why we looked into the technologies available and decided, ‘Hey, if we want to be faster and more flexible in doing what our athletes want and need, then we have to rethink the way we make products,’” says Gerd Manz, the head of technology innovation within Adidas’ Future team, which looks ahead three to seven years to set the company’s course.”
Turning the average lead time from a few months down to a few weeks or even days is pretty astounding in its own, but when you consider the other ramifications of cutting out much of the supply chain it becomes even more impressive. The reduction of transportation costs and CO2 emissions alone will go a long way towards improving the companies standing and compliance with global green initiatives.
Walmart’s Blockchain for Food Safety
Walmart and blockchain alike have been garnering a good deal of headline attention in the recent past. Walmart, in particular, has launched a tough initiative for carriers and suppliers alike with their On Time: In Full (OTIF) policy which will penalize deliveries that are early, late, or incomplete.
More than simply seeing the data, blockchain technology offers a total view of a product through its entire delivery through the supply chain.
Blockchain, on the other hand, is an innovative new technology that will maximize the amount of accessible data within the supply chain. More than simply seeing the data, blockchain technology offers a total view of a product through its entire delivery through the supply chain.
And Walmart’s plan with this new technology? To increase food safety.
“One of Walmart’s grandest projects is an attempt to graft a blockchain, that immutable cryptographic ledger first used by bitcoin, onto the world’s complex food supply chains. Walmart has roped in some of the industry’s biggest players, among them fruit producer Dole, consumer goods giant Unilever, and Swiss water and food conglomerate Nestle, to form a consortium of 10 food producers and retailers to make it a reality,” according to Joon Ian Wong of Quartz.
“They’re building the technology with IBM, which has been among the most active technology firms pushing blockchain solutions to corporate technology departments. If Walmart is successful, the project could fundamentally alter the way information is secured, stored, and shared across the food and retail industry, ushering in an era where an item of produce can be tracked in real-time from farm to table, by producers and consumers,” he adds.
Visibility is a Must
Again, consumer consciousness is on the rise. People want to know where their food and products are coming from. They want to know that it’s all being made and sourced responsibly and ethically. We’re living in an age where consumers want to know what’s going on behind the scenes of big companies and visibility is simply a must. BlueGrace Logistics offers complete, customized transportation management solutions that provide clients with the bandwidth to create transparency, operate efficiently, and drive direct cost reductions. For more information on how we can help give you the visibility you need, feel free to contact us using the form below:
Almost everything we touch or consume or use in society is a consumer good. Bicycles, refrigerators, jewelry, clothing, etc. Consumer goods are products bought for and used by consumers, rather than by manufacturers for making other goods. The sale of consumer items is big business. Consumer spending represents69 percent of the U.S. economy. Two-thirds of that figure is on services (such as housing and healthcare). However, a full one-quarter is spent on non-durable goods like clothing and groceries with the remaining portion on durable goods, like cars and appliances.
The National Retail Federation estimates retail industry sales willgrow between 3.8 and 4.4 percent this year, buoyed by economic growth.
Deloitte’s 2018Consumer Products Industry Outlook Report reports that “the US economy is likely to continue to grow at a moderate 2.0–2.5 percent rate into 2018. A key source of strength is consumers, who have benefitted from a strong labor market and rising incomes. Unemployment is at a record low of 4.2 percent, with an average of about 148,000 jobs added every month. Real disposable personal income is up, albeit slowly, by 1.8 percent in 2017, and is likely to pick up momentum next year, rising by more than 2.0 percent.”
Unique Challenges of the Consumer Good Sector
The transport of consumer goods presents unique logistical challenges. Non-durables must be transported quickly – and frequently. Fast-moving consumer goods (perishables, trendy items, items linked to promotions and product rollouts) are subject to certain operational constraints – some of which are controllable and some of which are not (highly variable outbound logistics).
Customers control the choices and the buying process.
Durables, along with non-durables, are affected by the extra pressures of the “New Customer” – a customer that is more aware, more demanding and who holds higher expectations than we have ever seen before. These expectations relate to the availability of products (on the shelf, i.e., no out of stocks) and timely, free, traceable delivery (for home shipment). Customers control the choices and the buying process.
A well-developed digital presence across platforms and channels – consumer-centric, smart-phone focused – is what will drive future sales.
