Welcome to the Winter 2011 edition of LOGISTICS TEAMtalk, the Newsletter and Digest of the Expense Reduction Analysts’ Logistics Team. As well as our usual selection of topical comment to help keep you informed of some of the underlying factors affecting the cost of moving and storing goods for British Industry, we are pleased to announce our new website:

www.eralogisticsteam.co.uk

Within the site, you will find more comment on the sector, case studies of the Logistics Team’s successes in driving down Client costs, a complete archive of blogs and other articles by the team, and a contact and comments form.

All of the topical articles below are available to be read in full on the website, as well as our monthly market reports on the logistics sector.

Get notifications of new articles and reports by following us on Twitter @eralogistics

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Fuel Consumption is getting worse !

That is one of the most surprising key findings from the Office of National Statistics latest report into the Road Haulage sector in the UK.

The Report also shows that there has been marked growth in goods movement across all sectors, which is rather opposite to general perceptions today. Admittedly, the statistical base is now nearly one year old. Read more at www.eralogisticsteam.co.uk or click here

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Export success is leading to increased costs.

Suddenly the traditional imbalance between imports and exports is changing. This is having a significant impact on exporters costs, just as they are beginning to see volume growth. Kevin Fryer reviews the situation at www.eralogisticsteam.co.uk – click here

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Large warehousing projects have high failure risk.

Fergus Smith has been reviewing the inauspicious track record of warehouse initiatives, and offers some tips on how to reduce the risk exposure when your business has to make changes.

There have been a number of high profile warehouse implementations that have seriuosly impeded the ability of some UK businesses to function. Read more at www.eralogisticsteam.co.uk or click here

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How do carriers plan networks in recessionary times?

Kevin O’Neill explains some of the strategic process of adapting depot networks to reducing volumes and a more competitive marketplace  – read the full story at www.eralogisticsteam.co.uk or  click here

Ofcom have confirmed (13th September 2011) that rollover contracts, which tie landline and broadband customers into repeated minimum contract periods unless they opt out, will be banned from December this year.

The contracts, also known as Automatically Renewable Contracts (ARC’s), roll forward to a new minimum contract period – with penalties for leaving – unless the customer actively opts out of the renewal. The ban will apply to ARC’s for landline and broadband services sold to residential and small business customers.

This will not benefit larger business customers, though it is possible for them to exit some current contracts without penalty prior to their anniversary by undertaking the correct process.

Far East & Indian sub-cont westbound (import) rates/space/equipment

Half year losses declared by some carriers are causing concern and some ships have been withdrawn from service. Demand has increased over recent weeks and utilization has returned to more acceptable levels. It does appear as though some lines will apply Peak Season Surcharge from 1st September 2011.

Far East & Indian sub-cont eastbound rates/space/equipment (exports) – Ocean freight rates remain at an all-time low and there is a significant volume of empty containers being returned to the Far East.

UK Terminal Handling charges – generally remain at £120 except Maersk and SafMarine where THC is £131 per container and MSC where THC is £125 per container.

Heavyweight Container Surcharges – continue for westbound traffic only with each carrier having slightly different weight break points. It should be noted that this surcharge is not part of any ‘all-inclusive’ rate.

North China 20ft Equipment Premium (westbound only) – This charge continues to be applied by all lines on 20ft containers ex Dalian, Qingdao, Tianjin, Xingang, Yantai and Lianyungang at $250 per 20ft container only.

Suez Canal Surcharge – remains at $25 per TEU except Evergreen ($47 per TEU) and CSAV ($50 per TEU).

Gulf of Aden Emergency Risk Surcharge – this surcharge is now $55 per TEU.

Equipment Inspection Fee – Hapag Lloyd has introduced a surcharge of £6.00 per container as the result of packaging being dumped inside ‘empty’, returned containers. No other carrier has yet applied this surcharge.

Port Congestion – Some carriers have announced this charge from several Far Eastern ports including Qingdao, Haiphong and Chittagong. General advice is that such charges should be pais by suppliers of goods and included in FOB charges.

UK Landside Charges/Haulage/Fuel/Port Congestion – Fuel Surcharge remains at 25.5% (against a base price of £0.90 ppl) on most published indices. An infrastructure charge of £3.00 per container continues at Southampton.

Airfreight – fuel/security surcharges are expected to continue. Current rates:

Hong Kong  8.80 to 9.20 HK$ (combined) per kg.

Shanghai     9.20 CNY (combined) per kg.

Kevin Fryer 8th August 2011.

