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

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

Management consultancy firms have lost more than £800 million in revenues during the past year as the government has slashed public contracts and renegotiated far lower fees.

Industry insiders said that the sector, which has been charging government departments up to £2,500 per consultant, was “falling off a cliff”. Firms were being forced to agree exceptionally low terms with government departments and PwC (one of the big four consultancy firms) is rumored to have lost £70 million this year.

Francis Maude, the Cabinet Office Minister, disclosed yesterday that the central government consultancy bill has been halved from £1.6 billion to £800 million this year. He also said that departments could no longer hire consultants to advise on procurement contracts and daily rates of £1,600 to £2,500 were no longer acceptable.

“Consultants were being regularly hired on daily rates by departments to run the procurement process,” Mr Maude said. “Not surprisingly the negotiations were very protracted and very expensive.”

This experience is one that has been shared by many of Expense Reduction Analysts’ clients in the past, and is often quoted as a key driver in their decision to work with them. The fact that the majority of procurement projects are delivered on a contingency fee basis, i.e. ‘no savings, no fee’, means that clients are able to avoid the pain of high day rate charges.

Expense Reduction Analysts are leaders in cost, purchase and supplier management and welcome the opportunity to discuss how their services can add value to clients’ operations. Please call 01303 298344, or e-mail r.stearn@erauk.net to arrange an exploratory meeting.

This has only intensified recently with the reported unrest in Bahrain. In February wholesale gas prices rose over 8%, electricity prices rose 6%, oil hit a new high at $113 per barrel with an increase of 13% (although this has now fallen back a little) and coal prices increased just a shade under 1%.

So, prices understandably driven by sentiment, whilst the longer term picture for gas supply is good in 2011 with a possibly oversupply situation due to new found deposits coming on to the market in the Far East.

However the earthquake and tsunami in Japan and consequent damage to the nuclear reactors in Fukushima has compounded an already highly volatile market. Germany’s decision to revise its nuclear policy has added to alternative supply concerns.

So that is the macro picture; what does this all mean for our prospects and clients? In the last few days prices have been increasing on a daily basis and some suppliers have actually withdrawn from the market in the hope and anticipation that things will settle down. Before the Japanese earthquake there was a view in the market that it would be sensible to lock in contracts as soon as possible as the increase in prices looked set to continue in the short term. Since then prices have been reacting on a daily basis to the rather confused newsflow coming out of Japan and it is hoped that this situation will be clarified soon. This still of course leaves the turmoil in the Middle East.

For more information contact a member of the utilities team

Below are some simple tips on how choose the right carrier for your online retail business model:

• Some carriers have adapted to accommodate the challenges of residential delivery, especially when coping with ‘not ins’, others have not. Therefore carefully research the carrier’s processes for re-attempting delivery or utilise alternative delivery addresses. Encourage customers to use their work address for delivery.
• Watch out for carrier surcharges. Some carriers surcharge for home deliveries, some do not but recover additional costs by charging in full again for redelivery knowing that 40-50% of 1^st attempt residential deliveries fail.
• If your customer is not in to receive their delivery they may have received a delivery attempt note from the carrier. They are then often expected to collect from the local depot. Think about how far this may be and the inconvenience experienced. Some carriers offer pick up at your local Post office which can prove more convenient or even evening delivery options.
• Think beyond the price and more about how the carrier can add value to your business especially in technological solutions. For example, think about using a carrier that can offer integrated tracking from your website. Why divert them away to the carrier’s website?
• Look at consolidated multi-carrier solutions. This way you can select a carrier from a number of different options based on the most appropriate for your customer’s requirements. You can also take advantage of rate contracts based on the larger buying profiles of the consolidated multi-carrier solution providers.
• Damages can occur even when sufficient packaging has been used. Scrutinise the carrier’s compensation terms for these instances.
• Internet sales attract customers worldwide. This has additional challenges that only a limited number of carriers can address cost effectively.
• Ultimately, save time and money by speaking to the experts at Expense Reduction Analysts.

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

In its recently published survey ‘Managing in a Downturn: Responding to life after the Comprehensive Spending Review’, PricewaterhouseCoopers, the Charity Finance Directors’ Group and the Institute of Fundraising establish that the impact of the economic downturn is likely to affect the third sector for the foreseeable future, with 78% of respondents indicating that they expect to be negatively affected by the CSR while a further 11% of participants are unsure of its impact. At the same time, 39% of charities report an increase in the level of demand for their services since the start of the economic downturn, while 56% of respondents expect a rise in their costs over the coming year, with half of these organisations expecting such a hike to be in the region of 2% to 6%. And as one third of charities expect the VAT increase to have a ‘major’ or ‘significant’ impact on their finances, one cannot help wondering whether the third sector is facing a perfect storm.

On a positive note, however, the sector is aware of the looming threats and is taking action: The survey revealed that 83% of participating organisations plan to increase their fundraising activities to address the reduction in available public funding, while 40.4% state that they will cut back on services with a similar percentage (38.3%) advising of looming redundancies.

But more fund raising activities come at an additional cost for extra marketing and third party fulfilment services, irrespective of how much additional funding can be generated. At the same time, private donors in particular will also have to cope with increased costs for Utilities and VAT, making 2011 a challenging year for many households. A reduction in service levels provided, on the other hand, will potentially damage a charity’s image within its community, as will redundancies. The authors of the survey, therefore, quite rightly state: We would encourage those charities expecting an increase to review critically their cost base to understand whether further savings can be made if necessary.