Shopping patterns and distribution networks are changing. Some customers go to bricks and mortars stores to do their consumer research, then order online from the same store or rival. Others make their purchase in-store after engaging in online comparison shipping. In-store purchasing remains strong, but there is more choice for the consumer. A twofold presence for retailers (in-store and online) is becoming mandatory. A new trend is for stores to partially function as fulfillment centers for online orders. A well-developed digital presence across platforms and channels – consumer-centric, smart-phone focused – is what will drive future sales.
Where 3PLs Come In
Many larger consumer goods firms have historically relied upon in-house logistics. Now they are turning to third party-logistics providers (3PLs) in droves, joining the ranks of smaller brands of consumer goods that do not have the same in-house distribution capabilities and are more familiar with outsourced relationships. Ninety percent of Fortune 500 companies operating in the US sought out help from a third party logistics provider in 2017 (up from 46% in 2001).
Because 3PLs are nimble, they are able to juggle the B2C needs of the new world of consumer goods logistics well. They are uniquely suited to help firms cope with the rising costs of freight.
Unique advantages of 3PLS in the field include:
Consolidation– combining loads from closely located suppliers to keep logistics costs down.
A network of resources – such as warehousing spaces and flexible transportation fleets.
Economies of scale – derived from an increase in handled items (leading to better productivity).
Technology – a robust proprietary software that can integrate complex supply chain ecosystems in a manner comparable to a leading enterprise.
BlueGrace uses proprietary technology to enable you to proactively identify opportunities to alleviate costs and optimize your supply chain. Fill out the form below or call us today to see how we can help simplify your distribution needs!
On Time In Full is a policy that Walmart created back in 2016 and implemented in August of 2017. In an attempt to drive their proficiency up and costs down, the mega retail chain started targeting their supply chain. Under this policy, suppliers that failed to deliver the total amount of promised goods, to designated stores at the prescribed time are penalized; fined up to three percent of the total shipment value.
The shipment has to arrive exactly when it’s expected. Not before, and certainly not after.
It’s not just trying to curb late deliveries, either. The OTIF policy also cracks down on trucks arriving too early, as it can create excess traffic and delays for loading and unloading. For suppliers and trucking companies, this means there’s no leaving early to create a buffer zone. The shipment has to arrive exactly when it’s expected. Not before, and certainly not after.
In addition to making things more challenging for suppliers to make sure their goods arrive on time, it will bring even more stress on carriers – we discussed this in more detail in our earlier post. With the Electronic Logging Device more closely monitoring hours of service, truckers will be in a tight spot when it comes to making sure that deliveries arrive exactly when they’re supposed to, all while making sure to stay compliant with their working hours.
A Tough Policy Gets Tougher
As of April 1st of this year, the company made the policy even harder. Prior to this month, the OTIF policy stated that full truckload shipments needed to meet a 75 percent OTIF rating and less-than-truckload shipments needed to meet 33 percent OTIF to avoid fines. Now, FTL’s are required to meet an 85 percent standard (down from the lofty 95 percent they had originally planned) while LTL requirements have increased to 36 percent.
Keeping products on the shelf is the name of the game for Walmart.
Keeping products on the shelf is the name of the game for Walmart. With increased competition from the likes of Target, Dollar General, and Amazon, the more items Walmart can keep in stock, the less likely they are to lose out to the competition.
A Necessary Change
While it’s easy to paint Walmart in a bad light through this policy, they aren’t the only company to enforce such a policy. Competition stores like Target, Kroger, and Walgreens also have similar OTIF policies. If retailers don’t hold the supplier accountable and they don’t make them try to comply, then suppliers can cause backlogs.
With the 90 percent failure rate for full and timely deliveries, Walmart has found a rather convenient way to turn a problem into profit.
According to a Bloomberg report, Walmart had a OTIF success rate hovering around a dismal 10 percent. With the 90 percent failure rate for full and timely deliveries, Walmart has found a rather convenient way to turn a problem into profit. This new policy doesn’t cost the company a dime. In addition to generating money from the fines, increased product availability will also mean increased in-store sales.
Given that Walmart is such a heavy hitter for suppliers, suppliers will have little choice but to either comply or lose out on some considerable business. With the extra revenue generation, Walmart can take that money and reinvest in its e-commerce business.
A Hard Place for Small Suppliers
While larger companies have no problem meeting delivery quotas, it’s the LTL deliveries that are going to take the brunt of the OTIF policy. Considering the strained nature of supply chain as it is, especially in the trucking sector. ELD and HoS mandates are pitting truckers against the clock as it stands. Couple that with the driver shortage and rising demand for LTL, and capacity becomes even more limited.