See all Logistics Team Blogs – Click Here

Every Manufacturing organisation has many, many areas of expenditure, and, in a guide like this, we can only touch upon a few.  We have chosen to delve into the important cost areas of Waste, Logistics, Packaging and Work Wear, which, together with the wide-ranging introduction from our Manufacturing expert Ian Morrison and two contrasting case studies at the end, give you an idea of what savings are possible.

Furthermore, we hope that these examples give you the confidence that, if this level of cost reduction could be extrapolated over a significant percentage of your outgoings, your bottom line would indeed look very healthy!

This booklet has been written by consultants who specialise in finding savings in these areas in the Manufacturing sector, their knowledge gleaned from, and their expertise honed by, many years of delivering significant cost reduction for their clients.

Download your free copy of the guide here!

If less money is indeed coming into your business, it only makes sense to see if you can reduce the amount of money flowing out of it. Every leisure and hospitality business has many, many areas of expenditure, and, in a guide like this, we can only touch upon a few.

But we hope that the following pages give you some idea of what is possible in these areas, and give you the confidence that, if this level of savings could be extrapolated over a significant percentage of your outgoings, your bottom line would indeed look very healthy!

This booklet has been written by consultants who specialise in the leisure and hospitality sector – and includes two case studies that demonstrate best procurement practice in action.

Download your free copy of the guide here!

The National Pharmacy Association (NPA) is the representative body for the community pharmacy trade in the UK and, in addition to supplying a range of ancillary pharmacy support products at competitive prices, it seeks to support its members by influencing government policy and consumer opinion. It is also a leading provider of indemnity insurance and legal advice for community pharmacies.
The NPA wanted to ensure that it was achieving value for money across all areas of the business. Adrian Palmer, Director of Finance and Commerce at NPA, decided to call in Expense Reduction Analysts to undertake this wide-ranging review.

David Keating, the client relationship manager for the NPA, takes up the story: “Adrian asked us to conduct the review of many areas of expenditure simultaneously and to phase implementation, if complexity or supplier change dictated, over a longer period. We agreed an overall target of just below £300,000 of savings with no reduction in quality or service levels. We were able to form a bespoke team of analysts – all specialists in the industries that we were engaged to review – to perform the work in each area.

An objective and informed view of the expenditure being made

“At Expense Reduction Analysts, as part of our supplier management process, we work closely with the incumbents to determine if they are providing value for money and if there are opportunities for them to develop their solutions to the benefit of our client. And that is what we have achieved with the NPA in many cases. There have been limited changes to the suppliers, and we are continuing to work with them on an ongoing basis to ensure that the enhanced value – as well as the quality of product and the service provision – is maintained and enhanced over time.

“We judge supplier performance through the purchase data from invoices, in conjunction with stakeholder interviews to determine the required quality and service levels. This allows an objective and informed view of the expenditure being made, and the quality and service levels thereby procured. In fact, in three or four categories, we concluded that the NPA were already achieving best value – so they received the peace of mind of a positive outcome from this independent audit. In some categories, though, we found that a new approach was warranted: in Copiers, for instance, we recommended restructuring the contract, which led to a 59% saving.

“In fact, we completed the programme of work in six months, implementing these projects to a schedule that allowed the NPA to accommodate the changes smoothly into their workflow. This has also allowed the NPA to consolidate their supply base, thereby achieving further economies as a result.

“We see the successful completion of these projects as the first step in a long term partnership with the NPA, who have now engaged us on a number of other areas of their business. We take this as a compliment to our work so far and look forward to working with the NPA in the coming months and years.”

Click here to download a copy of this delighted client case study

Mobile Network Operators are allowed to charge a “Mobile Termination Fee” (MTF) for all  landlines to mobile calls and cross network mobile to mobile calls. This charge is currently set at 4.3p and last year OFCOM announced proposals to cut this to 0.5p over a four year period. It is reported that OFCOM will start to implement this at the end of February.

Whilst this will be good news for users who make a lot of calls from landlines to mobiles, it is likely to be bad news for mobile users. MTF was introduced to allow the Mobile Network Operators to recoup some of the costs incurred in purchasing licences from the government and building mobile network infrastructures. The reduction in MTF will impact the revenues for all the Mobile Networks and they are likely to respond with price increases to try and offset increased costs.

As part of this change BT are planning to introduce new bundled packages which will allow users “unlimited” calls, including calls to mobiles, for a fixed monthly price.

1.     Standardise and document procurement processes

Align procurement with enterprise goals, assess what stages are currently involved in your purchasing process and why they are being taken, then determine whether each of these is necessary and make sure the same stages apply to all procurement. Pre-negotiated early payment discounts were 32% higher for respondents with standardised processes while they also achieved supplier on-time delivery on 5% more shipments.