Many charities may think that, if they are part of a buying group, they may be getting value for money. Unfortunately, with spend profiles often very different even between similar organisations, there is no guarantee that a bulk deal will offer best value for money to each and every single one of its participants. And while some trustees may find comfort in the thought that their deal, if not better, certainly is not worse than what other members get, many Finance Directors will quite possibly find in coming months that this is no longer enough to stabilise their charitable trusts’ finances.

There are a number of ways for charities to lower their costs: Shared service agreements with other charities may make sense under certain circumstances, as will proactive benchmarking and supplier negotiations. The drawback, however, is that both of them require a high degree of supply market expertise and staff time.  While your own team may be apt at negotiating general and low value supplies such as office consumables, your in-house capabilities may be stretched when it comes to re-negotiate your vehicle leases, your insurance deals or, for charities which accept donations over the phone or online, the most competitive merchant card deals. Suppliers will very quickly establish whether their clients have the necessary supply market knowledge to drive a good bargain. And in most spend categories there exist well practised smoke and mirror techniques, which may make a rather uncompetitive deal look very compelling to the untrained eye. Equally, with demand for services on the up, existing staff will have to deliver more as far as the provision and administration of core services are concerned – leaving them with less time to benchmark costs and service levels as well as conduct supplier negotiations and tenders.

Help is at hand in the form of Expense Reduction Analysts’ supply market knowledge and contacts, aggregate negotiating influence and category experts. Moreover, our work does not stop with the initial contract negotiations, but we will make our detailed market intelligence available to your staff over the full period of our engagement, making sure that your organisation benefits from value for money not only now but at all times. While more fund raising activities are likely to result in an increase in marketing and fulfilment expenditure, did you know, for example, that you are probably paying over the odds for your marketing deliverables if you let the creative agency select the printer? And how do you measure that the fulfilment house is charging you a fair rate?

Our detailed benchmarking, negotiating and auditing process will satisfy your trustees as well as your providers of statutory funding that you are obtaining best value for money for the financial support secured. We offer a number of cost effective solutions to charities and would be happy to discuss your needs with you in more detail.

(For more frequent cost reduction and procurement advice follow me – FrankMWeber – on Twitter)

When Expense Reduction Analysts’ consultant Kelly Mordecai met with Chris Wade, Director of Finance and Simon Taylor, Management Services & Facilities Manager of ATOC, the benefits of an Expense Reduction Analysts’ profit improvement programme with its no risk fee structure, certainly seemed to be just the ticket! Chris Wade comments, “As the umbrella body for the TOCs in the UK, and funded by these companies, ATOC clearly has a duty to ensure that it is obtaining best value when expending the TOCs’ subscriptions.

From the first discussions with Kelly, we could clearly see the justification and comfort factor to our members of the Profit improvement programme, particularly given Expense Reduction Analysts’ expertise in certain areas of expenditure.” Kelly agreed with ATOC that the categories to be examined would be e-mail service, landline and mobile communications, stationery and print. Kelly then engaged fellow Expense Reduction Analysts’ consultant Nigel Rosehill, with his specialist knowledge of the communications sector, to assist him with the project.

ATOC’s Simon Taylor was impressed by the way Kelly and Nigel worked as a real team, “As the projects progressed it became evident that there were several complexities in the services provided by the existing suppliers. These required detailed analysis and fact finding, combined with sensitive but firm negotiation. As well as their invaluable expertise in the sectors involved, their experience of dealing with existing suppliers was quite evident. We were always kept informed of the key points and involved where particular strategic issues demanded. We were provided with the findings of the assessment to enable us to judge whether our existing suppliers could provide good value in the future. Indeed, our e-mail service received significant enhancements as well as reduced overheads!”

Expense Reduction Analysts’ consultant Nigel Rosehill explains, “The communications assignments were extremely challenging because there were service-based issues particular to this industry. However, after extensive discussions and analysis, we were able to benchmark current comparative profit improvement levels in the marketplace and use this as a basis to negotiate with current suppliers on behalf of ATOC. This resulted in retention of both landline and e-mail service providers at significantly improved profits.” The next step was to analyse mobile phones. Although no significant profits could be found, the evaluation of this category enabled Kelly and Nigel to provide ATOC with the peace of mind that they were obtaining best value in this area. Chris Wade concludes, “All projects have now been implemented and ongoing profits are being realised, pretty much on target. A change of suppliers has since led to further reductions of 25% on stationery and over 50% on print, allied with the renegotiated rates on our communications profit improvements.”

To sum up the Expense Reduction Analysts’ service, Kelly Mordecai adds, “We were able to deliver a range of beneficial alternatives, which have enabled ATOC to select the most appropriate choice of supplier in each area of expenditure, utilising a combination of retention and change where justified.”

Chris Wade Director of Finance for ATOC was very impressed with Expense Reduction Analysts’ specialist Insurance team, ERAICM “I would recommend ERAICM without hesitation. The approach of the ERAICM team has been very professional and they handled our renewal process in its entirety. They are very knowledgeable about the insurance market and how the whole industry operates and this insight gave us a valuable advantage. In fact, one of the main benefits was that they were able to better present our risk profile to the insurers by reviewing where our risks really lay and this had a massive impact in reducing the premium.”