Couple that with the driver shortage and rising demand for LTL, and capacity becomes even more limited.
At least in that regard, the company has cut smaller suppliers a little slack, which is the reason that LTL shipments have less than half the requirements of their FTL counterparts. An LTL doesn’t schedule a delivery to a Walmart [distribution center] until the freight arrives at the terminal.
In order to avoid hefty fines being levied by Walmart and other retailers such as Kroger and Walgreens, suppliers are going to have to tighten and fine tune their logistics and supply chain considerably, especially given the current tight capacity environment.
Do You Need Help With OTIF Issues?
A 3PL, such as BlueGrace, can help your business overcome the challenges of OTIF and other supply chain issues. If you have questions about OTIF or just how to simplify your current transportation program, feel free to contact us via phone at 800.MY.SHIPPING or using the form below and we will be happy to assist.
The transportation industry is perhaps one of the most daunting when it comes to rules and regulations. Hours of Service and Electronic Logging Devices are just a few of the most recent roadblocks to come up recently. Merely staying in compliance with these new regulations can be a costly endeavor. What’s worse is that being caught out of compliance could mean penalties, fines, or even a trucker losing their job.
As if all that wasn’t bad enough, truckers and freight forwarders have to balance all of that on top of growing customer expectations. WalMart, in particular, is starting to crack down on deliveries with their OTIF program. Kroger, another heavy-hitting retailer, is also beginning to levy penalties on tardy shipments. Missing the delivery window could mean hefty fines for carriers. However in this case, missing the delivery window doesn’t just mean being late, but even arriving early could prove costly for carriers.
Tardy Carriers Will Pay the Price
Retailers are warning retailers that disputes simply won’t be tolerated. On Time. In Full. Or Else.
WalMart can be rather ruthless when it comes to their profit margins, but other retailers are starting to rally to the call, creating an unforgiving environment for errant carriers. Retailers expect their loads to be packaged properly, delivered in full, at the designated time. To that end, retailers are taking a very defensive stance over their new initiative, warning retailers that disputes simply won’t be tolerated. On Time. In Full. Or Else.
Wal-Mart has signaled it could do more than levy fines if problems persist. Charles Redfield, executive vice president of food for Wal-Mart U.S., told suppliers they could also lose shelf space if they don’t solve their delivery issues, according to people in attendance at a supplier meeting earlier this year. “Retailers can threaten suppliers with loss of promotional space in stores”, analysts said, according to the Wall Street Journal.
In the few short months that the program was unleashed upon carriers, WalMart has already been dishing out the penalties. For example, late or missing freight could cost a carrier up to 3 percent of its value. Early arrivals are no less forgiving due to the fact that they create an overstock. This overstated Just In Time philosophy keeps the shelves full and the WalMart customers spending, which is all well and good for WalMart as it means they can run with the big dogs like Amazon.
it’s likely only a matter of time before more retailers jump on the no-nonsense bandwagon.
“Wal-Mart executives say a more-precise delivery window keeps shelves stocked and the flow of products more predictable, while reducing inventory—all of which are increasingly important to the retailer as it invests heavily to compete online. The change could create $1 billion in additional sales over time, they said. “We hope we don’t have to collect any fees from suppliers. We would much rather have all the product we ordered on time,” said Wal-Mart spokesman Kory Lundberg,” the WSJ adds. While Kroger is seemingly more lenient, simply charging a flat $500 for late shipments, it’s likely only a matter of time before more retailers jump on the no-nonsense bandwagon.
Carriers Feeling the Pressure
These new policies will be costly for carriers for more reasons than just the fines.
These new policies will be costly for carriers for more reasons than just the fines. Simply implementing the procedures and equipment necessary to hit that 95 percent compliance mark could prove to be too much for smaller carriers. While bigger carriers can just add some new factory processes to help with packing and loading, smaller carriers don’t always have that luxury. Many new carriers are just hoping to break even for their first few years of operation until they can build both a steady reputation as well as a customer base.
Furthermore, WalMart and Kroger’s steadfast approach to “no excuses” will mean that carriers can be slapped with a fine for circumstances that are beyond their control. Anything from heavy traffic and construction work that causes serious delays to severe weather events that makes travel all but impossible will all have a negative impact on carriers. Conversely, what happens if a carrier does happen to show up early? Is it better to take the financial hit for the early delivery or shell out for extra meals and more time on the road for the driver?
