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

In this holiday month the PCI Data Security Council has taken the opportunity to update guidelines for merchants using Wireless technology to collect payments and also to issue guidelines for the growing number of merchants employing Tokenization.

The Payment Card Industry – Data Security Standards (PCI-DSS) lay down minimum security requirements for all merchants and aim to reduce the level of data breaches where customer card details are stolen. Failure to comply with these standards or incidents leading to data loss can lead to substantial fines and brand damage.
The guidelines are designed to help merchants to interpret the PCI-DSS standards, so are not prescriptive and do not change the Standards. Each merchant must ensure that their individual operation complies with the PCI-DSS standards.

Please click for links to the Wireless and Tokenization guidelines or the PCI Security Standards Council website, where you will find guidance, Self-Assessment Questionnaires, lists of qualified Assessors and other valuable information.

If this affected you, the latest long-range forecast from respected forecaster James Madden may cause you concern. His key conclusion is:

“I therefore expect the 2011-2012 winter to follow a similar pattern in terms of how November and December was in 2010 for the vast majority of this winter.  It will be exceptionally cold and snowy with well below average temperatures.  I fully expect to see records broken with the highlands of Scotland being once again particularly hard hit.  It is therefore vital to start preparing now in terms of high energy bills and raising awareness amongst the most vulnerable and elderly people of society.

James Madden (UK Long Range Forecaster)

www.ExactaWeather.com   Published: 18th June 2011 (21:29) BST”

(Full forecast at http://www.exactaweather.com/uploads/mainswinter1.pdf )

Even today, heating-oils at wholesale level are trading at a premium of circa 25% above prices at the beginning of November 2010. However, once the weather turned wintry last year, final delivered prices were running at nearly double wholesale prices in some cases.

Fortunately although existing clients of Expense Reduction Analysts endured the impact of world wholesale prices, they avoided the pain of the increased costs associated with the delivered prices being charged to non-contracrt customers in the UK.

If you are a heating-oil user, perhaps now would be a good time to undertake a review with Expense Reduction Analysts to achieve some immediate cost savings whilst obtaining protection against opportunistic pricing when the weather turns as bad as Mr Madden has forecast.

Ken Rogers.

August 2011

See all Logistics Team blogs

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.

The NPA is transforming its Pharmacy Sales business and ‘Web Shop’. The NPA procures and distributes over 500 pharmacy support products to the Association’s 3,900 members and 12,500 pharmacies across the UK. The new service will increase this range to over 1,300 products.

The revamped site is the customer-facing element of a comprehensive behind-the scenes business process re-engineering project, which is designed not only to save the organisation close to a quarter of a million pounds per year but also to change the business model dramatically. In so doing, it is set to improve not only price and range but also the level of service and the ability to react quickly to changing pharmacy needs.

The Pharmacy Sales division of the organisation currently sells circa £3m per year and, until recently, the distribution of members’ orders was handled from a Grade I listed building in St Alban’s which was far from fit for purpose. In particular, the restricted size of the stock handling area meant that the Association was unable to maintain the volume or variety of stock necessary to fulfil members’ orders quickly and cost-efficiently. In addition, its web ordering system was in need of an upgrade to make it easier for members to select products appropriate to their business and also to take into account the complex segmentation of the membership base.

Significant opportunity to improve the customer experience

Adrian Palmer, Director of Finance and Commerce at the NPA, explains: “Our members range from those with one community pharmacy to large national groups with many outlets across the UK. I was very aware that we were not making the most of the online technology available to differentiate our offering to the various tiers of membership and provide the right offering to the right audience at the right price. In addition to increasing sales, I felt there was also a significant opportunity to improve the customer experience and the quality of service members receive from us through a more comprehensive review of our commercial product offering. We should and will be the back office support for retail pharmacy.”

At this point, Adrian Palmer engaged cost, purchase and supply consultants, Expense Reduction Analysts, to undertake a review of the system and make recommendations for improvements.

Expense Reduction Analysts consultant, David Keating, continues: “The NPA’s sales, warehousing and distribution processes were clearly a vital part of its offering to members. Based on our expertise, knowledge and insight into these processes, we were able to identify the opportunity to make a step change in the cost-effectiveness of this area of the business, and in tandem to improve the service received by the customer.