2.     Introduce employee incentives

Formalised processes will not produce the desired results unless they are being adhered to. It seems that in organisations which have tied their staff’s compensation to some extent to the attainment of set goals, the buyers have identified 18% higher savings than their non-incentivised peers. The study, nevertheless, cautions that non-conformance may be a result of deficient policies rather than unmotivated personnel.

3.     Seek external guidance

Trade associations and professional publications are great starting points to begin the learning process. Alternatively, the use of external consultants reported a 76% better budgetary performance (6% under budget vs. 3.4%).

4.     Automate the approval process

Eliminate paper where possible. Assuming that the necessary data is available electronically (i.e. inventory checks, application of approval thresholds), considerable time savings of up to 19% can be achieved for the cycle from the initial needs identification to the final supplier selection and negotiation.

5.     Increase internal collaboration

There is much to be gained from inter-departmental information and data sharing, whether that be with finance to provide visibility into upcoming cash needs or accounts payable to maximise discount capture. Organisations with cross-functional collaboration have been found by the study to report 34% higher savings than its non-collaborating peers.

6.     Improve compliance monitoring

The Aberdeen Group research interestingly also found that of all the metrics regularly assessed, supplier price and delivery compliance were generally the least likely to be measured. Hence, once the internal fundamentals are in place, it is time to look at supplier relationships and ensuring compliance with agreements.

7.     Efficiency improvements in Accounts Payable

Another study by the Aberdeen Group carried out in 2009 has found that an automated accounts payable process improved invoice processing times by a staggering 37%, leading to prompter payments and, thus, reinforcing a virtuous circle where a supplier who has his invoices paid on time will be more inclined to grant a prompt payment concession.

8.     Improve data quality

Procurement leaders will rely on sets of painstakingly accumulated and cleansed transaction data, allowing them to make informed decisions. As this benchmarking process can be time consuming, external consultants such as Expense Reduction Analysts can assist with the necessary tools and expertise to collect as well as analyse the information.

9.     Provide executives with spend information

The procurement function is only gradually making its voice heard in the Boardroom. However, executives will need accurate and comprehensive data to plan for all eventualities. In this respect, the purchasing function has an increasingly important role to fulfil, not only with regard to maximising value for money from its suppliers, but also as far as the provision of meaningful data to the executive is concerned.

Expense Reduction Analysts are leaders in the field of procurement and cost management advice with some £350 million of expenditure being negotiated on our clients’ behalf every year. Our experts cover some 100 areas of spend and offer our clients completely supplier independent advice. Moreover, we carry out the benchmarking and RFP process on our clients’ behalf, allowing their staff to focus on the core task of running their operations.

The research, for example, shows that standardised sourcing processes and regular tracking of supplier compliance with service level agreements are much more likely to be well established within procurement leaders, and that best-in-class organisations keep a close eye on an agreed set of KPIs to ensure not only that the negotiated savings do materialise, but also that they are being preserved over time.

So which strategies do the leaders apply? The Aberdeen Group’s research shows that 41% of leaders as opposed to only 18% of laggards have increased the volume of spend managed by a dedicated Procurement function.  This certainly makes sense, as in most organisations the same or similar goods and services may be sourced by different functions, often even from the same suppliers, missing out on any volume discounts that could be negotiated. On the other hand there is the automation of manual procurement processes: While favoured by 28% of laggards, only 13% of best-in-class buyers have taken such measures. What does this tell us? While eProcurement solutions potentially have an important role to play in corporate sourcing processes, the technology available cannot be a substitute for alignment of procurement with the overall corporate strategy, old-fashioned market research and one-to-one supplier negotiations.

Standardisation of sourcing processes and contracts are other key ingredients which distinguish the leaders. 72% of the most successful procurement teams have adopted such measures. And the results achieved, according to the study, seem to speak for themselves: Organisations with standardised sourcing processes achieve savings almost a quarter higher than their peers, while standardised contracts resulted in 42% higher savings, since this directly relates to contractually agreed discounts being correctly quoted on supplier invoices and on variations being detected during the invoice approval process.

Another vital aspect to purchasing performance improvement is the spend analysis. While this is likely to be time consuming, the collection and systematic assessment of actual procurement data allows to identify the areas in which focussed negotiations and standardised processes are likely to yield the best results. In the Aberdeen Group survey, organisations that had the ability to classify and cleanse their spend data subsequently identified 23% more savings than their peers. It can’t surprise, therefore, that spend analysis achieved a score of 3.51 on a scale of 1 to 5 as the second most important area for performance improvement, beaten only by interdepartmental collaboration with 3.57.

In part II of this blog I will outline 9 steps which, according to the Aberdeen Group study, will help transform underperforming procurement teams.

See all Logistics Team blogs – Click Here