There’s also the concern that drivers might take it upon themselves to exceed the daily drive limit to ensure their delivery is on time. Not only is this dangerous, not to mention illegal, but soon driver’s won’t even have that as an option when the ELD mandate goes into effect this December.
The Bitter Citrus Industry
A growing concern over these new on-time delivery policies is what it will mean for Florida’s citrus growers. As both Walmart and Kroger are considerable retailers of foodstuffs and produce, that makes them some of the biggest customers for such items. As Florida citrus groves have not only been ravaged by HLB for several years, but hurricane Irma caused some considerable damage.
“Andrew Meadows, a spokesman for Florida Citrus Mutual, a trade organization for growers, predicts growers statewide will end up losing more than half of this year’s crop to Hurricane Irma. The Florida Commissioner of Agriculture has estimated the cost of Irma to Florida’s farm sector at $2.5 billion, with projected losses to citrus producers the worst of any sector, at $760 million,”according to an article from Marketplace.
Suffice it to say, this policy might create better profit margins for retailers, but it’s not going to make them any friends among the carrier community.
This puts both the growers and their carriers in a serious predicament. As much of the damage won’t be fully realized for another two years at least, making guesses on shipments is a dangerous gamble. Guessing too low means crops left unsold which is money wasted. Guessing too high, however, means that carriers won’t be able to make full deliveries which means the fines will get passed down the line back to growers. In either case, it’s a lose lose for an industry that’s already in danger. Suffice it to say, this policy might create better profit margins for retailers, but it’s not going to make them any friends among the carrier community. As the regulations begin to tighten from both retailers (who will undoubtedly add more to the list) as well as the ELD mandate, we’ll have to wait and see how carriers respond to the growing pressure.
Do You Need Help With OTIF Issues?
A 3PL, such as BlueGrace, can help your business overcome the challenges of OTIF and other supply chain issues. If you have questions about OTIF or just how to simplify your current transportation program, contact us via phone at 800.MY.SHIPPING or using the form below, we are here to help!
We all know how it goes. The heads of each department work on their annual budgets and turn them in to finance. Finance then returns with remarks like “the budget is too high, make it leaner.” How do you go about “trimming the fat” off of the transportation budget? Transportation is typically a 10-12% cost band on the general ledger for most manufacturers and distributors and once the 2018 budget is locked in, it doesn’t change.
Huge retailers have very strict rules when it comes to receiving products by a certain date to restock their shelves. If a manufacturer or distributor is not getting their product to the retailer by the (MABD) or Must Arrive By Date, the retailer can hit the business with a ‘charge-back’ for a certain percentage of the invoice value. Not only will the business have to pay a fee, but it will reflect poorly on their business scorecard as well. Now, Walmart is taking it one step further with OTIF, On Time In Full standards that can penalize businesses for being too early or not having matching amounts of product.
General Rate Increase with Less-Than-Truckload
At the beginning of every year the LTL carriers will begin to roll out general rate increases also known as GRIs.
Something to remember about LTL carrier GRI’s, is that the announced GRI isn’t necessarily indicative of the true impact to a shipper’s bottom line freight cost because the GRI is not a flat percentage rate increase across the board.
It is merely an aggregate combined average percentage increase across all lanes serviced by a carrier. Rates in some lanes may remain unchanged but some may increase by more than 4.9%.
A shipper could be seriously impacted by a general rate increase much higher than what’s announced by the carrier, so it’s imperative for shippers to check each lane for actual impact on costs.
Has your transportation and supply chain departments brought these items into consideration when rolling out transportation budgets?
Freight Cost Allocation
There is also the issue of past freight cost allocation. True freight cost allocation should show your most profitable ship to locations, customers and products. Were you able to deploy sales people, advertising and marketing budgets to the correct locations? Were customers and product lines also accurate in relation to your budgeting for 2018 as well?
Transportation cost is much more than beating up LTL Carriers on price, sending out an annual RFP and picking carriers based on cost alone.
Don’t just remove a carrier and bring in a new one if you have a spat with the driver or if a shipment gets damaged. Make the decision based on the total of the carriers activity.
Consider a 3PL When Budgeting
Transportation costs affect all aspects of your organization and should be taken very seriously. When working on the 2018 budget, consider working with a third party logistics provider (3PL), as they will take the time to learn your business and see how these costs can affect everyone in your organization.
