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.

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.

http://www.blmforum.net/en/blm/headline/1237/Neill-saves-Royal-Academy-of-Dance-over-%C2%A31m–Home-rest.htm

Wharton Grove Wharf is an inland port on the River Trent in Scunthorpe. Encompassing traditional values coupled with a modern outlook and ideas, the port now has a capacity of up to twelve berths and 3.5 million tonnes of cargo per annum.

Andrew Brown, Finance Director at Wharton Grove Wharf, had already heard of Expense Reduction Analysts, so, when approached by Andrew Brackenbury, he was keen to test out the promise of cost savings. Andrew Brackenbury takes up the story: “We first met in February 2007, and after discussing the potential opportunity, we decided to demonstrate the process on Office Supplies and Business Print.

“We were able to find good savings in these categories, and we agreed to extend the remit into other areas. The different categories that we undertook show how Expense Reduction Analysts’ approach can be tailored to varying circumstances: in Office Supplies, for example, we recommended a consolidation of suppliers to make the company’s spend more attractive to the market, whereas in Business Print we suggested staying with the incumbent supplier, because of the value attached to the existing supplier relationship. With Fuel and Tyres, by contrast, we concluded, as the client expected we would, that they were already receiving best value in the market place, given the requirements for quality and service.

A relationship founded on trust, featuring savings, fostering peace of mind

“In both Telecoms and Waste, we undertook detailed analysis to gain a full understanding of the purchase profile and client requirements, ensuring that any solutions proposed would be acceptable. I actually remember one of our Waste specialists, Keith Robinson, rummaging through their bins – a process that was absolutely necessary for us to understand the mix of waste being produced and the possible opportunities for savings and recycling.

“In Telecoms, the analysis was not quite so physically demanding, but our detailed examination of every call prompted a complete overhaul of the telecoms pricing structure under which Wharton Grove Wharf were being charged. Mike Stevenson undertook the Office Supplies and Business Print reviews the second time around and has achieved significant savings in this area again.”

Andrew Brackenbury sums up the relationship between Expense Reduction Analysts and Wharton Grove Wharf: “We have always enjoyed an excellent relationship with Wharton Grove Wharf: I know they trust us; I know they appreciate the savings; and I also think that our ongoing monitoring service gives them peace of mind. Looking to the future, we have regular conversations about the possibility of extending our review to new categories of expenditure.”

Andrew Brown, Finance Director at Wharton Grove Wharf, sums up the value of Expense Reduction Analysts to his company: “Having heard about Expense Reduction Analysts, I was keen to test them out – and we haven’t been disappointed. Andrew Brackenbury and his team have uncovered significant savings. They have also continued to audit supplier pricing and performance after their initial recommendations have been implemented. And, in doing so, they have allowed me to focus on the strategic financial decisions I have to take in the course of building our business.”

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.

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.

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)