“In parallel, the NPA were planning to implement a new website and catalogue to boost sales. Our knowledge of the supply market suggested that these could be provided within the project with the correct choice of supplier. The solution would also provide the NPA with detailed and segmented management information and analysis of sales as part of the package.

More cost-effective to run and more customer-focused to use

“From the work that Keith Copestake, the lead analyst on this project, and the Expense Reduction Analysts team had done on related cost areas, we were able to identify the potential for sub-contracting this part of the NPA’s work to make it more costeffective to run and more customer-focused to use. From our knowledge of the NPA, we could see that service levels weren’t at the market level. Keith’s experience in the area of delivering fast-moving products overnight allowed him to spot an opportunity for substantial process change.

“We knew from our close relationships with the supply market that there were providers who could offer the NPA an end-to-end service – including the provision of a branded website, range additions, supplier management and a catalogue – within their proposal at no extra cost.”

A three-stage project was undertaken to review the cost and outputs of the existing provision and then to manage the tendering and implementation of a new system. This included the outsourced operation of the Web Shop, the necessary expansion of storage and distribution of product, and the integration of the provider’s system with the NPA’s, so that front and back office data could be transferred between the two in real time.

David Keating explains further: “We undertook analysis of the current operation and its sales, service and operational performance, in order to create a specification for the operation and to develop the detail of the business opportunity for the third party provider

Business process re-engineering that goes far beyond just cost reduction

“We approached potential providers with the opportunity, undertaking an initial review in advance of the final supplier selection process, which was handled by the NPA but facilitated by us. I am happy to say that we were an integral part of the project team and the steering committee set up by the NPA, helping them to achieve the changeover – including the system integration – in the tight timescale of twelve weeks, allowing the system to go live for the pharmacy exhibition at the NEC.

“At the end of the twelve weeks, the NPA had an integrated system, two catalogues – one for members and one for associate members – an additional 750 products in their range, an NPA branded sales website, comprehensive repositioning of pricing and an extensive review.

“Post-implementation, the NPA has engaged Expense Reduction Analysts to provide ongoing performance analysis, supplier management and product introduction support.

“All in all, the project has been a clear demonstration of Expense Reduction Analysts’ expertise in business process re-engineering which offers benefits far beyond just cost reduction.”

All stock has been transferred to the new supplier, who now manages an end-to-end operation on behalf of NPA and is able to offer free next day delivery to members – a value-added proposition that the Association could never have implemented itself.Savings on NPA’s warehouse and distribution budget are estimated at over £200,000 per annum.

Adrian Palmer sums up the benefits of the streamlined operation:

“The results of the review can genuinely be described as ‘win-win’. At the point of sale, we have been able to upgrade our e-trading facility and we can now accurately analyse the success of our products and service by segment and member, in order to understand how we continue to improve the offering. This will make it easier for members to access the products that are appropriate to their businesses, improve the fulfilment rates and add value through initiatives such as next day delivery.

“At the same time, internally, we now have a firm grip on what was admittedly quite a ‘sleepy’ area of the business and are successfully driving improved revenue streams and reduced operating costs.”

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

The downward trend is attributed to fraud fighting initiatives, Chip & Pin cards, and – crucially – increased awareness among retailers and consumers of secure identity measures like CV2 (the 3 digit signature strip number) and 3D Secure (the password process known as “Verified by Visa” or “MasterCard SecureCode” and which is increasingly common during web transactions).

Online banking fraud losses totalled £46.7 million in 2010 – a 22% fall on the 2009 figure – as banks installed sophisticated fraud detection software and more consumers equipped their PCs with up-to-date anti-virus protection. The dip in online fraud has occurred despite a continuing rise in phishing attacks, up 21% from 2009.

Phone banking fraud losses totalled £12.7 million during 2010, an increase of five per cent from 2009. Most losses involve customers simply being tricked into disclosing their personal security details – through cold calling or fake e-mails, says Financial Fraud Action UK.

Stephen Whitlam, a banking specialist with Expense Reduction Analysts says “Over the last couple of years we have stressed to retail clients the importance of basic protections like CV2 when accepting mail/telephone card transactions  and 3D Secure for internet sales. We expect them to see the benefit overtly in reduced processing costs, but it is clear that reduced fraud losses are also a major incentive. I certainly anticipate that the Card Industry will mandate these processes uniformly shortly”.

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.

See all Logistics Team blogs – Click Here