Walmart and other big box retailers introduced us to the “Must Arrive By Date” or MABD several years ago, which held suppliers to tighter compliance regulations. These regulations raised quite the concern over suppliers getting the right products to the right stores or distribution centers by a certain time or they would pay a fee.
Fast forward to now and we are having a similar discussion with suppliers and shipping companies about the new “On-Time In-Full” OTIF, policy. Although this mandate has been in the introductory phase since January of this year, the short pays will begin now and suppliers will most likely see their first chargebacks from Walmart in September! This program mandates that if any shipment arrives early, late, or on-time but is not packaged properly, the shipper will be charged 3 percent of the total items’ value. (i.e. a supplier has a purchase order of $10,000 but their product didn’t meet the OTIF guidelines so Walmart will only pay $9700 for the merchandise.)
The short pays will begin now and suppliers will most likely see their first chargebacks in September!
OTIF > MABD
The OTIF is still very much a part of the MABD, but with much more focus on the “in-full”. In the past, if less than 90% of merchandise cases were received within the MABD delivery window, the supplier would pay 3% of the cost of goods. Now, full-truckload suppliers of fast-turning items must arrive by the specified date 75% of the time, 100 in-full.
The OTIF is still very much a part of the MABD, but with much more focus on the “in-full”
Any items claimed late or missing during a one-month period will be fined 3 percent of their value. Starting in February 2018, OTIF will go into full effect, requiring deliveries to be on-time and in-full 95 percent of the time.
The MABD Window vs. OTIF Window
The MABD Window was a three-day grace period for perishables and a four-day grace period for food, consumables and general merchandise. The OTIF window is much tighter with a one-day for perishables and a two-day for general merchandise.
“Variability is the No. 1 killer of the supply chain,’’ Kendall Trainor, a Wal-Mart senior director of operations support and supplier collaboration.
Variability is the No. 1 killer of the supply chain
In some cases, a problem will be Wal-Mart’s fault, so the retailer has developed a scoring system that breaks down reasons for non-compliant deliveries and will fine suppliers only if they’re responsible. If suppliers don’t agree with the fine, too bad: Disputes “will not be tolerated,’’ Wal-Mart says.
This change is expected to add $1 billion in revenue.
Arriving early, arriving late, not arriving in full will be the issue in a shipper’s supply chain. This change is expected to add $1 billion in revenue. Walmart had to find efficiencies wherever it could and they feel a sense of urgency as the rival between them and Amazon amplifies.
FTL and LTL Guideline Breakdown
Here are the latest OTIF guidelines for full truckload (FTL):
Starting August 2017, FTL suppliers must deliver orders 100% in full, on the must arrive by date, at least 75% of the time.
By February 2018, FTL suppliers must deliver orders 100% in full, on the must arrive by date, 95% of the time.
Non-compliance will result in a fine of 3% of the “missing case” value; early deliveries will also be penalized, to eliminate overstock situations. (Penalties will be short paid monthly.)
For less-than-full truckload (LTL):
Starting August 2017, LTL suppliers must deliver orders 100% in full, on the must arrive by date 33% of the time.
By February 2018, LTL suppliers must deliver orders 100% in full, on the must arrive by date, at least 36% of the time.
If OTIF was 36% or better in August 2017, then the supplier must demonstrate a 20% improvement.
Non-compliance penalties (3% of non-compliance COGS) will be short paid monthly.
What does this mean for YOU?
Manufacturers and suppliers that work with large retailers like Walmart are more successful in getting their merchandise on the shelves with the proper lead time due to partnering with a third party logistics provider (3PL).
Suppliers scorecards will inevitably be affected
Suppliers scorecards will inevitably be affected, so it is imperative for a supplier to find a 3PL they can count on for navigating these changes. A 3PL, is an expert in transportation management and supply chain optimization and has the ability to help estimate from start to finish where the OTIF will impact the suppliers products.
We look at every aspect of your shipment and find the appropriate fix
BlueGrace has the ability to work with suppliers on freight consolidation, chargeback auditing and management as well as load planning and optimization. We look at every aspect of the shipment and find the appropriate fix for the shipments to reach the shelves on-time and in-full. Combine this with our proprietary technology BlueShip™ and your chances for success during these mandates/compliance regulation changes will undoubtedly increase!